DOL’s Narrowed Joint Employer Rule Struck Down by Federal Court
A New York federal courtFN1 invalidated substantial portionsFN2 of the U.S. Department of Labor’s (DOL) Rule issued earlier this year narrowing the definition of “joint employer” under the Fair Labor Standards Act (FLSA).FN3
The DOL’s Rule had reversed the expansion of the definition of “joint-employer” under the Obama-era DOL FN4. The Rule provided that to be a “joint-employer,” a business must possess and exercise direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees, such as setting their pay or controlling hiring and firing processes. Under the Rule, reserving the right to control the employee's working conditions would not be enough to show that a business is a joint employer; the company would have to actually exert that control.
However, the court held that the Rule was "arbitrary and capricious" because the DOL did not adequately explain why it departed from its prior interpretations or account for its cost to workers. The state attorneys general, who joined as a coalition to bring the challenge, argued that the Rule would cost workers more than $1 billion annually.
Takeaway
The Court’s ruling is a setback for employers, particularly those that did not participate in their contractors’ and franchisees’ direct employment decisions and thus likely would not have been deemed joint employers under the previous Rule. Campbell Litigation will provide updates on the DOL’s response to the court’s ruling.
Footnotes:
FN1 – New York et al. v. Scalia et al., Case No. 1:20-cv-01689 (S.D.N.Y. 2020).
FN2 - The court did allow parts of the Rule to stand that relate to "horizontal" relationships, through which employees work for at least two associated employers.
FN3 - https://www.federalregister.gov/documents/2020/01/16/2019-28343/joint-employer-status-under-the-fair-labor-standards-act; See also https://www.rockymountainemployersblog.com/blog/2020/2/28/new-rule-with-employer-friendly-joint-employer-definition-issued-by-nlrb.
FN4 - Businesses and individuals are liable for paying the federal minimum wage and overtime premiums if they meet the definition of "employer," which the FLSA defines as "any person acting directly or indirectly in the interest of an employer in relation to an employee." Under the FLSA, employees may have one or more joint employers, in addition to their direct employer, that is jointly and severally liable with the primary employer to pay wages. See https://www.dol.gov/agencies/whd/flsa/2020-joint-employment/fact-sheet#:~:text=A%20joint%20employer%20is%20any%2cemployer%20status%20under%20the%20FLSA.