In recent years, many business models have become more flexible and labor arrangements have become more creative to better suit business owners. Many small businesses may need assistance but may not have the need or ability to hire full-time employees, and one solution common solution is share employees with a related company. This is a popular practice in many different types of companies, including retail, construction, manufacturing, the service industry, and many more. While sharing employees can be cost-effective for all owners involved, there are some serious legal issues that may arise under certain circumstances.

The Department of Labor (DOL) recently issued new guidance on “joint employment” as it relates to the Fair Labor Standards Act (FLSA). The law requires that “the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due.” For example, if an employee works 30 hours per week at one employer and 30 hours per week at another employer, the hours must be totaled to 60 hours per week and the employer must receive overtime for 20 hours of their work. In too many cases, each employer treats the employment as separate, so the employee receives no overtime. However, this can result in fines and legal liability to the employee for back pay.

How do you know if you are a joint employer?

The recent DOL memorandum significantly broadens the definition of joint employment specifically for the purposes of FLSA. There are two main types of joint employment: horizontal and vertical. The following are examples of each:

  • Horizontal – There are many types of horizontal joint employment, including a nurse working for two different nursing homes owned by the same company; a server working for two different restaurants owned by the same person; an employee working for two separate franchises of the same company.
  • Vertical – The most common example of vertical joint employment is a company that hires a staffing agency to bring in workers, who are then legally working for both the staffing agency and the company.

Though there is no concrete test to determine joint employment, there are many factors examined by the DOL.

Liability for FLSA violations

Joint employment issues can particularly affect small business owners because the DOL holds joint employers jointly and severally liable for all wage and hour violations. This means that even if the other employer violated the law, your business could possibly be held responsible for the full amount of the losses incurred by employees. Being involved in any type of litigation can be costly, so if you believe you may be a joint employer, you should always take steps to ensure that all related employers are in full compliance with the law.

Consult with California small business attorney today

At Kalia Law P.C., we can help review all of your employment policies, including any potential joint employment situations, to reduce the risk of legal liability and conflicts whenever possible. We work closely with our startup and small business clients to understand every aspect of their business so that we can fully cover all of your legal bases. If you have any questions or concerns involving your small business, please call us at 650-701-7617 or set up an appointment or send a message online.

- Claire Kalia


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