DOL Rescinds 2020 Final Rule Regarding Joint Employment

The issue of joint employment is one of the most debated and controversial topics in employment law as workplace arrangements are constantly evolving. Under the Biden Administration, the U.S. Department of Labor (DOL) just rescinded a final rule titled “Joint Employer Status Under the Fair Labor Standards Act,” that took effect on March 16, 2020 under the Trump Administration. The 2020 final rule was more employer friendly. By rescinding the 2020 final rule, the DOL is likely returning to its earlier joint employer rules or some semblance of such – which were, in comparison, more employee friendly.    

Background

The Fair Labor Standards Act (FLSA) requires all covered employers to pay nonexempt employees at least the federal minimum wage for every hour worked in a non-overtime workweek and overtime premiums (generally one and one-half times the employee’s regular rate) for every hour worked in excess of 40 in a workweek. An individual or entity is liable for paying minimum wage and overtime only if they are an “employer” under the FLSA. However, an employee can have more than one employer for the work they perform if it simultaneously benefits another individual or entity. For example, joint employer status could occur where a company contracts with a staffing agency to provide security guards to patrol its offices. If two entities are found to be joint employers, both are jointly liable for minimum wages and overtime pay under the FLSA. The joint employer rule provides guidance on determining joint employer status.

The 2020 Final Rule

The final rule issued in March 2020 by the DOL under the Trump Administration made it more difficult to hold companies liable as “joint employers.” The final rule adopted a four-factor test that considered whether the purported joint employer:

• hires or fires the employee;
• supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
• sets the employee’s rate of pay; and
• maintains employment records.

Under the final rule, no single factor was dispositive and additional factors may have been considered relevant in determining whether an individual or entity is a joint employer. The final rule also identified factors that were not relevant to the determination of FLSA joint employer status. In September 2020, a U.S. District Court in New York struck down the most of the rule. 

What Does This Mean for Employers?

The DOL stated that, by rescinding the 2020 final rule, “the department will ensure more workers receive minimum wage and overtime protections of the Fair Labor Standards Act.” It is expected that the DOL’s new rule, which should be released in the coming days, will make it relatively easier to establish joint employer status. The new rule is expected to take effect in September 2021. In the meantime, employers should be mindful of potential liability and follow the longstanding policy for determining joint employment under the FLSA. Prior to the 2020 final rule, federal courts had developed precedent when evaluating joint employer status under the FLSA. However, the specific tests used, and the application of the specific facts, varies from circuit to circuit and depending on the specific industry. If an employer has questions about its potential exposure, it should seek legal advice as early as possible.

Please contact any member of Phelps’ Labor and Employment team if you have any questions or need compliance advice and guidance.