On September 8, a federal district court struck down parts of the U.S. Department of Labor (DOL) joint employer rule related to vertical joint employment. The district court judge found that the current DOL test was inconsistent with the Fair Labor Standards Act (FLSA) and failed to justify or account for its costs to workers.
The DOL holds joint employers equally and individually responsible for compliance with labor and employment laws (including payment of minimum wage and payment of overtime to non-exempt employees). Vertical joint employment situations may arise when an employee works for one company, but another individual or entity simultaneously benefits from that work. The most common scenario applies to individuals hired by staffing agencies or subcontractors that are economically dependent on another employer.
The court left intact the DOL’s horizontal joint employment rule for determining joint employment when one employer employs a worker for one set of hours in a workweek, and another employer employs the same worker for a separate set of hours in the same workweek.
The Court’s Decision
The court’s main issue with the DOL’s test is that in order to qualify as a joint employer, an employer must actually exercise one of the four identified factors of control over an employee, rather than just reserving the right to do so. As result, the U.S. District Court issued an order vacating the vertical joint employment rule on the grounds that:
- The DOL’s vertical joint employment test was too narrow and inconsistent with the FLSA’s broad interpretation of the term “employ” as “to suffer and permit to work.”
- The DOL provided no explanation for adopting a more restrictive joint employment rule and that the DOL failed to address critical questions raised during the comment period between the notice of proposed rulemaking and the announcement of the final rule.
Next Steps for Employers
Employers will have to wait and see whether this decision is appealed by the DOL. In the interim, employers should review their contractual relationships with third parties, such as staffing agencies and work with their legal counsel to identify any co-employment situations within their workforce that may be affected and prepare to alter their practices accordingly should the decision stand.
Employers should continue to monitor the DOL website for guidance and developments on the joint employment rule.
HR Works will also continue to monitor the situation and provide necessary updates.