Wage/Hour Class Actions - Page 10 of 14

Will the DOL Exemption Rules Be Enjoined Before December 1, 2016?

The Department of Labor’s May 16, 2016 Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees require that, by December 1, 2016, employees must be paid a weekly salary of at least $913 (annually, $47,476) to maintain “white collar” exemption from overtime and other federal Fair Labor Standards Act requirements, as long as the employees’ duties satisfy the exemption rules too. We wrote about this previously.

Last month, twenty-one states, led by Nevada and Texas, filed an emergency motion to enjoin implementation of the Final Rule in a federal court action commenced the month before. State of Nevada, et al. v. DOL (USDC, Eastern District of Texas, case No., 4:16-cv-00731-ALM). At its core, the action challenges DOL authority to increase the salary threshold and set automatic increases, and whether the Final Rule infringes on state government employer’s sovereignty. This blog post does not analyze the merits of this action, but instead updates our clients and friends on its status given that we are now just a few weeks away from December 1.

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Summary of Key New California Laws for 2017: What Employers Should Know

Governor Brown has this year signed several new laws impacting California employers, some of which have already gone into effect and others that will be effective or operative in 2017 or later. A summary of key new laws follows. The effective date of the particular new law is indicated in the heading of the Assembly Bill (AB) and/or Senate Bill (SB).^_[1] The list below is in numerical order by the AB or SB.

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DOL Exemption Rules to Take Effect December 1, 2016

Making good on a 2014 directive from President Obama “to modernize and streamline” existing overtime regulations, the Department of Labor (DOL) today published its highly anticipated Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. As expected, the Final Rule (which becomes effective December 1, 2016 ) more than doubles the current $455 weekly minimum salary required for employees to qualify for “white collar” exemptions to the minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). The DOL expects its new Final Rule to extend minimum wage and overtime protections to more than 4.2 million Americans and increase employee wages by $12 billion over the next 10 years.

Key Changes under the DOL’s Final Rule

The FLSA requires that covered employees be paid minimum wage for all worked hours and overtime at a rate not less than one and one-half their regular rate of pay for all hours worked in excess of 40 hours in a single workweek. To qualify for exemption from the FLSA’s minimum wage and overtime requirements, an employee must be paid a predetermined minimum weekly salary (not subject to reduction based on variations in quality or quantity of work) and primarily perform certain job duties qualifying for one or more of the standard executive, professional or administrative “white collar” exemptions to the FLSA.

In June 2015 the DOL issued a Proposed Rule which gave employers a preview of the likely revisions to the exemption regulations. Today’s Final Rule differs from the DOL’s 2015 Proposed Rule in certain key areas.

Significant changes under the DOL’s Final Rule include the following:

Increase in the Salary Basis Requirement.

The Final Rule increases from $455 to $913 (or $47,476 annually) the minimum weekly salary level necessary for employees to qualify for a white collar exemption under the FLSA. This minimum weekly salary automatically will adjust every three years to a rate equaling the 40th percentile of full-time salaried workers in the nation’s lowest-wage Census region (currently the South). Minimum salary adjustments under the Final Rule will be published at least 150 days before their effective dates, with the first adjustment being effective January 2020. The minimum salary increase in the Final Rule is slightly lower than that contemplated in the Proposed Rule, with the DOL citing to public comments expressing concerns that the regulations should account for salaries paid in lower cost-of-living regions.

Increase in the Salary Requirement for the Highly Compensated Employee (HCE) Exemption.

The Final Rule increases from $100,000 to $134,004 the minimum total annual compensation necessary for a “highly compensated employee” to qualify for exemption under the FLSA. This minimum annual compensation also automatically will adjust every three years to an amount equal to the 90th percentile of full-time salaried employees nationally. Although the compensation increase in today’s Final Rule is larger than contemplated in the Proposed Rule, the change simply is due to an increase in the 90th percentile threshold from 2013 to the fourth quarter of 2014.

Automatic Triennial Updating.

