Employers covered by the FLSA

January 16th, 2020

Jill S. Kirila, 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.  While the standard for determining whether an employer is a joint employer for purposes of the FLSA 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.

Whether or not a joint employment relationship exists for purposes of the FLSA is determined by viewing the entire relationship in its totality. 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.

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. This is an example of a vertical joint employment situation.  Both the shopping mall and the maintenance company are likely joint employers liable for FLSA violations.

Because of the variation between jurisdictions, in 2016, the U.S. Department of Labor (DOL) provided guidance in the form of Administrator's Interpretation (AI) documents on independent contractor misclassification and joint employment. However, on June 7, 2017, Labor Secretary Alexander Acosta announced that the DOL was withdrawing the AIs.

Joint employment: domestic service workers

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, are exempt from the FLSA’s overtime and minimum wage requirements. 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. 

In 2013, the Department of Labor (DOL) issued a Final Rule affecting the domestic/companionship services exemption. Among other changes, the Final Rule modified the “third party employment” regulation to prohibit third-party employers of domestic services employees from claiming the companionship services exemption. While the Final Rule does not change the rules or guidance regarding what constitutes joint employment, it significantly affects third-party joint employers of domestic services workers. While an individual, family or household employing a domestic services worker can still claim the companionship exemption (providing the conditions for the exemption are otherwise satisfied), a third-party employer, even one in a joint employment relationship with the individual/family/household of the person receiving services, may not claim the exemption. 

The Final Rule went into effect on January 1, 2015, but was quickly vacated by the U.S. District Court for the District of Columbia. The DOL appealed the district court’s orders, and the District of Columbia Circuit Court overturned the District Court decision, concluding that the Department of Labor had the authority to limit the exemptions and that its construction of the exemptions here were entirely reasonable.  The Final Rule thus went into effect (again) on October 13, 2015.

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.

As a result, cases alleging joint employer liability for franchisors are likely to increase, and 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.