UPDATED SEPTEMBER 9, 2020
A decision yesterday out of the United States District Court for the Southern District of New York may impact employers’ coverage under the Families First Coronavirus Response Act (“FFCRA”). See State of New York v. Eugene Scalia, No. 1:20-cv-1689-GHW, 2020 WL 5370871 (S.D.N.Y. Sept. 8, 2020).
In January 2020, the United States Department of Labor (“DOL”) issued regulations addressing “joint employer” liability under the Fair Labor Standards Act (“FLSA”). See 29 C.F.R. § 791.2. These regulations drew a distinction between two types of joint employer liability: vertical (the “first scenario” described in our original article below) and horizontal (the “second scenario” described below). These regulations established a four-factor test for assessing whether a vertical joint employer relationship existed and, generally speaking, narrowed the scope of joint employer liability for purposes of the FLSA.
The DOL’s subsequent FFCRA Questions & Answers and implementing regulations (see 29 C.F.R. § 826.40) relied on this new joint employer regulation to establish the basis for determining coverage under the FFCRA. We reported on this in our original alert and April 2 update below.
On September 8, 2020, the United States District Court for the Southern District of New York struck down that portion of the DOL’s joint employer regulation addressing vertical joint employer liability, finding that the DOL violated the Administrative Procedure Act when it promulgated the regulation. The court held that the DOL’s new interpretation of vertical joint employer liability was contrary to the text of the FLSA, prior DOL interpretations of the FLSA, and caselaw from the United States Supreme Court and lower federal courts.
While the district court’s order does not directly address the FFCRA implementing regulations, we anticipate that its order will similarly force the DOL to abandon its narrower vertical joint employer standard to determine coverage for purposes of the FFCRA. We encourage employers who relied on the DOL’s now defunct vertical joint employer standard to reassess carefully their potential coverage under the FFCRA.
We will continue to monitor and report on any updates.
UPDATED APRIL 2, 2020:
Since we released the below article, the DOL has updated its Questions & Answers. The “integrated enterprise” test now applies to both the expanded family and medical leave requirements and the emergency paid sick leave requirements. This is a change from the DOL’s previous guidance, which applied the “integrated enterprise” test only to expanded family and medical leave. In light of this change, we strongly encourage employers to revisit their potential emergency paid sick leave obligations.
The Families First Coronavirus Response Act (“FFCRA”) sets a 500-employee threshold for purposes of the emergency paid sick leave and family medical leave expansion provisions. Many employers raise the question of whether that 500-employee threshold is met by combining employees from multiple subsidiaries or other related entities, or whether such entities remain distinct for purposes of employee count.
The Department of Labor (“DOL”) has now posted a series of “Questions & Answers” designed to provide some clarification for this and other questions raised by the FFCRA: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions. One such question is: “As an employer, how do I know if my business is under the 500-employee threshold and therefore must provide paid sick leave or expanded family and medical leave?” The DOL’s answer breaks down as follows:
First, the emergency paid sick leave and family medical leave expansion provisions are housed in two separate acts within the FFCRA. The emergency paid sick leave provisions are found in the Emergency Paid Sick Leave Act (“EPSLA”). The family medical leave expansion provisions are found in the Emergency Family and Medical Leave Expansion Act (“EFMLEA”). This distinction is critical to the employee-count issue.
Because they are separate acts, the EPSLA and the EFMLEA each have their own 500-employee thresholds, which are defined differently. You must determine coverage under each act separately. According to the DOL, the same standards do not apply to each.
Note: Adding to the confusion, Congress just passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act expands the Small Business Administration’s loan program for businesses affected by COVID-19 with fewer than 500 employees (and a handful of other categories of businesses). While there is not yet any explicit guidance on how this third 500-employee threshold will be set, it seems likely that it will be set in accordance with preexisting Small Business Administration size and affiliation regulations; these differ from the EPSLA and EFMLEA employee-counting rules we describe below. We will provide more in-depth analysis on the CARES Act soon.
Coverage Under the EFMLEA
For purposes of the EFMLEA, there are two different tests to consider when you are dealing with multiple entities.
Integrated Employer Test
The first is the “integrated employer” test. Under this test, separate entities may be deemed a “single employer,” meaning that the employees of all entities making up the “single employer” will be counted in determining employer coverage. Factors that are relevant under this test (though none are dispositive) include: (1) common management; (2) interrelation between operations; (3) centralized control of labor relations; and (4) degree of common ownership or financial control. This test should be familiar to anyone who has measured employee counts for purposes of administering the FMLA.
Joint Employer Test
The second is the “joint employer” test. If two entities are found to be joint employers, all of their common employees must be counted in determining employer coverage. There are generally two scenarios where a joint employer relationship is found. In the first scenario, the employee has an employer who suffers, permits, or otherwise employs the employee to work, but another individual or entity simultaneously benefits from that work. In this scenario, a four-factor balancing test applies when determining whether the other individual or entity is a “joint employer”: whether the potential joint employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.
In the second scenario, one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. If these two employers are sufficiently associated with respect to the employment of the employee, they are “joint employers.” The employers will generally be considered sufficiently associated if (1) there is an arrangement between them to share the employee’s services; (2) the employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
Coverage Under the EPSLA
According to the DOL, for purposes of the EPSLA, only the “joint employer” test described above applies the “integrated enterprise” test does not.
For purposes of the expanded family and medical leave requirements in the FFCRA, when multiple potential employing entities are involved, you must consider both the “integrated enterprise” and “joint employer” tests.
For purposes of the emergency paid sick leave requirements in the FFCRA, when multiple potential employing entities are involved, you need only consider the “joint employer” test.
Be cautious, these are highly fact specific inquiries, and most employers would be wise to consult with experienced counsel in analyzing the facts and law.
Caveat: This is a rapidly evolving area of law, and the DOL’s guidance is embodied only in a Q&A on its website. We will be monitoring for the DOL’s formal implementing regulations and will report any relevant changes.