The Proposed Rule contemplated updating the salary thresholds annually using either a wage index (i.e., a fixed-percentile approach using Current Population Survey data) or a price index (i.e., the CPI). As noted above, the Final Rule has adopted the fixed-percentile approach, with updates to occur every three years rather than annually. Employers that submitted comments said they “strongly opposed” using a fixed-percentile method, arguing that it would result in the “ratcheting” of salaries – that is, with each successive salary update, employers would be expected to convert lower-earning exempt employees to hourly status; those employees would be removed from the CPS data; and the salary threshold would thus rapidly accelerate with each increase. The DOL largely discounted these concerns, finding a lack of historical evidence of “ratcheting” in analyzing data from the last salary increase in 2004. Nonetheless, the DOL did respond to employer comments that an annual update would be unduly volatile and would not provide sufficient notice, and instead adopted triennial updating.

Inclusion of Nondiscretionary Bonuses, Incentive Payments, and Commissions in the Salary Level Requirement.

Employers now will be allowed to use nondiscretionary bonuses and incentive pay to satisfy up to 10 percent of the DOL’s new salary standard, provided such bonuses/incentives are paid on at least a quarterly basis. Employers also will be able to “catch-up” by quarterly bonus and incentive payments the salary of any exempt employee that falls short of the minimum salary requirement by an amount of up to 10 percent.

Duties Tests.

Surprisingly, the DOL’s Final Rule makes no substantive changes to the standard duties tests required for the executive, administrative and professional exemptions. Although the DOL sought public comments on this issue, the DOL ultimately declined to adopt any changes to the standard duties tests.

Over the next six months, covered employers will need to review exempt positions to ensure compliance with DOL’s new standards. A few suggestions include:

Review Salary Minimums.

Employers may choose to increase the salaries of employees who fall below the DOL’s new $917 weekly minimum, or reclassify employees as nonexempt and take steps to ensure employees are paid a minimum wage and overtime premium in accordance with FLSA standards.

Review Employer Criteria for Establishing Exemption Status.

Employers can expect DOL enforcement initiatives in 2017 (and beyond) to focus on exemption status. Employers are well advised to use the DOL’s Final Rule as an opportunity to review the exemption classifications of all exempt positions to ensure compliance with FLSA standards.

Provide Education and Training to Key Employees.

Employers should consider investing in education and training of front-line managers and human resources representatives tasked with implementing new exemption standards. Employers also should consider development of a communication strategy and action plan for reclassification of affected employees.

Tyson Foods Ruling Opens the Door for Use of Statistical Averaging in Wage and Hour Class Actions

Last week, in Tyson Foods, Inc. v. Bouaphakeo et al., No. 14-1146, the United States Supreme Court ruled that class certification was appropriate in a wage and hour class and collective action, despite the lack of individualized evidence for the amount of uncompensated time worked by each class member. The Court instead allowed the employees to use a statistical expert who conducted representative time studies to determine the average number of minutes that the employees spent on pre-shift and post-shift activities. The Court rejected Tyson’s arguments against the use of representative sample averaging, including Tyson’s reliance on Wal-Mart Stores. Inc. v. Dukes, 564 U.S. 338 (2011), which denied certification in a nationwide Title VII class because liability and damages would require individualized proof.

Plaintiff employees in Tyson worked at Tyson Foods, Inc.’s (“Tyson”) pork-processing facility in Storm Lake, Iowa, in the “kill,” “cut,” and “retrim” departments. In the course of their duties, they were required to wear protective gear, the composition of which varied with the tasks that each worker performed on any given day. During the applicable class period, Tyson paid some employees for donning and doffing activities, but did not compensate others at all. Tyson did not record the amount of time that each employee spent donning and doffing.

Arguing that the time that they spent donning and doffing protective gear was an integral part of their hazardous work, Tyson employees filed a lawsuit in the United States District Court for the Northern District of Iowa (“District Court”). In their complaint, plaintiffs alleged that Tyson’s failure to compensate them for donning and doffing resulted in the denial of overtime compensation under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 207(a), and the Iowa Wage Payment Collection Law, Iowa Code § 91A.3. Plaintiffs sought certification of their Iowa wage claims as a class action under Rule 23 of the Federal Rules of Civil Procedure (“Rule 23”), and of their FLSA claim as a “collective action” under 29 U.S.C. § 216.

