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Court Strikes Down DOL's Joint Employment Rule

Thursday, September 17, 2020

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A federal judge in New York vacated most of a joint employer rule from the U.S. Department of Labor that was issued at the beginning of the year.

The DOL's final rule had established new guidance for determining joint-employer status, including a "four-factor balancing test.”

The Rule

The DOL announced the final rule on Jan. 12 under the Fair Labor Standards Act.

“The final rule provides updated guidance for determining joint employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity, including guidance on the identification of certain factors that are not relevant when determining joint employer status,” the DOL said.

sabthai / Getty Images

A federal judge in New York vacated most of a joint employer rule from the U.S. Department of Labor that was issued at the beginning of the year.

In the rule, the Department aimed to:

  • Specify that when an employee performs work for the employer that simultaneously benefits another person, that person will be considered a joint employer when that person is acting directly or indirectly in the interest of the employer in relation to the employee;
  • Provide a four-factor balancing test to determine when a person is acting directly or indirectly in the interest of an employer in relation to the employee;
  • Clarify that an employee’s “economic dependence” on a potential joint employer does not determine whether it is a joint employer under the FLSA;
  • Specify that an employer’s franchisor, brand and supply, or similar business model and certain contractual agreements or business practices do not make joint employer status under the FLSA more or less likely; and
  • Provide several examples applying the Department’s guidance for determining FLSA joint employer status in a variety of different factual situations.

The four-factor test assessed whether the potential joint employer:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records.

The Court

The lawsuit was filed in February by 18 states. In this decision, U.S. District Judge Gregory Woods said that the DOL did not provide an adequate justification for deviating from the FLSA’s existing definitions of an employer. Moreover, Woods said that the rule creates burdensome administrative costs for the 18 states that filed the lawsuit.

Woods specifically honed in on the four-factor test in regard to vertical joint employer liability and called the assessment “impermissibly narrow.”

The court ultimately identified three primary ways in which the rule conflicted with the FLSA, including:

  • The DOL relies heavily on the definition of “employer” as the “sole textural basis for joint employer liability.” The court noted that definitions of “employee” and “employ” are relevant in determining employment status.
  • The four-factor test is an emphasis on control that is “unduly narrow.”
  • The rule improperly limits other factors the DOL would consider in joint employment analysis, therefore contradicting prior DOL interpretations.

The DOL is expected to appeal.

   

Tagged categories: Department of Labor; Good Technical Practice; Jobs; Laws and litigation; Lawsuits; NA; North America

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