Employers covered by the FLSA

February 4th, 2020 Jill S. Kirila, Meghan E. Hill, Shennan Harris Squire Patton Boggs

Employers covered

Virtually anyone who employs anyone else is usually a covered employer. The Fair Labor Standards Act (FLSA) broadly defines “employer” as anyone directly or indirectly acting in the interest of an employer in relation to an employee. The FLSA applies to:

  • employers with annual gross sales or business volume of $500,000 or more
  • hospitals
  • institutions for residential care of the physically or mentally ill, disabled or aged
  • preschools
  • elementary and secondary schools
  • institutions of higher education (whether for profit or non-for-profit)
  • governmental entities regardless of size
  • employers of domestic service workers: maids, chauffeurs, cooks or full-time babysitters.

However, employees of the few employers that are not covered by the FLSA (such as employers whose annual gross sales or business volume is less than $500,000) may still be covered by minimum wage, overtime, and child labor provisions if they are individually involved in the production of goods for interstate commerce or work on jobs that are governed by federal contracts. Employers should contact an attorney or their local Wage and Hour District Office before concluding their employees are not covered. In addition, these employees could be covered under state wage and hour laws.

Joint employment

In certain circumstances, two or more employers can constitute “joint employers” for purposes of the FLSA if there is sufficient connection between them. Where a joint employer relationship exists, both employers are responsible for complying with the FLSA with respect to the employee and they have joint and several liabilities for the other employer’s violations.

Additionally, joint employers must count all jointly employed employees in determining employer coverage and employee eligibility. "Joint employment" is not defined in the FLSA. 

Joint employment often occurs where two employers are corporate affiliates and in leased employee situations or where a temporary placement agency supplies employees to a second employer.

While the standard for determining whether an employer is a joint employer for purposes of the FLSA and state wage and hours laws varies by jurisdiction, employers generally may be considered “joint employers” where any of the following criteria are met:

  • There it an arrangement between the employers to share the employee's services, as, for example, to interchange employees.
  • One employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee.
  • The employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by or is under common control with the other employer.

On January 12, 2020, the DOL announced a final rule revising and updating its regulations interpreting joint employer status under the FLSA; the final rule is effective March 16, 2020.

The final rule addresses two types of potential joint employment scenarios:

  1. The first scenario is where one employer employs an employee but another benefits from that work, such as where an employee is provided by a staffing company. Under the final rule, the DOL will now apply a four-factor balancing test to determine whether the employer using the services of the employee provided by the staffing company is indirectly or directly controlling the employee such that it would be considered a joint employer of that employee. The factors to be assessed are whether the potential employer:
  • hires or fires the employee
  • supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  • determines the employee’s rate and method of payment
  • maintains the employee’s employment records.

No single factor is determinative, and the weight to be given to each factor will depend on the circumstances. However, satisfaction of the maintenance of employment records factor alone does not demonstrate joint employer status. In addition, whether the employee is economically dependent on the potential joint employer is not relevant to determination of joint employer status.

The final rule also provides that the following factors do not make a finding of joint employer status more likely under the FLSA:

  • whether the employee is economically dependent on the potential joint employer
  • operating as a franchisor or entering into a brand and supply agreement, or using a similar business model
  • the potential joint employer's contractual agreements with the employer requiring the employer to comply with specific legal obligations or meet certain standards to protect the health and safety of its employees or the public (or the monitoring/enforcing of such agreements) or requiring the employer to include policies or standards relating to compliance with laws in an employee handbook
  • the potential joint employer's provision of a sample employee handbook or other forms to the employer, allowing the employer to operate a business on its premises, offering an association health or retirement plan to or participating in such a plan with the employer, or any other similar business practice.
  1. The second scenario is where one employer employs an employee for part of a workweek and another employer employs the employee for the remainder of the workweek. The final rule does not alter the standard for determining joint employer status in this scenario. Thus, in this scenario, a joint employer finding requires that the two employers “share the employees’ services, the potential joint employer is acting directly or indirectly in the interest of the other employer in relation to the employees, or they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.” 

Finally, the final rule provides examples applying the DOL's analyses to factual situations to provide more certainty and clarity regarding who is and is not a joint employer under the FLSA.

Example 1 - An employee works for a subsidiary and the parent company initially hired the employee and maintains the employee’s personnel file. Both the parent and the subsidiary share the same employee handbook, and safety inspectors from the parent company periodically observe employees at the subsidiary to make sure they are following safety rules. Both companies are likely joint employers liable for FLSA violations.

Example 2 - A shopping mall contracts with a maintenance company to provide janitorial services. The maintenance company employees must wear mall uniforms. The mall determines what the maintenance company employees’ duties are each day, although the maintenance company provides all necessary supplies and equipment. The mall keeps the records tracking the work hours of the employees and on several occasions has requested that the maintenance company hire or terminate the employment of certain workers. Both the shopping mall and the maintenance company are likely joint employers liable for FLSA violations because the mall exercises control.

Example 3 - A shopping mall contracts with a maintenance company to provide janitorial services after hours. The shopping mall reserves the right to supervise the employees' performance of the services. The shopping mall does not set the maintenance employee's pay rates or schedules and does not in fact supervise the employees. However, the shopping mall requires in its contract with the maintenance company that the company comply with applicable federal, state and local employment laws. In this example, unlike in Example 2, the shopping mall is likely not a joint employer because it does not hire or fire the employees, determine their rate or method of payment, or exercise control over their conditions of employment. Under the DOL's final rule, the fact that the shopping mall requires in its contract with the maintenance company that the company comply with applicable employment laws is not relevant to the joint employer analysis.

Example 4 - An employee works 30 hours per week as a cook at one restaurant and 15 hours per week at a different restaurant; both restaurants are associated with the same national franchise, but are locally owned and managed by different franchisees that do not coordinate in any way with respect to the employee. In this example, the DOL would not consider the restaurants to be joint employers of the cook because they are not associated in any meaningful way with respect to the cook's employment.

Joint employment: domestic service workers

In the home care context, there are many situations where joint employment may exist. For example, where a parent or guardian hires a home health care service provider to provide a home health aide to care for a disabled adult child, the parent/guardian and the service provider would likely be considered to be joint employers. 

Domestic service employees, other than trained personnel such as nurses, who provide companionship services for those who are unable to care for themselves because of age or infirmity may be exempt from the FLSA's overtime and minimum wage requirements. While an individual, family or household employing a domestic services worker can claim the companionship exemption (providing the conditions for the exemption are otherwise satisfied), a third-party employer/agency, even one in a joint employment relationship with the individual/family/household of the person receiving services, may not claim the exemption. 

Joint employment: franchises

Generally, franchisors and franchisees are not considered joint employers for purposes of FLSA liability – rather, the franchisee is considered to be the employer. However, the existence of a franchise agreement does not preclude the possibility that a court could find that a franchisor is a joint employer for purposes of FLSA liability based on the facts and circumstances of the relationship. Recently, courts have been increasingly willing to look beyond franchise agreements to determine whether a franchisor is a joint employer for purposes of FLSA liability. However, the DOL's new final rule provides additional guidance and clarity for fanchisees and franchisors.

Franchisors should work with counsel to evaluate their role in the franchised business and their relationships with franchised employees in order to minimize exposure to joint employer claims from franchised employees.

Individual liability

The definition of employer broadly includes anyone “acting directly or indirectly in the interest of an employer,” and courts have interpreted this to impose potential liability on individuals. Generally, individuals who are a corporate officer or owner and exercise supervisory or operational control of the employee’s hours worked, recordkeeping or compensation can face individual liability under the FLSA.