On September 8, a federal court judge struck down key portions of the Labor Department’s new joint employer rule after finding that the rule conflicts with the Fair Labor Standards Act (FLSA). Whether the Labor Department will appeal the court decision or revise its regulation to address the court’s concerns remains to be seen. In the meantime, businesses that have been relying on the new rule should consult with an employment lawyer to reevaluate their employment relationships and potential liabilities.
The Backdrop to the Joint Employer Ruling
A group of 17 states and the District of Columbia challenged the new joint employer rule, which went into effect on March 16, 2020, in federal court.
As we reported in a prior blog post, the FLSA recognizes an employee may have a primary employer and one or more “joint-employers,” but the statute does not clearly define the term. Moreover, decades of conflicting rulings by the National Labor Relations Board (NLRB) and federal courts caused confusion for employers.
The new rule narrowed the definition of joint employer in a way that could effectively reduce the frequency of wage and hour claims by establishing a four-factor test. In short, a joint employer has the power to:
- Hire or fire an employee
- Supervise and control an employee’s work schedule or employment conditions
- Determine an employee’s rate and method of payment
- Maintain a worker’s employment records
While all four tests do not have to be met to establish joint-employer status, a business must have exerted substantial control over the employee to be considered a joint employer.
The Federal Court Ruling
U.S District Judge Gregory Woods decided the new joint employer rule had major flaws because it did not comport with the FLSA. In short, Woods said the Labor Department inappropriately limited the definition of joint employer and did not consider the potential cost to workers.
It is important to note that this decision only applies to “vertical” employment relationships in which an employee works for one employer, such as a staffing agency or subcontractor, and an intermediary business contracting with that employer for that employee’s labor. The judge left intact the new rules for “horizontal” employment relationships in which related entities employ the same worker.
The federal court decision should come as welcome news to critics who believe the joint employer rule allowed businesses to avoid liability for minimum wage and overtime violations. If you have questions about how the court’s ruling may impact your employment relationships, you should consult with an experienced employment law attorney.
Similarly, it is crucial for individuals who are in employment relationships with staffing agencies, contractors, and franchises to know their rights. If you have been denied wages by your employer, you may have a valid wage and hour claim.