Companies may acknowledge they are a joint employer of temporary workers and subcontractors to avoid running afoul of federal regulators and plaintiff litigators.

The evolving issue took another turn in late January, when Department of Labor's wage and hour division issued guidance on situations in which more than one business is involved in work performed.

Acknowledging a joint employer relationship means the employee's hours worked for all of the joint employers are combined and considered as one employment to calculate overtime pay, making employers potentially liable under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

The issue is expected to particularly affect sectors including health care child care, transportation and construction.

The guidance follows the National Labor Relations Board ruling last August in a case involving Browning-Ferris Industries of California Inc., in which the NLRB overturned a standard in place since 1984 and held that a company need have only indirect control of a worker and not even exercise that control to be considered a joint employer.

The guidance was no surprise because “this is the general direction” in which the issue was heading as a result of the NLRB's decision, said Adeola Adele, New York-based executive vice president and employment practices liability insurance product leader at Willis Towers Watson P.L.C. It is “in line with the administration's view that employees' rights are not being appropriately protected by employers.”

For the typical employer, though, “it's a big change,” said Tom Hams, Chicago-based managing director and national employment practices liability insurance practice leader at Aon Risk Solutions.

Many employers following the 2008 financial crisis “attempted to push down work to smaller organizations that pay less benefits” to reduce their expenses, he said.

Experts say while the guidance does not necessarily reflect a new policy, it does put employers on notice of the Labor Department's determination to pursue this issue.

“It's been a big issue with this DOL” under David Weil, the department's wage and hour administrator, said Salvador D. Simao, a partner at Ford & Harrison L.L.P. in Berkley Heights, New Jersey.

The guidance is “very consistent with the expansive view that the NLRB is taking regarding joint employment in the franchise area,” among other federal agencies, said Rochelle Spandorf, a partner at Davis Wright Tremaine L.L.P. in Los Angeles.

“It's fair to say the department has been very aggressive and has taken a much broader view of the employment relationship than the courts traditionally have,” said Paul DeCamp, a principal at Jackson Lewis P.C. in Reston, Virginia, who held Mr. Weil's post during the Bush administration in 2006 and 2007.

The Labor Department's guidance “is not the actual law,” although it will significantly influence how the courts interpret the law, said Jessica Lindo, Pembroke, Bermuda-based vice president of professional lines at Allied World Assurance Co., which offers wage-and-hour coverage.

Who is responsible?

The biggest problem for employers is that if a joint employment relationship is determined, “employers can be held responsible for mistakes made” by other companies, such as a staffing agency failing to pay overtime, said Todd H. Lebowitz, a partner at Baker Hostetler in Cleveland.

More companies will be sued for other firms' mistakes, “and that's scary for companies,” said Mr. Lebowitz.

“A lot of this type of litigation is really 'gotcha' litigation, where you don't even know there was a problem,” Mr. Simao said.

Experts recommend employers closely study contracts with their franchisees, professional employer organizations and subcontractors.

“They're deep pockets, and you just have to go out of your way to distance yourself from the franchisee,” said Peter Taffae, managing director at Los Angeles-based Executive Perils Insurance Services.

Companies that want to avoid being labeled a joint employer “should stay out of all direct arrangements between the company you hire and that company's employees” said Ms. Spandorf.

Stephen Dwyer, general counsel of the Alexandria, Virginia-based American Staffing Association, said the group's members have considered themselves to be joint employers in typical staffing arrangements “for decades,” so the guidance's impact “should be minimal.”

But many other employers are not necessarily prepared to be considered joint employers. They're likely to respond to the Labor Department guidance by accepting their joint employer status or simply bringing independent workers in-house, said Mr. Hams.

“Given the direction the law is going, a lot of companies may just be throwing up their hands” and deciding to proceed as if they were joint employers, agreed Ms. Adele.

“What you don't want to do is put your head in the sand and pretend the issue is not out there. That's not a winning strategy,” said Mr. DeCamp.