The “joint employer” test, which determines which organizations are liable for employee discrimination, wage and hour, and labor law claims, has in many ways resembled a game of legal “Whack-A-Mole” over the years. Indeed, earlier this year, the test to determine who is considered an “employer” was adjusted by the National Labor Relations Board (“NLRB”) to a framework that favored employers – a significant change for businesses who rely on staffing agency arrangements or a franchise model.
Continuing with this business-friendly theme, the Trump Administration, via the Department of Labor (“DOL”), proposed a rule back in January that, like the NLRB’s revised test, limits the circumstances under which businesses can be considered “employers” subject to liability for wage and hour claims under the Fair Labor Standards Act (“FLSA”). This would limit the potential wage and hour liability of companies (such as McDonald’s and Amazon) who either operate on a franchise model or hire workers through third-party staffing agencies. The key component of the final rule is a four-factor balancing tests that looks at whether the alleged joint-employer: (1) hires or fires an employee; (2) supervises or controls work schedules; (3) sets pay rates; and (4) maintains employment records. They key to the final rule, however, is that the test requires that an employer actually exercise one of the four factors listed above, as opposed to merely reserving the right to do so – a key distinction from the prior rule.
This final rule prompted seventeen states and the District of Columbia to sue the DOL to stop implementation of the final rule. On September 8th, a federal judge in the Southern District of New York did just that issuing an opinion and order blocking the portion of the final rule that altered the balancing test described above. Though it rested its decision on multiple grounds, the Court faulted the DOL for ignoring the FLSA’s broad scope, for failing to explain why it departed from its prior interpretation of the issue, and for failing to explain why the benefits of the new rule outweigh its costs.
This new decision is not necessarily the end of the road for the new joint employer test. The Southern District effectively ruled that the DOL failed to go through the proper steps to “show its work” in changing the joint employer standard, but did not state that the new test is per se illegal or unsupportable. Moreover, the decision can (and likely will) be appealed. Nonetheless, for the time being, the more business-friendly revised standard is on hold across the country, which may make it easier for courts to hold multiple entities liable for wage and hour violations (such as minimum wage and overtime claims). HR Legalist will continue to monitor this issue, as it has significant implications for the employer community.