The U.S. Department of Labor (DOL) recently issued an Opinion Letter (FLSA2025-05), offering important clarification for employers operating multiple, related legal entities regarding their responsibilities under the Fair Labor Standards Act (FLSA), specifically concerning overtime compensation.  The opinion underscores that adherence to corporate formalities alone will not exempt separate legal entities from joint liability.  For situations involving "horizontal" joint employment, where an employee works for two or more legally distinct but related companies, the DOL emphasized that the operational reality of the relationship requires that the FLSA be applied to all hours worked.  This principle requires employers, particularly those managing sister companies, affiliates, or co-located businesses, to ensure that their employment practices align with the FLSA’s requirement to aggregate hours when calculating overtime and ensuring minimum wage compliance.  The DOL’s opinion letter provides a useful benchmark for employers to evaluate their current timekeeping and payroll procedures regarding shared employees.

The specific scenario prompting the opinion involved an employee working as a hostess for a restaurant on the first floor of a hotel and also being offered shifts at a members-only club located on the second floor.  While the two establishments were purportedly separate companies with different payroll systems, the employee was allegedly told that her combined hours would not qualify for overtime because she was working for two distinct entities.  The DOL, however, swiftly rejected this proposition.  Upon reviewing the facts, which included the businesses’ physical proximity, shared operational components like a common kitchen, similar menus, coordinated scheduling, and common management and ownership, the DOL concluded that the restaurant and the club were “sufficiently associated” with respect to the employee’s work.

This “sufficient association” meant that the two entities were considered joint employers under the FLSA. The critical consequence of this determination is that all hours worked by the employee for both the restaurant and the club in a single workweek must be aggregated when calculating total hours worked.  This means if an employee works 30 hours for the restaurant and 20 hours for the club in the same week, their total compensable time is 50 hours, and the employer – or rather, both joint employers – must ensure the employee receives 10 hours of overtime pay. Furthermore, both entities are deemed “jointly and severally liable” for any resulting FLSA violations, including unpaid wages.

The significance of FLSA2025-05 cannot be overstated for employers who share employees or interchange staff among related businesses.  It reinforces a long-held principle that the DOL will look past separate incorporation papers to examine the economic and operational realities of the relationship.  Businesses with integrated operations, shared resources, common managers, or coordinated schedules should immediately review their internal labor practices.  If an employee is working for two or more affiliated legal entities, those businesses must ensure they have synchronized timekeeping and payroll systems to combine all hours worked to properly calculate and pay overtime wages and meet minimum wage requirements.  Failure to do so risks significant and costly liability across all implicated entities.  This opinion letter serves as a clear warning: the FLSA's protective reach is determined by what employees are actually doing, and whether the employers various business units are operationally integrated.

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