To certify a class action under FRCP Rule 23, the trial court must find that “questions of law or fact common to class members predominate over questions affecting individual members.” The most significant issue in Tyson was whether the time spent donning and doffing protective gear was compensable work under the FLSA; a question common to the entire class. However, in order to recover damages, a second important question was whether each employee could prove the amount of time spent donning and doffing their equipment and whether that time constituted overtime work in any work week.

In opposition to plaintiffs’ class certification motion, Tyson contended that, because of the variance in protective gear that each employee wore, the employees’ claims were not sufficiently similar to be resolved on a class-wide basis. The District Court rejected that position and concluded that there were common questions susceptible to class-wide resolution, including (1) whether the donning and doffing of protective gear could be considered work under the FLSA; (2) whether such work was integral and indispensable to the plaintiff employees’ work; and (3) if compensable, whether such work was de minimis. The District Court accordingly certified a Rule 23 class of 3,344 employees with respect to plaintiffs’ claims under Iowa law, and a class of 444 opt-ins under the FLSA.

At trial, to establish Tyson’s liability for overtime, each employee was required to show that he or she worked more than 40 hours each week, inclusive of time spent donning and doffing. Because no records of time spent donning and doffing existed, however, plaintiffs relied on a study performed by an industrial relations expert, who conducted 744 videotaped observations, recorded the amount of time that various donning and doffing activities took, and calculated an average for each department. The data from this statistical sampling yielded an average of 18 minutes a day for the cut and retrim departments and 21.25 minutes for the kill department.

Relying on this data, plaintiffs furnished another expert who estimated the amount of uncompensated time worked by each employee by adding the average donning and doffing time to the compensable/recorded time reflected in plaintiffs’ existing time records. Using this methodology, plaintiffs’ expert estimated that 212 employees did not meet the 40-hour threshold and could not recover damages for unpaid overtime; the remaining class members, however, had potentially been uncompensated to some degree.

Crucially, Tyson failed to challenge the validity of the statistical sampling and analyses prepared by plaintiffs’ experts in a hearing under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and made no effort to rebut the evidence with an expert of its own. Instead, echoing its arguments in opposition to class certification, Tyson argued to the jury that the variable amount of time that it took employees to don and doff different varieties of protective equipment made the lawsuit “too speculative for class-wide recovery.” Ultimately, although the calculations of plaintiffs’ experts supported an aggregate award of $6.7 million dollars, the jury returned a verdict of only $2.9 million in damages for unpaid wages. A subsequent ruling on liquidated damages upped the total award to $5.8 million.

Relying on Wal-Mart v. Dukes and other authority, on appeal, Tyson strenuously argued that the amount of time spent donning and doffing protective gear varied from person to person and required individualized inquiries, thus rendering class treatment improper. Rejecting this argument, the Court ruled that Wal-Mart did not stand for the broad proposition that a representative sample is an impermissible means of establishing class-wide liability. Wal-Mart involved, in part, a claim that supervisors misused their discretion in hiring and promoting female employees. The employees could not point to a common policy and instead proposed using a “sample set of selected class members” to determine both liability and damages for the entire class. The Court rejected the Wal-Mart plaintiffs’ proposed methodology as “trial by formula.”

By contrast, the Tyson Court noted there was a common policy with respect to liability, and the time study could be introduced in each individual claim to determine that employee’s overall hours for the week. The Court further noted that, unlike Wal-Mart, the Tyson employees all worked in the same facility, did similar work, and were paid under the same policy. The Court also was influenced by the principle that Tyson’s failure to keep records should not be used against the employees. In this respect, the Court relied heavily on its opinion in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 686-688 (1946), to hold that so long as “each class member could have relied on the sample to establish liability if he or she had brought an individual class action, . . . that sample [could serve] as a permissible means of establishing the employees’ hours” on a class-wide basis. Tyson, slip op. at 11.

Takeaways

Tyson does not necessarily erode the holding of Wal-Mart because, as the Court was careful to note, the two cases are so factually and legally different. However, in Title VII employment discrimination class actions, the courts may be open to smaller class actions involving employees who work in the same facility, perform similar tasks, or are supervised by common management.

Tyson’s ramifications for wage and hour class actions are far greater. The Tyson method of proving damages could be applied to other “off the clock” wage and hour class actions, such as pre-shift and post-shift administrative or maintenance work, missed lunch and meal breaks, security checks, or travel between job sites.

