Judge Voids Parts of DOL Rule Regarding Joint Employment

For the second time this year, a federal judge from the U.S. District Court for the Southern District of New York has struck down parts of a Department of Labor (“DOL”) Rule.

DOL Rule

At issue before the court was a Final Rule published by DOL on January 20, 2020 purporting to update and revise the agency’s interpretation of joint employment status under the Fair Labor Standards Act (“FLSA”). The Final Rule noted there are two joint employer scenarios under the FLSA : (1) vertical joint employment; and (2) horizontal joint employment.

A potential vertical joint employment relationship exists where there is a direct (or intermediary) employer and an indirect (or general) employer. The most common example of a potential vertical joint employment relationship is where a construction worker works for a subcontractor which in turn provides services for a general contractor.

A potential horizontal joint employer relationship exists where a worker provides services to two employers. The most common example of a potential horizontal joint employment relationship is where two closely related employers share the services of a common employee.

In the Final Rule, the agency provides a four-factor balancing test for determining joint employer status. The factors are whether the putative joint employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.

In promulgating this standard, the DOL implicitly rejected the low bar for establishing joint employment set by the Fourth Circuit in Hall v. DirecTV, LLC, 846 F.3d 757 (4th Cir. 2017). In that case, the court said, in determining whether a joint employment relationship exists, the relationship between the two putative joint employers must be analyzed, not just the relationship between an employee and his/her putative joint employers.

Suit is Filed by 17 States and District of Columbia

As set forth in an earlier post on this blog, the Final Rule faced uncertainty in the courts.

Alleging that the Final Rule exceeded the agency’s authority under the FLSA, seventeen states and the District of Columbia filed suit against the DOL in the U.S. District Court for the Southern District of New York. On Sept. 8, 2020, the court entered a 62-page Memorandum Opinion and Order, granting in part and denying in part, the plaintiff’s motion for summary judgment.

The Court allowed the Final Rule to stand as it relates to horizontal joint employment scenarios. The Court determined that the Rule made only “non-substantive revisions” to existing law for horizontal joint liability.

The Court, however, vacated the Final Rule’s standard for vertical joint employer liability. The Court did not mince words in finding “the Final Rule’s novel revisions to that scenario are flawed in just about every respect.” Chief amongst the Court’s concerns was the failure of the Final Rule to consider the economic realities of a vertical situation where a subcontractor is economically dependent upon a general contractor.

Takeaway For Employers

Historically, DOL rules provided reliable guidance to employers for compliance with the FLSA. With two DOL rules being voided this year, however, is it advised that employers consult legal counsel as to the viability of DOL rules before following them.

As to the issue of joint employment, it is likely the final word will have to come from the U.S. Supreme Court. The low bar established by the Fourth Circuit in Hall v. DirecTV has not been adopted in other circuits. Other than legislation, which is unlikely in today’s political climate, only a single test by the Court applicable to all jurisdictions will resolve the existing conflict as to joint employment under the FLSA.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at rchadwick@realclearcounsel.com

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