Joint Employer Liability: What Every Employer Should Know

Understanding Joint Employment

Joint employment occurs when two or more entities share control over the terms and conditions of an employee's work, making both entities legally responsible as employers. This concept has significant implications for companies that use staffing agencies, franchise models, subcontractors, or outsourced labor arrangements. Joint employer status can trigger liability for wage and hour violations, discrimination claims, labor relations obligations, and other employment law requirements.

The determination of joint employer status varies depending on the applicable law, as different statutes use different tests to assess the relationship between the entities.

Joint Employment Under the FLSA

Under the FLSA, joint employment is evaluated under the economic reality test, which examines whether the alleged joint employer exercises functional control over the worker. The DOL considers factors including whether the potential joint employer hires or fires the employee, supervises work schedules or conditions of employment, determines the rate and method of payment, and maintains employment records.

The FLSA's joint employment provisions are particularly relevant for businesses that use staffing agencies. If the client company controls the staffing agency employees' day-to-day work, both the client and the staffing agency may be jointly liable for wage and hour violations.

Joint Employment Under the NLRA

The National Labor Relations Board applies its own test for joint employer status under the National Labor Relations Act. The NLRB's standard has been revised multiple times in recent years. The current test examines whether an entity possesses or exercises the authority to control essential terms and conditions of employment, including wages, benefits, hours, hiring, discharge, discipline, supervision, and work direction.

Joint employer status under the NLRA means both entities must bargain with the union representing the joint employees and may be liable for unfair labor practice charges.

Franchise Relationships

Franchise relationships present particularly complex joint employer questions. Franchisors that exercise significant control over franchisee employment practices may be deemed joint employers of the franchisee's workers. This can occur when the franchisor mandates specific HR policies, controls scheduling through required software systems, sets pay rates, or directs day-to-day operations.

Franchisors can reduce joint employer risk by limiting their involvement to brand standards, product quality, and intellectual property protection, while allowing franchisees independent control over employment decisions, hiring, scheduling, and wages.

Risk Management Strategies

Employers can manage joint employer liability by clearly defining the roles and responsibilities of each entity in written agreements, ensuring that staffing agencies and subcontractors maintain their own employment policies and make independent employment decisions, limiting the client company's direct supervision of contingent workers, requiring indemnification provisions in staffing and subcontractor agreements, and conducting periodic audits of the actual working relationships to ensure they match the contractual terms.