Finally, the Court assumed, without deciding, that the standards for certifying an FLSA collective action and a Rule 23 class action are the same. This may be significant because the relative sizes of the classes are different, with the FLSA collective action usually being much smaller. Several federal circuit courts of appeal have held that the standards for certifying an FLSA collective action and a Rule 23 class action are not the same. The Court may be forecasting that it will have to decide this issue in the future.

For further information about this alert, please contact the authors above or any member of our Labor and Employment Practice Group.

In FLSA Settlements, the Permissible Scope of Releases and Confidentiality Provisions May Be Broader Than You Think

Courts and the U.S. Department of Labor (“DOL”) often refuse to approve Fair Labor Standards Act (“FLSA”) settlements: (1) in which the employee’s release of claims is not narrowly limited to wage claims; or (2) that seek to restrict public disclosure of the settlement terms. Because FLSA settlements are arguably only enforceable if approved by a court or the DOL, these conditions sometimes impede the ability of parties to resolve FLSA disputes. A recent court decision may offer a solution. In Lola v. Skadden, Arps, Meagher, Slate & Flom LLP, 2016 BL 29709 (S.D.N.Y. Feb. 3, 2016), the Honorable Richard J. Sullivan, U.S.D.J., allowed the parties more leeway in resolving FLSA claims, adopting an approach likely to facilitate settlements.

Case Background

Plaintiff David Lola, an attorney, worked for a staffing agency that placed him at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he performed document review work for 15 months. He later filed a lawsuit in the United States District Court for the Southern District of New York against the staffing agency and the law firm (as joint employers), alleging that they had misclassified him as exempt under the FLSA and failed to pay him overtime when he worked more than 40 hours a week. He filed the lawsuit on behalf of himself and as a putative collective action on behalf of other, “similarly-situated,” contract attorneys.

The parties ultimately negotiated a settlement agreement and submitted it to the Court for approval. The agreement provided that Lola and two other individuals who opted into the lawsuit (and plaintiffs’ attorneys) would receive a total of $75,000 in exchange for, among other things, dismissing the lawsuit, releasing claims against the defendants and limiting disclosure of the terms of the settlement.

Judge Sullivan approved the settlement, issuing a written decision to address the release of claims and confidentiality provisions of the parties’ agreement.

Release of Claims

Under the settlement, the plaintiffs agreed to waive both FLSA and non-FLSA claims against the defendants. Judge Sullivan observed that some courts “have refused to approve [FLSA] settlements with broad releases of claims, concluding that they conflict with the FLSA’s remedial purposes.” However, Judge Sullivan explained, “there is nothing inherently unfair about a release of claims in an FLSA settlement.” The Court concluded that the release of claims in this case “was the fair result of a balanced negotiation, in which Plaintiffs were represented by able counsel.” In reaching this conclusion, the Court highlighted these facts: (1) the release was mutual; (2) plaintiffs were not aware of any “actual, existing, or meritorious claims” that they were waiving; and (3) plaintiffs were not waiving any future claims. Under these circumstances, the Court determined that plaintiffs “could reasonably conclude that the provisions releasing claims were an acceptable compromise.”

Non-Disclosure of Settlement Terms

Judge Sullivan also observed that several courts have “rejected FLSA settlements containing confidentiality provisions that restrict plaintiffs’ ability to talk about the settlement.” The Court acknowledged that, “in certain cases, confidentiality provisions may excessively restrict plaintiffs’ ability to discuss settlements” and, therefore, undermine the purposes of the FLSA and the public interest in assuring that employees receive fair wages. According to the Court, however, the FLSA “imposes no per se bar on confidentiality provisions in settlements.” Instead, “the fairness of restrictions on the parties’ ability to disclose details of a settlement depends on the particular circumstances of any given case.” Under the circumstances in this case, the Court ruled that the restrictions were fair. Here, the agreement stated that plaintiffs and their counsel: “will not contact the media or utilize any social media regarding this Settlement or its terms” and, if contacted, they will respond, “no comment” or “[t]he matter has been resolved.”

