In a guidance to employers, the United States Labor Department has issued an “administrator’s interpretation” memorandum regarding joint employer relationships – and joint liability — in minimum wage and overtime cases.

David Weil, the administrator of the department’s Wage and Hour Division, stated that the guidance was issued to “serve as a road map to compliance so that labor violations can be prevented and workers will receive the hard-earned pay to which they are legally entitled.”

The interpretation memorandum will likely be consulted by judges when private and government litigants assert joint employer theories in lawsuits

Weil said that his division considers joint employment issues in “hundreds” of investigations every year, and that the number of such cases is increasing.

Joint employment exists when a person is employed by two or more employers such that the employers are both responsible, both individually and jointly, for compliance with labor laws, including the federal Fair Labor Standards Act. In other words, each joint employer is individually responsible, for example, for the entire amount of wages due an employee. If one employer cannot pay the wages because of bankruptcy or other reasons, then the other employer must pay the entire amount of wages, as the law does not assign a proportional amount to each employer.

“Economic forces and technological advancements have been changing the nature of work for a long time,” said Weil. “As a result, more and more businesses are changing their organizational and staffing models by, for instance, sharing employees or using third-party management companies, independent contractors, staffing agencies or other labor providers. We often see these kinds of arrangements in the construction, agricultural, janitorial, distribution and logistics, staffing, and hospitality industries.”

Violations of the law can be expensive for employers. Last summer, for instance, a federal court in Seattle ruled that DirecTV was a joint employer of the installers hired by its contractor, resulting in DirecTV paying $395,000 in back wages and damages for minimum wage and overtime violations. And in October, J&J Snack Foods Corp. agreed to pay $2.1 million in back wages and damages to temporary production line workers hired by two staffing firms that J&J contracted with to provide labor.

The administrator’s interpretation issued by the Labor Department on January 20 addresses who is an employer, pulling together relevant authorities – statutory provisions, regulations, and court decisions – to provide comprehensive guidance on joint employment under the FLSA. The administrator’s interpretation reflects existing department policy, and provides employers with  examples of how the department considers joint employment in its enforcement of these laws. It differentiates between “horizontal” and “vertical” joint employment.

Horizontal joint employment can exist when an employee is employed by two or more technically separate but related or overlapping employers. For example, where a waitress works for two separate restaurants that are operated by the same entity and the question is whether the two restaurants are sufficiently associated with respect to the waitress such that they jointly employ the waitress; or where a farmworker picks produce at two separate orchards and the orchards have an arrangement to share farmworkers. In these scenarios, there would already be an established employment relationship between the waitress and each restaurant, and between the farmworker and each orchard. This joint employment analysis focuses on the relationship of the employers to each other.

Vertical joint employment may be present when the employee of the intermediary employer is also employed by another employer – the potential joint employer. In vertical joint employment situations, the other employer typically has contracted or arranged with the intermediary employer to provide it with labor and/or perform for it some employer functions, such as hiring and payroll. There is typically an established or admitted employment relationship between the employee and the intermediary employer. That employee’s work, however, is typically also for the benefit of the other employer.

In contrast to the horizontal joint employment analysis, where the focus is the relationship between the employers, the focus in vertical joint employment cases is the employee’s relationship with the potential joint employer and whether that employer jointly employs the employee. Examples of situations where vertical joint employment might arise include garment workers who are directly employed by a contractor who contracted with the garment manufacturer to perform a specific function.

The interpretive memorandum advises employers that the possibility of joint employment should be regularly considered in FLSA minimum wage and overtime cases, particularly where (1) the employee works for two employers who are associated or related in some way with respect to the employee; or (2) the employee’s employer is an intermediary or otherwise provides labor to another employer. “The analysis must determine whether, as a matter of economic reality, the employee is economically dependent on the potential joint employer,” according to the memorandum.

The interpretive memorandum states that: “The scope of employment relationships subject to the protections of the FLSA is broad. The FLSA defines ‘employee’ as ‘any individual employed by an employer,’ and ‘employer’ as including ‘any person acting directly or indirectly in the interest of an employer in relation to an employee,’ ” The FLSA’s definition of the word employ “includes to suffer or permit to work,” and the U.S. Supreme Court has held that the “suffer or permit” definition of employment is “‘the broadest definition that has ever been included in any one act.’”