The DOL Has Rescinded The Recently Enacted Federal Test For Joint Employment Under The FLSA

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Under the Fair Labor Standards Act (“FLSA”), an “employer” includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Thus, under certain circumstances, such as in the context of franchises and staffing agencies, more than one entity or individual may be the “employer” of the same employees. In those cases, both entities/individuals are deemed “joint employers.” Joint employers may be jointly and severally liable for violations of the FLSA (and the attendant penalties and fees). Although the FLSA does not directly address joint employment, under the Trump Administration, the Department of Labor (“DOL”) issued regulations providing its interpretation of when joint employment might exist under the FLSA.

The Trump Administration’s joint employer rule significantly restricted the circumstances in which joint employment relationships would exist. This rule diverged from many jurisdictions’ approaches to defining joint employment. Not long after this rule was issued, a judge in the Southern District of New York struck down major parts of the Trump administration’s joint employer rule; and, as anticipated, last week the Biden administration sealed the deal, rescinding the Trump administration’s entire joint employer rule.

While the rule was rescinded in its entirety, the DOL explained that it “will continue to consider legal and policy issues relating to FLSA joint employment” and determine “whether alternative regulatory or sub-regulatory guidance is appropriate.” Until then, employers (and potential joint employers) face joint employer tests that vary significantly across jurisdictions, with some courts taking an incredibly expansive approach and others repeatedly narrowing the circumstances wherein joint-employer status exists. To further complicate things, the joint employer test under the FLSA is different than the joint employer test under the National Labor Relations Act. Actual and potential employers are well-advised to tread lightly and consult counsel to ensure they are fully aware of the risks they are taking through their professional affiliations.

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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