Judge Sullivan reasoned that, in the absence of the non-disclosure provision, “Plaintiffs would be free to decline commenting on the case in response to any future inquiries by the press or otherwise” and, therefore, “it is difficult to see why they should be barred from adopting such a posture in advance of settling the matter.” The Court explained that, “since no one can force Plaintiffs to opine on the case in the future anyway, it is by no means irrational or improper for Plaintiffs to compromise words for dollars as part of a global, arms-length settlement” (emphasis in original). Given that a plaintiff is “allowed to accept less than the maximum potential recovery on the basis of litigation risk,” the Court explained that a plaintiff should also be permitted “to make nonmonetary concessions, such as minor restrictions on his right to comment on the case.” Again, the Court stressed, “this provision is the result of fair bargaining between well-represented parties and embodies a reasonable compromise that does not conflict with the FLSA’s purpose of protecting against employer abuses.” Notably, the settlement agreement was publicly-filed, so anyone interested in discovering its terms was free to do so. The parties simply limited the ability of plaintiffs to disclose them.

Conclusion

Employers sometimes litigate FLSA cases that they would rather settle, because they are concerned that a settlement will not ensure finality. Employers worry that a narrow release will not bar the plaintiff from filing another lawsuit after collecting the settlement payment or that the plaintiff may publicize the settlement, thereby encouraging copycat lawsuits. Judge Sullivan’s decision in Lola offers a potential solution for employers. Under the right circumstances, a settlement agreement can include a broad release of claims and the parties can agree to limit disclosure of the settlement terms.

Who’s The Boss? The Department of Labor’s Effort to Expand Joint Employer Liability Under the FLSA

On January 20, 2016, the U.S. Department of Labor’s (“DOL”) Wage and Hour Division issued an Administrator’s Interpretation (“Interpretation”) significantly expanding the definition of a “joint employer” under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq. The DOL’s new approach, which relies in part on regulations promulgated under the Migrant and Seasonal Worker Protection Act (“MSPA”), 29 U.S.C. §§ 1801, shifts the focus of the analysis toward “economic realities.” If followed, the DOL’s approach potentially expands liability for wage and hour violations such as overtime pay to entities that do not directly employ workers, but that have contracted with third parties for labor.

In the introductory paragraphs of the Interpretation, the DOL implies its motive in promulgating the new standard is to protect a larger number of workers and to address purported efforts by employers to shield themselves from wage and hour liability using multi-tiered workforce structures. Although the Interpretation is not binding on courts, it may be cited as persuasive authority in litigation, and could significantly expand the number of companies subject to joint employer liability under the FLSA.

Two Types of Potential Joint Employer Arrangements

The Interpretation focuses on two types of potential joint employer relationships: (a) horizontal joint employment; and (b) vertical joint employment.

Horizontal joint employment “exists where the [putative] employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” In the case of horizontal joint employment, there is typically an undisputed employer-employee relationship between each potential joint employer, individually, and the employee in question. For example, a horizontal joint employment scenario may exist for a waitress who works for two different restaurants that are owned by the same entity.

Vertical joint employment “exists where the employee has an employment relationship with one employer . . . and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” In this type of potential joint employment arrangement, the putative joint employer is usually the (indirect) beneficiary of the employee’s work, contracted through an intermediary. However, unlike in the context of horizontal joint employment, the putative joint employer in a vertical joint employment inquiry would not have an admitted employment relationship with the putative employee. One example of this type of potential joint employment is a nurse placed at a hospital by a staffing agency.

Factors to Consider When Determining Whether Horizontal Joint Employment Exists

Relying largely on regulations and case law developed under the FLSA, the Interpretation identifies a number of non-exhaustive facts that should be considered in determining whether a horizontal joint employment relationship exists. They include:

Who owns the potential joint employers (e., does one company own part or all of the other or do they have any common owners);
Do the potential joint employers have any overlapping officers, directors, executives, or managers;
Do the potential joint employers share control over operations, including hiring, firing, payroll, advertising, and/or overhead costs;
Are the potential joint employers’ operations inter-mingled;
Does one potential joint employer supervise the work of the other;
Do the potential joint employers share supervisory authority for the employee;
Do the potential joint employers treat the employees as a pool of employees available to both of them;
Do the potential joint employers share clients or customers; and
Are there any agreements between the potential joint employers.

