As anticipated, the Biden Administration formally rolled back the wage and hour regulations narrowing the previous tests for joint employment status based upon Part 791 of 29 C.F.R. This will be effective September 28, 2021.
What does this mean?
Employers now confront a much broader test that significantly limits the use of vertical and horizontal joint employment. Vertical joint employment generally applies to employment staffing agencies and other labor contract relationships. Horizontal joint employment is best described as when two businesses are under common control and employ the same individual through both entities. A horizontal joint employment relationship would result in that common employee getting overtime if they worked for both employers in a workweek and between the two jobs put in hours in excess of 40 hours in that week.
Despite no new regulations or guidance being rolled out with the recission of the Part 791 regulations, joint employment determinations will follow an Economic Realities Test that is intended to determine whether the employee in question is economically dependent upon both employers. Factors include:
- Right to direct, control and supervise work;
- Right to control employment conditions;
- Permanency and duration of relationship;
- Repetitive or rote nature of the work;
- Whether the work is integral to the business;
- Whether the work is performed on premises; and
- Which entity performs the administrative functions characteristic of an employer (payroll, workers compensation, etc.)
Further the economic reality test or another comparable version of this test is used by various courts around the country so an employer may be subject to other or different criteria should they find themselves litigating their employment status.
On the horizontal joint employment side of this change, the recission of those parts of the regulations does not change things too much so far. The issue that has to be answered under the horizontal joint employment question is whether the two business entities are “completely disassociated” from each other. Is there common control and common management? This will most likely remain the same regardless of the fact the Part 791 regulations are gone.
Employers can expect to eventually see new vertical joint employment regulations under the Biden administration that are expected to virtually eliminate the status of contract employee.
Employers are advised to review their contracts with employment staffing and leasing firms. Check for terms that address who controls the engagement of employees. Look at general statements such as:
“We have the right to remove any individual supplied by contractor from the project for any reason…”
This statement may be open to interpretation to mean that the business using the labor may in fact control the service to the point of being an employer under some form of the economic reality test they are reviewed by. And don’t forget about the Biden enforcement policies that will be applied by the United States Department of Labor going forward. A better contract term might state:
“We have the right to remove any individual supplied by the contractor from the project for any reason at any time. We do not; however, have any right to control the individual’s employment status with contractor. Contractor retains the sole right to make all decisions regarding the hiring, termination, and other conditions of employment for all individuals assigned to the project or removed from the project.”
The question of proper employment or contractor classification will be one that the Biden Administration will be pushing on. They see contract relationships as ones the employing parties can take advantage of possibly costing the worker pay and benefits. Further the government sees a lot of tax losses when the contractor does withhold and pay taxes. This does not occur as much with staffing agencies but more with independent contractors such as Uber drivers. Yes, they are part of the joint employer regulatory concern. And lastly this Administration’s support of organized labor believes contractors and workers working for contractors can be more easily recruited to unionization than independent workers engaged with many different employers.
Employers are again advised to review the use of contract labor to ensure they do not lose the benefit of this labor resource or worse, find they have many more employees they are responsible for (insurance, taxes, record keeping, overtime, etc.).
Sources: In Contract Labor Agreements, This Simple Clause Can Be Your Pillow. Who Is My Employee blog; Welcome to Turkmenistan: Joint Employment Rules Rescinded, Leaving Massive Crater in FLSA Regulations. Who Is My Employee blog