Friday, July 30, 2021: DOL Publishes Final Rule Rescinding Trump Administration Joint Employer Rule Under the FLSA
The U.S. Department of Labor Wage and Hour Division (WHD) published the Biden Administration’s Final Rule rescinding the Trump Administration Rule which had established when an entity is a “joint employer” liable for violations of the Fair Labor Standards Act (“FLSA”). The DE WIR had warned the business community about the anticipated publication of the Biden Rule following notice that the WHD’s proposed Final Rule had cleared White House review on July 13th.
The Biden Rule rescinded the Trump Rule citing the following primary rationales:
- The Trump Rule’s alleged adoption of the Bonnette legal test for “Joint Employer” status actually deviated from the language in Bonnette by: (1) not considering whether the potential joint employer had “the power” to hire and fire; (2) adding the phrase “to a substantial degree” in ascertaining whether the potential joint employer supervises and controls the work schedules or conditions of employment; (3) adding limitations not included in Bonnette, and (4) relying upon the Bonnette factors when the court held the factors were “not etched in stone” and “should not be blindly applied”;
- The Trump Rule specifically excluded any consideration of the employee’s economic dependence on the potential joint employer; and
- The U.S. District Court for the Southern District of New York vacated the Trump Rule’s joint employer standard for vertical joint employer liability. The Court found the Trump Rule flawed “in just about every respect” because it conflicted with the FLSA and thus violated the Administrative Procedure Act. See New York, et al. v. Scalia, 490 F. Supp.3d 748 (S.D.N.Y. 2020). (The Scalia case was a challenge to the Trump Joint Employer Final Rule which 18 “blue” state Attorneys General had brought as soon as it went Final. The District Court’s decision is currently on appeal).
Though the Department contends the Biden Administration’s Rule may moot the states’ challenge to the Trump Rule, and thus make any resolution of the appeal unnecessary, several business organizations have intervened in the case in an attempt to obtain a ruling from the United States Court of Appeals for the Second Circuit enforcing the prior Trump Rule.
As a result of the Biden Final Rescission Rule, the DOL has now withdrawn in its entirety 29 C.F.R. § 791 (previously titled Joint Employer Status under the Fair Labor Standards Act).
Significantly, the Final Biden Rule did not propose new regulatory guidance to replace the prior Trump Joint Employer standard. Rather, going forward, the WHD intends to enforce the standard the Obama Administration previously enforced. The Obama WHD had interpretated the FLSA Joint Employer standard to expand the entities that would bear responsibility for labor and employment law violations. A large point of departure with employers was the Obama WHD’s point of view that other businesses could be an “employer” to a worker based on reserved, but unexercised, “right to control” authority over employees of the other entity. The Obama WHD would thus look to contract language between the worker’s (host) employer and the other businesses (a subcontractor or vendor, for example) which could potentially be a joint employer to find language, if it existed, reserving the host employer’s right to control certain aspects of the subcontractor’s work.
Another flashpoint of contention between employers and the Obama WHD was the Division’s expansive view that subcontractor and vendor employees were “economically dependent” on the host employer if the worker obtained his or her pay, as a practical matter, exclusively from vendor contracts with the host employer.
What To Do Going Forward
Thus, as of now, businesses should be aware that defense of USDOL WHD audits or other investigations of Joint Employer status now requires analysis of any “right of control” language contained in any vendor agreement with a host company. Businesses should also keep an eye on the pending appeal in New York v. Scalia should the Second Circuit Court of Appeals overturn the prior District Court holding and revive the Trump Joint Employer Rule, in whole or in part.
Story contributed by Jay Wang of Fox, Wang & Morgan.