Hitting 500 – Aggregation of Employees Under the Families First Coronavirus Response Act: Updated Department of Labor Rule

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (the “Act”), requiring employers with fewer than 500 employees to provide paid leave benefits related to the COVID-19 pandemic under the Emergency Family and Medical Leave Expansion Act (“Paid FMLA Leave”) and Emergency Paid Sick Leave Act (“Paid Sick Leave”). The details of the Act are set out in our earlier Blog post here.

Since the Act was passed, there has been much discussion about how employees across related companies should be counted for purposes of coverage. Today, the Wage and Hour Division of the Department of Labor issued a “temporary regulation” or rule that clarifies this issue, which can be found here.[i]  The temporary rule remains in effect through December 31, 2020 when these provisions sunset.  In evaluating this issue, it is important to note that the two leave requirements arise in different portions of the Act. The right to Paid FMLA Leave is set forth in Division C of the Act, which amends the existing statutory text of the Family and Medical Leave Act (“FMLA”). The right to Paid Sick Leave is set forth in Division E of the Act.

While both Divisions of the Act set the threshold for covered employers at “fewer than 500 employees,” neither provides express direction on how this number should be calculated across related entities. Today’s rule specifically addresses this issue. Pursuant to § 826.40 of the rule, which addresses issues related to employer coverage, aggregation of employees will occur in relation to both benefits when an employer meets either the “Integrated Employer” or “Joint Employer” tests.

As a general matter, the legal entity which employs the employee is the “employer.” Where one corporation has an ownership interest in another corporation, it is a separate employer unless it is an “Integrated Employer” or a “Joint Employer.”[ii]

To determine whether separate entities are considered an “Integrated Employer,” the Department of Labor considers “the entire relationship” between the parties “reviewed in its totality” based on the following four factors:

(i) Whether there is common management;

(ii) Whether the entities’ operations are interrelated;

(iii) Whether there is centralized control of labor relations; and

(iv) The degree of common ownership/financial control of the entities.

If the factors indicate the entities are an Integrated Employer, the employees of all entities making up the Integrated Employer are counted to determine employer coverage and eligibility for Paid Sick Leave and Paid FMLA Leave.

Even if separate entities are not considered an Integrated Employer, the Department of Labor may consider separate entities a “Joint Employer” if the entities each exercise some control over the work or working conditions of an employee. Notably, the joint employer test does not require common ownership. Joint employers may be separate and distinct entities with separate owners, managers, and facilities. Nevertheless, if an employee performs work that simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, the separate entities may be considered a Joint Employer.

To evaluate whether an employee’s work simultaneously benefits two employers, the DOL applies a four-factor balancing test assessing whether the potential joint employer:

(i) Hires or fires the employee;

(ii) Supervises and controls the employee’s work schedule or conditions of employment                              to a substantial degree;

(iii) Determines the employee’s rate and method of payment; and

(iv) Maintains the employee’s employment records.

The potential joint employer must actually exercise—directly or indirectly—one or more of these indicia of control to be jointly liable under the Act; however the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status.  DOL guidance on the Joint Employer test can be found here.

If two entities are found to be joint employers, all of their common employees must be counted in determining whether the Paid Sick Leave and Paid FMLA Leave obligations apply.

Employers should exercise caution in oversimplifying the Integrated Employer and Joint Employer analyses to avoid coverage under the Act. An employer who takes the position that they are an Integrated Employer or Joint Employer for purposes of avoiding coverage under the Act may later find they waived their ability to assert they are separate entities in litigation or other disputes. Employers are encouraged to consult with counsel to determine coverage under the Act.

[i] This rule is different from guidance the DOL provided recently in the form of FAQs.

[ii] 29 CFR 825.104(c)(1).