Department of Labor Withdraws Joint Employer Regulations

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On July 29, 2021, the U.S. Department of Labor announced it was formally rescinding regulations issued by the prior administration defining “joint employer” status under the Fair Labor Standards Act (FLSA).  The Department’s decision is not surprising, as it issued its proposal to roll back the regulations in March. 

Courts are now likely to return to the application of various (and not always consistent) multi-factor tests derived from the cases interpreting the Department’s outdated 1959 standard.  This in turn means less certainty for employers as to when they may be liable for wage and hour violations under the FLSA as a “joint employer” of an unrelated company’s employees.

Significant portions of the joint employer regulations had previously been struck down by a federal court.  In February 2020, a coalition of state attorneys general filed suit in the U.S. District Court for the Southern District of New York, claiming that the final regulations were arbitrary and capricious, and violated the Administrative Procedure Act (APA).  In September 2020, the court found in favor of the plaintiffs, and vacated most of the final regulations on a nationwide basis.  That decision is currently on appeal to the U.S. Court of Appeals for the Second Circuit.  The Department has not yet asked the court to dismiss the appeal, which raises significant state standing issues beyond the merits of the joint employer regulations.  The Second Circuit previously rebuffed a request from the DOL to stay the appeal pending a decision on whether to withdraw the regulations.

It is also unclear what the Department will do with respect to joint employer status going forward.  The DOL may seek to promulgate new regulations under the APA.  Alternately, it may choose to promulgate sub-regulatory guidance (which may be afforded less deference by reviewing courts).  During the Obama administration, the DOL’s Wage and Hour Division published an Administrator’s Interpretation (AI) under the FLSA adopting a very broad definition of joint employer status, which was subsequently revoked.  David Weil, who was administrator of the Wage and Hour Division at the time and signed that AI, has been nominated by President Biden to once again head the agency.  His nomination is currently pending in the U.S. Senate, where it has drawn significant opposition from Senate Republicans.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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