On July 29, 2021 the U.S. Department of Labor (DOL) announced a final rule to rescind an earlier rule, “Joint Employer Status under the Fair Labor Standards Act” that took effect in March 2020. The March 2020 rule was intended to make it easier for employers to assess their joint employment status. By rescinding that rule, the Department will ensure more workers receive minimum wage and overtime protections of the Fair Labor Standards Act (FLSA). The final rule becomes effective September 28, 2021.
The reason for the DOL’s decision is that the rescinded rule included a description of joint employment contrary to statutory language and Congressional intent. The rule also failed to take into account the department’s prior joint employment guidance, and the U.S. District Court for the Southern District of New York vacated most of the rule in 2020.
Under the FLSA, an employee can have more than one employer for the work they perform. Joint employment applies when, for the purposes of minimum wage and overtime requirements, the DOL considers two separate companies to be a worker’s employer for the same work. For example, a joint employer relationship could occur where a hotel contracts with a staffing agency to provide cleaning staff, which the hotel directly controls. If the agency and the hotel are joint employers, they are both responsible for worker protections.
A strong joint employer standard is critical because FLSA responsibilities and liability for worker protections do not apply to a business that does not meet the definition of employer.
The DOL “will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or sub regulatory guidance is appropriate.”
The repeal of the rule will make it easier for the DOL to renew enforcement efforts aimed at businesses that use franchising, subcontractors or third-party intermediaries such as temporary employment agencies or labor brokers. There is a strong body of case law on which the courts can rely. The DOL noted that all of the appellate courts that have considered FLSA joint employment have looked to the economic realities test as the proper framework.
Next Steps for Employers
Employers who determined their joint employer status based on the March 2020, four-factor test, will need to reassess their status under the economic realities test and should make any changes prior to the effective date of the rule being rescinded. Employers are also encouraged to consult with their legal counsel for assistance in making this determination.