The Department of Labor (DOL) announced that it will officially rescind the joint employer rule promulgated by the Trump administration, effective September 28.
Following the publication of a Notice of Proposed Rulemaking (NPRM) and review of comments, the DOL established a four-part balancing test derived from the U.S. Court of Appeals, Ninth Circuit’s 1983 decision in Bonnette v. California Health & Welfare Agency.
In the joint employer scenario where another person is benefiting from the employee’s work, the new rule is that the four factors to be assessed are whether the other person:
- Hires or fires the employee
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
- Determines the employee’s rate and method of payment
- Maintains the employee’s employment records
The DOL finalized the rule in January 2020, marking the agency’s first meaningful revision to its joint employer standard under the Fair Labor Standards Act in more than 60 years.
On March 16, 2020, the employer-friendly rule went into effect but immediately faced multiple legal challenges, including a lawsuit filed by a group of 18 state attorneys general. In September 2020, a New York federal court agreed with the attorneys general, holding that the final rule violated the Administrative Procedure Act because it was arbitrary and capricious and conflicted with existing law, specifically the Fair Labor Standards Act (FLSA).
When the Biden administration took over, the DOL indicated its intent to change multiple rules, including the joint employer rule, with another NPRM.
The more than 290 comments received in response to the NPRM expressed support for the DOL’s decision to rescind the joint employer rule.
Commenters supported rescission “predominantly on the basis that, in their view, the rule improperly narrowed the test for joint employer status and conflicted with decades of department interpretation, the text of the FLSA and Congressional intent. Some suggested that the rule did not align with the Supreme Court’s observation that the FLSA’s conception of employment is of ‘striking breadth.’”(Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule, 86 FR 40939, July 30, 2021)
In late July, the agency announced that it will rescind the “Joint Employer Status under the Fair Labor Standards Act” rule as of September 28.
“By rescinding that rule, the department will ensure more workers receive minimum wage and overtime protections of the [FLSA],” the DOL said in a statement. “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.”
The agency said it “will continue to follow the law and judicial precedent when evaluating joint employer relationships to enforce worker protections.” It used the example of a hotel that 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, the DOL said.
To read the final rule rescinding the joint employer rule, click here.
Why it matters: The decision to officially rescind the joint employer rule signals the continuing employee-friendly policies of the Biden administration and puts employers on notice that they could be facing increased enforcement of joint employment under the FLSA.