The employment-related provisions of H.R. 6201, also known as the Families First Coronavirus Response Act (the Act) apply only to employers with fewer than 500 employees. However, determining whether a business entity – or a group of separate but related entities – has 500 or more employees is not as straightforward as it may seem. At the same time, the decisions employer make now about how they count employees may have serious collateral consequences later. As a result, employers should approach their Act assessment with added care.

How do I know if my business meets the 500-employee threshold?

The Act does not clarify whether separate but related entities that have their own distinct employee head counts can aggregate those head counts for purposes of H.R. 6201’s 500-employee threshold. In light of this ambiguity, companies should consider assessing their individual and aggregate head counts using the more inclusive “single integrated employer” test that has traditionally been used to determine coverage eligibility under the federal Family and Medical Leave Act, which law, among others, the Act amends.

The “single integrated employer” test is a holistic, totality of the circumstances test. It requires a highly fact-specific evaluation and, therefore, a case-by-case evaluation. To determine whether multiple separate but related entities constitute a “single integrated employer,” courts generally consider the following four factors:

  1. Interrelation of operations (for example, common offices, common record keeping, shared bank accounts, and equipment);
  2. Common management, common directors, and common boards;
  3. Centralized control of labor relations and personnel (for example, sharing policies, practices, and procedures regarding hiring, firing, and other personnel decisions; training employees; and developing and implementing personnel procedures); and
  4. Common ownership and financial control.

Although no single factor is dispositive, many courts and administrative agencies consider the third factor to be the most important. The fourth factor is somewhat discounted because common ownership and financial control is an ordinary aspect of the parent–subsidiary relationship.

What about the Fair Labor Standards Act’s employee tests?

Given the uncertainty around the Act and the fact that the Act also amends the federal Fair Labor Standards Act (the FLSA), it is possible that some or all of the Act’s counting requirements may be more appropriately governed by the FLSA’s “Enterprise” and “Joint Employer” tests. Utilizing either of these tests, however, presents serious risks without increasing an employer’s likelihood of getting it right under the Act.

Generally speaking, the FLSA, unlike the Family and Medical Leave Act, applies to all U.S. employers regardless of the number of employees. As a result, the tests for assessing employee status under the FLSA are not tuned to calculating employee head counts, particularly under circumstances involving separate but related entities. Instead, these tests are designed to assess (1) coverage based on volume of business revenue and (2) liability for acts involving individuals who are not directly employed by the entity. Accordingly, the FLSA’s tests are ill adapted both in their terms and their historical application for employee counting.

Further, some separate but related companies may be inclined to aggregate their head counts using one of these two tests to avoid being covered by the Act. That decision, however, could have collateral implications on other legal matters now and in the future. Separate but related companies, for instance, often face claims that they are all so-called “joint employers” of one another’s employees and thus share in the liability for any employment law violations of the other actual, direct employer. Separate but related entities that take positions now to aggregate employees may later be estopped – and most certainly will be challenged – if they attempt to deny that aggregation later when confronted with non-COVID-19-related joint employer claims. This risk is particularly noteworthy for business groups for whom the ability to disavow that its various entities are all “joint employers” is critical to their infrastructural arrangements.

In short, the FLSA tests present substantial risk. At the same time, they only rarely result in a material deviation from the outcomes recommended by the “single integrated employer” tests. As a result, use of the FLSA tests likely do not represent a sound choice.

How should employers balance all of these considerations?

In applying any of the tests above, employers should be mindful of the following:

  • Exposure under the Act is substantial. Employers aggregating employees should exercise great care and make absolutely certain that they are comfortable with the relative risks of applying the Act versus taking the position that it does not apply.
  • Employee head counts will change during this difficult period. Employers will need to reevaluate whether the Act applies if they adjust their head count (particularly downward).
  • Beware of inconsistent positions and assess all existing and potential future litigation risks before making a determination to aggregate.
  • Only employees who physically work in the United States should be counted for purposes of the Act’s threshold.

If you have any questions on how to comply with the new law or about the impact of the COVID-19 pandemic on your workforce, please contact Reed Smith’s COVID-19 Employment Task Force at