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RISK INSIGHT: DOL/WHD Rescinds Joint Employer Rule

Joint Employer Rule Rescinded

On July 30, 2021, the Department of Labor (DOL)/Wage and Hour Division (WHD) issued a final rule rescinding a DOL/WHD rule published on January 16, 2020 and effective on March 16, 2020 entitled “Joint Employer Status Under the Fair Labor Standards Act”. The rescission eliminates the previous rule entirely, however the focus is on the “vertical integration” changes made in the rule.

The Fair Labor Standards Act (FLSA) requires all covered employers to pay non-exempt employees at least federal minimum wage for all hours worked, including hours worked in excess of 40 or overtime hours. In situations of joint employment, two or more employers would be jointly liable for wages. The Act defines “employer” and “employee”, but does not define “joint employer” or “joint employment”. 

Previous guidance described two types of joint employment: horizontal and vertical

  • Horizontal joint employment exists where an employee is separately employed by more than one employer and the employers are sufficiently associated or related to each other with respect to the employee. 
  • Vertical joint employment exists where an employee has a relationship with one employer (staffing agency, subcontractor, labor provider or other intermediary), another employer is receiving the benefit of the employee’s work and the “economic realities” show that the employee is dependent on the other employer. This does not focus on the relationship of the employers, but rather the “economic realities” of the relationship between the employee and the employer that is benefitting from the work.

The 2020 rule focused solely on the statutory definition of “employer” to define joint employer status and concluded that the employer benefitting from the employee’s labor is a joint employer in a vertical joint employment situation if that employer is “acting directly or indirectly in the interest of the employer in relation to the employee”.

The four factors to be considered in joint employer status were whether the employer:

  1. Hires or fires the employee
  2. Supervises or controls the employee’s work or conditions of employment to a substantial degree
  3. Determines employee’s rate and method of payment
  4. Maintains employee’s records

The rule also excluded any consideration of the employee’s economic dependence on the potential joint employer

The DOL/WHD issued a Notice of Proposed Rulemaking (NPRM) in March 2021 to rescind the 2020 Joint Employer Rule based on concerns that the rule’s reliance only on the definition of “employer” to determine joint employer status was in direct opposition to the FLSA text and Congressional intent. In addition, the DOL/WHD believed that the Joint Employer Rule unlawfully limited the factors to consider in a joint employment inquiry and disregarded the economic dependence consideration.

The DOL/WHD received comments in response to the NPRM and decided to finalize rescission based on their belief that the Joint Employer Rule was:

  • Inconsistent with the FLSA’s text and purpose; and
  • The vertical joint employment analysis contained therein had never been applied before and was a different analysis from and/or adopted by courts

Although the Joint Employer Rule did not essentially alter the horizontal joint employment analysis, the DOL/WHD rescinded the entire rule.

Takeaway

The rescission of the Joint Employer Rule issued in 2020 means that the DOL/WHD will continue to interpret joint employer status, and in particular the vertical joint employment analysis, as it had done previous to the promulgation of the rule.

Employers would be best served in consulting with their employment law counsel regarding any potential joint employment situations to determine liability for wage and hour issues.

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