The Joint Employer Rule Continues to Develop

The Department of Labor (DOL) proposed rescinding the joint employer rule the Trump administration’s DOL issued in January 2020, which many argued would have made it more difficult to hold multiple businesses jointly liable for wage violations. The DOL is currently taking public comments on the issue, presumably in advance of issuing a new rule. At the same time, the DOL asked a federal appellate court to halt further consideration of the legality of the January 2020 rule while the rule-making process proceeds. 

Background

On January 16, 2020, the Trump Administration’s DOL implemented a new joint employer rule that created tests for the two kinds of joint employment—horizontal and vertical joint employment, which we previously described here. 

For vertical joint employment (where one employer directly employs the worker but another employer simultaneously benefits from the employee’s work), the Trump administration’s test considers whether the putative joint employer 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 of pay and method of payment; and maintains the employee’s employment records. The potential joint employer must actually exercise, directly or indirectly, one or more of these indicia of control to be jointly liable.

For horizontal joint employment (where the employers are acting independently of each other and are disassociated with respect to the employee’s employment), the Trump administration’s test considers whether there is an arrangement between them to share the employee’s services; one employee is acting directly or indirectly in the interest of the other employer in relation to the employee; or they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or under common control with the other employer.

In February 2020, 18 states sued to block enforcement of the rule in the Southern District of New York. As discussed here, U.S. District Judge Gregory Woods struck down the vertical joint employer rule but left intact the horizontal joint employer rule. He concluded that the vertical joint employer rule did not comport with the Fair Labor Standards Act because it inappropriately narrowed the definition of “joint employer” by focusing on whether the entity actually exercised control over a worker. The DOL appealed the ruling to the Court of Appeals for the Second Circuit Court in November 2020, and that appeal remains pending.

Interim Developments

On March 11, 2021, the DOL proposed to rescind the joint employer rule based in material measure on the district court’s decision. The DOL indicated that the proposed multi-factor test was too restrictive and contradicted numerous judicial decisions that opted for a totality of the circumstances approach. The DOL did not identify a new standard for either type of joint employment. Rather, the agency said it would take public comment for a 30-day period.  

This week, the Biden administration asked the Second Circuit for a delay in the appellate proceeding. The requested delay would allow the Biden administration to halt the legal proceedings while the rule-making process proceeds. A coalition of business groups that intervened in the litigation to defend the Trump administration’s rule objected to the requested delay. The Second Circuit will soon decide whether to halt the case for a limited period.

What It Means

The DOL will receive and review public comments on the joint employer rule. After the expiration of the public comment period, the DOL is expected to rescind the final rule on joint employment and will issue a new proposed rule. Employers can reasonably anticipate that the new rule will bear similarities to the Obama-era guidance, which attempted to make it easier to hold organizations engaged in various employment arrangements jointly liable for wage and hour violations. The DOL is likely to provide additional guidance in the coming months.

While we wait, it is worth monitoring the progress of the appeal pending in the Second Circuit.  Although the Biden administration is unlikely to defend the Trump administration rule, several business advocacy organizations have stepped in to do so. 

Until the joint employer landscape solidifies, employers seeking to rely on the Trump administration’s standards should be cautious.