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DOL pulls the rug out from under the Joint Employer Rule

Rule to be rescinded September 28 leaving employers in the lurch

Posted August 20, 2021 

The U.S. Department of Labor (DOL) announced plans to rescind the “Joint Employer Rule” effective September 28, 2021.

The announcement likely came as no surprise, as the DOL hinted about the change a few months ago.

What does it mean to be a joint employer?

The Joint Employer Rule relates to federal wage and hour laws (such as minimum wage, overtime pay, etc.) as it pertains to the Fair Labor Standards Act (FLSA).

Under the FLSA, an employee might perform work for more than one employer. Joint employment, therefore, applies when 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, like correct compensation.

When two or more employers in essence “share” employees, both companies may be liable for FLSA compliance. The million-dollar question is, how far does the scale need to tip to make companies joint employers? Generally, there is no one determining factor.

The old rule

The old Joint Employer Rule, which had been in effect since March 2020 under the previous administration, said the joint employer test focused on whether an 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 and method of payment; and
  • Maintains the employee's employment records.
  • (Note: This four-factor list does not apply on/after September 28, 2021.)

Why was the rule rescinded?

The current administration (and several states that filed lawsuits) argued that “joint employer” was too narrowly defined. A broader definition would make it more likely for companies to be joint employers, thus spreading out the employer-employee responsibility under the FLSA.

The DOL stated that by rescinding the rule, more workers would receive minimum wage and overtime protections under the FLSA.

In addition, the DOL stated that the old rule included a description of joint employment contrary to statutory language and Congressional intent.

The old rule also failed to take the DOL’s prior joint employment guidance into account. In fact, the U.S. District Court for the Southern District of New York vacated most of the rule in 2020.

The bottom line

It’s not fully clear what the DOL will do going forward. On one hand, 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.

On the other hand, some may feel that rescinding the rule means more confusion for employers as to when they may (or may not) be considered “joint employers.” Courts, too, might need to refer to old case law and multi-factor tests, leading to inconsistent rulings.

This article was written by Michelle Higgins of J. J. Keller & Associates, Inc.

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