Second Shoe Drops On Trump “Joint Employer” Regulations Under FLSA

Constangy, Brooks, Smith & Prophete, LLP

Constangy, Brooks, Smith & Prophete, LLP

On July 30, the U.S. Department of Labor published a final rule under the Administrative Procedure Act that rescinds regulatory changes that governed when “joint employer” status arises under the Fair Labor Standards Act. The rescinded regulations were issued by the Trump Administration in January 2020.

The rescission will become effective September 28.

The DOL began the process to rescind the Trump regulations in March of this year. As we wrote in January 2020, the Trump regulations modified the longstanding four-factor test to make a finding of “joint employer” status less likely in various factual scenarios. Although the regulations were not as sweeping as had been originally proposed in 2019, they were generally more favorable to entities that might be found to be joint employers, such as contractors and franchisors. Under the FLSA, if two or more entities are found to be “joint employers,” they are all liable for any FLSA violations.

In rescinding the Trump regulations, the Biden DOL did not propose alternative regulatory changes. Instead, the “pre-Trump” joint employer regulations will be back in effect as of September 28. The Biden DOL could later propose substantive changes, or it could choose to publish other forms of guidance on the topic.

The position of Wage and Hour Administrator is currently vacant, but President Biden has nominated David Weil, who held that role during the latter years of the Obama Administration. If Mr. Weil is confirmed by the Senate, he would be expected to return to guidance issued while he was Administrator. Generally speaking, that prior guidance lowered the factual threshold necessary for a “joint employer” finding, making it more likely that entities would be considered “joint employers” for FLSA purposes.

The immediate effect of the rescission of the Trump regulations remains to be seen. The “pre-Trump” regulations are quite dated, having been in existence for many decades, and do not readily apply to modern business models. Moreover, the existing case law is inconsistent. Thus, we expect things to become more unpredictable for contractors, franchisors and other entities that are typically within the target zone for joint employer allegations. Entities that can avoid involving themselves in Human Resources and payroll decisions that affect the employees of another entity will be better positioned to defend themselves against joint employer claims. These areas include hiring and firing, supervising or controlling work schedules or conditions of employment, determining wage rates and salaries, and maintaining employment records.

Businesses – and especially those in construction and franchising – should keep a close watch on the DOL’s future actions on this subject, particularly if Mr. Weil again becomes Wage and Hour Administrator.

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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