NAPEO - Labor Department Issues Final Rule on Joint Employer Liability

Labor Department Issues Final Rule on Joint Employer Liability On January 12, 2020, the U.S. Department of Labor (the DOL) announced its final rule on joint-employer liability under the Fair Labor Standards Act (the FLSA). While the final rule mirrors much of the proposed rule, the DOL took the opportunity to revise several troublesome aspects of the proposed rule after considering comments submitted by NAPEO and other interested parties. Indeed, the final rule references NAPEO's comments several times, often noting that, while the DOL does not necessarily agree with the sentiment, it would nevertheless incorporate the recommendation in some manner. And, for that, we are grateful. The final rule will take effect on March 16, 2020.Below you will find a brief analysis from NAPEO on the final rule. For more information please contact NAPEO General Counsel Nick Kapiotis.---In short, the final rule instructs tribunals to consider the following four factors when determining whether a business has acted as a joint employer: (i) hiring and firing of employees; (ii) supervising and controlling the conditions of employment to a substantial degree; (iii) determining rates and methods of pay; and (iv) maintaining employment records. In addition to these four points, the final rule contains a catch-all provision that allows a tribunal to consider elements outside of the four factors only if such elements indicate that the business exercised "significant control" over the terms and conditions of an employee's work.PEOs can take some comfort in the final rule insofar as it provides further clarity that a PEO acting under a traditional PEO-client model is not a joint employer under the FLSA—especially when compared to prior guidance (e.g., the ever cumbersome vertical-and-horizontal joint-employer analysis). For example, the final rule makes clear that a contractual reservation of rights is not relevant to the analysis without an actual exercising of those rights. Accordingly, boilerplate language in a client service agreement that merely reserves a PEO's rights as a co-employer (a requirement in most PEO-licensing statutes) should not be considered by a tribunal without some further action by the PEO.Furthermore, by adding the term "to a significant degree" to the supervision-and-control prong of the test, and by giving examples of its use, the final rule strengthens the notion that merely providing HR assistance and other similar guidance to clients should not be enough to trigger joint-employer liability. Finally, the final rule makes clear that a tribunal cannot impute joint-employer liability on a PEO solely for maintaining employment records (such as payroll records); instead, the maintenance prong must be in addition to other elements to satisfy the test.All in all, the rule is a positive result for the PEO industry. Regardless, it still remains to be seen how tribunals will apply the final rule in practice. Of course, this article does not exhaust all areas of where the final rule may affect PEOs. For further insight, you are encouraged to read the analysis of Fisher Philips's John Polson, available here.