Co-authored by Brett Bartlett and Kevin Young

As we predicted, the federal Wage and Hour Division has issued another edict that will have far-ranging effects on businesses across the U.S. economy, specifically those sharing employees with related operations or relying on third parties to perform or staff services that their own employees would otherwise carry out. On Wednesday, the WHD issued a new Administrator’s Interpretation that enunciates what its author, Dr. David Weil, describes as clear guidance regarding the standards for determining whether a business can be held jointly responsible with one or more other businesses for violating the pay and labor provisions of the FLSA and the Migrant Worker Protection Act. Here, we focus here on the FLSA.

Dr. Weil, who is the WHD Administrator, issued related guidance last summer in which he stated his agency’s position that almost all workers are employees, regardless of whether they work pursuant to a contract providing that they are anything but. Again noting that a contract between two or more businesses will not answer key questions inherent to the determination of employer-employee status, Dr. Weil has made clear that it is the economic realities of a business’s relationship with a given worker that is dispositive. In this most recent guidance, Dr. Weil examines two joint employment scenarios that will ring familiar with many businesses:

• Horizontal Joint Employment: When two or more related businesses share an employee and thereby undertake obligations to pay her in accordance with federal law. For example, a nurse who works during a single week for three hospitals within the same hospital system is jointly employed by the three hospitals. This means if she works cumulatively more than 40 hours for the three hospitals, she would be entitled to overtime from all three, which would be jointly and severally liable for such pay under the FLSA.
• Vertical Joint Employment: When a primary business becomes jointly responsible under the FLSA for the employees of an unrelated business because the economic realities demonstrate that it too employs such individuals. For example, if the nurse in the above example is employed directly by a staffing agency that the hospital system engages to provide nurses to its healthcare providers, then the hospital system might be deemed to be jointly and severally liable for violating the FLSA, along with the staffing agency and the three hospitals operating in its system, if the economic realities proved an employer-employee relationship between the hospital system and the worker.

The WHD has not previously enunciated standards tied to these horizontal and vertical employment scenarios. Dr. Weil does, however, strive in this week’s guidance to provide some clarity around what they mean. We have done our best to translate what some might describe as regulatory jargon into practical terms in our recent One Minute Memo.

As we explain in the Memo, an Administrator’s Interpretation is not entitled to judicial deference. It is not clear, in fact, that any court will heed the guidance that Dr. Weil attempts to provide. Certainly businesses should expect that some judges will treat his words as gospel. Others will not.

What is more certain is that plaintiffs’ lawyers and their clients will view the substance of the Administrator’s Interpretation as justifying claims made against tenuously-related businesses as they try to expand the scope of those from whom they might extract settlement dollars and, occasionally, judgments.

The more immediate impact that businesses must anticipate is that WHD investigators and their supervisors will aggressively examine relationships between related and unrelated businesses, aiming to assess whether the economic realities allow more than one business to be held responsible for employing and paying workers in compliance with the FLSA.

This WHD ruling is important. Businesses should take notice, regardless of the industry in which they operate. Our Memo provides some useful tips for reducing the risks that the Administrator’s Interpretation creates. We are here to discuss further preventative actions that any business can take.