FLSA Liability Issues and Influence Over the Employment Relationship

11 November 2013 Labor & Employment Law Perspectives Blog

Shared or leased employees can create wage and hour obligations even where the sharing or leasing employer believes those employees are being properly paid. Increasingly, courts are looking at whether joint employer status exists under the Fair Labor Standards Act (“FLSA”). As part of this inquiry, courts may find that wage liability can potentially extend to anyone making key decisions regarding the economic realities of an employer-employee relationship – including not just corporate entities, but also potentially company officers or even board of directors members.

The Department of Labor regulations emphasize that a joint employment relationship generally exists where two or more employers appear to share an employee, act in the interests of each other in relation to the employee, or where multiple employers operate under the same common control. Most circuit courts have applied the following four-factor “Economic Reality Test”:

  1. Does the employer, either directly or indirectly, have the power to hire, fire, discipline, or modify the employment conditions or workplace policies?
  2. Does the employer have the ability to determine the employee’s compensation and method of payment?
  3. Does the employer maintain employment records?
  4. Does the employer, either directly or indirectly, supervise and control the employee’s work schedules or conditions of employment?

Despite the historical application of this analysis, courts are increasingly expanding their inquiries to include additional factors. In their analyses, no one factor is dispositive and each is highly fact specific. As a consequence, potential “secondary” employers and individuals who may influence the financial aspects of an employment relationship should consider whether any of the following situations exist:

  1. Does the secondary employer share resources with the original employer, such as: – Premises and/or equipment used for the employee’s work? – The same time clock? – The same bookkeeper?
  2. Can the original employer’s business seamlessly shift as a unit to the secondary employer and back?
  3. Does the employee perform a specialty job integral to the secondary employer’s process of production?
  4. Can responsibilities under contracts pass from the original employer to the secondary employer and back without material changes?
  5. Does the employee work exclusively or predominantly for the secondary employer?
  6. Does the secondary employer prepare payroll or partake in the payment of wages?
  7. Do both the original and secondary employer have a shared business purpose, such as through one company’s revenue relating substantially to the work of the other company, so shared use of management or other employees?

The upshot is that courts are more and more taking a functional, common sense approach to assessing the economic realities surrounding the employer-employee relationship. As a result, employers that do not maintain their own exclusive workforce should consider auditing their relationships with shared or leased employees, making sure their exempt employees are properly classified, and double check their overtime calculations to safeguard against unexpected wage liability based on reliance over the management of an employment relationship by another person or entity.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

Do You Know What IMMEX Stands For?
16 July 2019
Dashboard Insights
Does The U.S. Need STRONGER Patents?
16 July 2019
PTAB Trial Insights
California Establishes Fund to Combat Wildfire Threats
15 July 2019
Renewable Energy Outlook
There’s No Place Like Home – But Is That a Reasonable Accommodation?
15 July 2019
Labor & Employment Law Perspectives
Review of 2020 Medicare Changes for Telehealth
11 December 2019
Member Call
2019 NDI Executive Exchange
14-15 November 2019
Chicago, IL
MAGI’s Clinical Research Conference
29 October 2019
Las Vegas, NV
Association for Corporate Counsel Annual Meeting 2019
27-30 October 2019
Phoenix, AZ