The US Department of Labor announced on July 29 that it would repeal the March 2020 rule on joint employer status under the Fair Labor Standards Act (the “2020 Rule”). The DOL’s action removes the regulations set by the 2020 rule and will go into effect on September 28, 2021.
2020 Joint Employer Rule
The 2020 Rule contained standards for “vertical” joint work, in which an employee works for a single employer but depends on another business entity for their work, and “horizontal” joint work, in which an employee is employed by more than a separate employer. If an entity is considered to be a vertical or horizontal co-employer, it is jointly and severally liable (with any other co-employer of the employees concerned) for complying with the salary and working hours provisions of the FLSA.
The 2020 rule established four factors relevant to determining whether an employer is a vertical joint employer. The factors, which focus on the real the exercise of control, were whether the employer:
Hires or fires the employee;
Supervises and controls to a large extent the work schedule or conditions of employment of the employee;
Determines the rate and method of payment of the employee; and
Maintains employee employment records.
In particular, the 2020 Rule specifically excluded the taking into account of the employee’s economic dependence on the potential co-employer.
Regarding horizontal joint employment, the 2020 Rule noted that “if the employers act independently of each other and are dissociated with respect to the employment of the employee”, they are not joint employers, but ” if the employers are sufficiently associated with respect to the employee’s employment, they are joint employers and must total the hours worked for each for the purpose of determining compliance with the [FLSA]. “
SDNY partially overturns the 2020 rule
In February 2020, seventeen states and the District of Columbia sued the DOL in the Southern District of New York, alleging that the 2020 rule violated the Administrative Procedure Act (APA). In September 2020, the district court overturned the vertical joint employer standard of the 2020 rule, finding it violated the APA because it was in conflict with the FLSA and was arbitrary and capricious. The court found that the horizontal joint employer standard was also illegal under the APA, but allowed severable non-substantial revisions to the joint employer horizontal standard to remain in effect.
The DOL appealed the decision in November 2020. The appeal remains pending, although the DOL noted in a court brief that its rule-making proposing to overturn the 2020 rule may be moot.
Goodbye, 2020 rule
On March 21, 2021, the DOL issued a notice of a regulatory proposal to repeal the 2020 rule. The agency received more than 290 public comments in response to the notice.
In its final rule this week, the DOL concluded that the 2020 rule is inconsistent with the text and purpose of the FLSA. The agency noted that the vertical joint employment standard in the 2020 rule was based on an unduly narrow reading of the law, and contrary to case law and legislative intent. Regarding horizontal joint employment, the DOL noted that the emphasis on actual control in the four-factor test of the 2020 rule was inconsistent with the “economic realities” test of the set of circumstances. used by courts and DOL to determine employment.
Take away food
The overall motivation for regulatory change is in line with the Biden administration’s commitment to strengthen wage protections, especially for low-paid and vulnerable workers. The 2020 rule, in the agency’s view, has made it easier for some companies to discharge any liability under the FLSA for workers who are not directly employed (or paid) by them. The Trump-era rule will now be short-lived, similar to the independent contractor rule of January 2021 and the DOL’s decision to move away from seeking damages in investigations and settlements of the FLSA.
It’s a new era at DOL, that’s for sure. Employers who have benefited from DOL’s more business-like, laissez-faire approach to regulation and enforcement over the past four years should closely monitor what the agency will continue to do in the coming months to implement President Biden’s overtly pro-worker agenda.
© 2021 Proskauer Rose srl. Revue nationale de droit, volume XI, number 211