More and more we see the issue being raised in the courts. What is the effect of your company being part of a network or group of companies with common ownership? What if the companies have shared payroll, resources, management, policies or benefit plans? The Department of Labor (DOL) has held that too much closeness may lead to joint liability.
Last year, the DOL issued an opinion letter in response to a question from a health care system about its obligation to pay overtime under the Fair Labor Standards Act (FLSA). The health care system had a nurse who held positions at two different companies within the system. The health care system asked the DOL if it had to pay overtime to the nurse if the nurse’s combined hours at the two employers exceeded 40 hours in a workweek. The DOL’s answer under those particular facts was – yes.
The DOL regulations state: ”
an employee who performs work that simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, generally will be jointly employed where the employers are not completely disassociated with respect to the employment of the particular employee and may be deemed to share control of the employee, directly or indirectly, by reason that one employer controls, is controlled by, or is under common control with the other employer.”
In this case, the DOL looked at the issue of common control, especially supervision of employees, and treated the various entities as the same company for employment-related purposes.
The case is troubling for a host of reasons. The different entities in that case had done a good job of separating personnel functions: each entity had its own human resources department, employee handbook, payroll system, federal identification number and retirement plan. There was no regular interchange of employees between the entities. Still, the DOL found the entities to be joint employers.
How, you ask?
The DOL looked at the fact that the two entities shared a common president and board of directors. It also noted that one human resources department occasionally provided administrative support to the other, that the Senior Vice President of Human Resources and several other senior executives and managers had responsibility for more than one entity within the system, that non-union employees had common health care plans, and that job openings were posted within the system. Additionally, the DOL considered the fact that some of the personnel policies were the same (although apparently in different handbooks). Due to these “multiple associations,” the DOL found that both employers were responsible for aggregating the hours the nurse worked at both entities for purposes of calculating overtime.
“Joint employment” is not a new issue. For example, in Chao v. A-One Medical Services, Inc. (2003), the 9th found joint employment for wage and hour purposes where two separate companies were commonly owned and shared much of their administrative structure (shared payroll, employees, supervision, patients, accounting and compliance). Consequently, employees who worked for both companies had to be aggregated when looking at their hours worked for overtime purposes. Because they had not been aggregated, but paid separately by each, the companies were liable for damages and attorneys fees. And because one company had substantial prior experience with the FLSA and had settled prior cases, the Court ruled the companies’ actions were willful; thus they also were liable for liquidated damages.
The joint employer analysis is always extremely fact-sensitive – several factors need to be considered and each relationship has to be reviewed separately. To avoid being a joint employer, companies need to remain as separate as possible, and stay away from “multiple associations,” similar to those found by the DOL in this recent opinion letter. If related companies wish to take advantage of each other’s expertise or the cost effectiveness of combined insurance plans, they should understand the legal consequences, which may reach far beyond the calculation of hours worked by an employee who works for both companies. The joint employer concept is used in various laws for various purposes.