The Interpretation states that the above factors need not all be present for a horizontal joint employment relationship to exist. However, if the employers are “acting entirely independently of each other and are completely disassociated” with respect to an employee, no horizontal joint employment relationship will exist. The central focus is the relationship between the two potential joint employers.

Vertical Joint Employment: A Major Departure

Before the Interpretation, various federal circuit courts had developed their own multifaceted tests for determining whether two employers could be liable as joint employers pursuant to the FLSA. Though the standards varied, a majority shared a common focus on the degree of putative employers’ control over the putative employees.

While the Interpretation continues to focus on control in the context of horizontal joint employment relationships, the DOL departed from that focus with respect to vertical joint employers. Under the new formulation, determining whether a vertical joint employment relationship exists is a two-part process. First, consideration must be given to whether the “intermediary employer” (either an individual or an incorporated entity) is an employee of the putative joint employer (e.g., is a farm labor contractor actually an employee of the grower, and not an independent contractor?). If so, “all of the intermediary employer’s employees are employees of the potential joint employer too, and there is no need to conduct a vertical joint employer analysis.”

If the intermediary employer is not an employee of the putative joint employer, focus shifts to the “economic realities” analysis. Control cannot be the predominant consideration – as it had been in the past. Rather, the “core question” is “whether the [putative] employee is economically dependent on the potential joint employer who, via an arrangement with the intermediary employer, is benefitting from the work” (emphasis added).

In determining whether there is the requisite degree of economic dependence, the Interpretation recites seven factors that developed under the MSPA – a law governing agricultural workers – based on regulations implemented almost 20 years ago:

Whether and to what extent the work performed by the putative employee is controlled or supervised (directly or indirectly) by the putative joint employer beyond a reasonable degree of contract performance oversight.
Whether the putative joint employer controls the employment conditions, including whether the putative joint employer has the authority to hire or fire the employee, modify employment conditions, or determine the rate or method of pay.
The degree of permanency and duration of the relationship, taking into consideration the industry in which the relationship exists.
The extent to which the putative employee’s work for the putative joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training.
Whether the work performed by the putative employee is an integral part of the putative employer’s business.
Whether the work is performed on the putative joint employer’s premises. (It is immaterial whether the putative joint employer leases as opposed to owns the premises where the work is performed, so long as the putative employer controls the premises.)
Whether and to what extent the putative joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.

The Interpretation notes that some previous judicial standards focused only or primarily on factors relevant to the putative employer’s level of control (e.g., ability to hire and fire, supervision of the work, determining method and rate of pay). But the Interpretation takes the position that a limited, control-dominated analysis is inconsistent with “the breadth of employment under the FLSA.”

The result of the DOL’s broad, economic-driven approach may be that many companies that have contracted with third-party staffing providers will find themselves swept within the ambit of the FLSA if the Interpretation’s seven-factor analysis is applied. For example, the analysis above may result in a finding of a joint employment relationship where two entities are entirely economically dependent, but share little or no control over the putative employees. Note that the DOL’s new standard departs from many of the state common law formulations of the joint employer relationship, which may be more lenient for employers. On the other hand, some states, like California, have already expanded the scope of joint employer liability through the use of statutes imposing liability on customers of labor contractors. See, e.g., Cal. Lab. Code § 2810.3.

Takeaways

The Interpretation is not binding on courts, but may, nonetheless, be regarded (and cited) as persuasive authority, and will certainly guide the DOL’s own approach to potential joint employment enforcement under the FLSA. Although the Interpretation arguably does not alter the analysis for potential horizontal joint employment, it significantly changes the analysis for potential vertical joint employment. Accordingly, companies using third-party labor providers should carefully examine their risk of potential vertical joint employment liability, with an eye on the seven factors above. Unlike in the past, the focus should be on the level of economic dependence, as opposed to just control.

In addition to exploring restructuring of relationships with third-party labor providers, companies may wish to consider adding terms to contracts with labor providers entitling the companies to guarantees of wage and hour compliance, and providing the companies the right to audit labor providers’ compliance with wage and hour law. To further mitigate risk under the DOL’s new standard, companies may consider including indemnification provisions in agreements with third-party labor providers.