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”:
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:
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.