On July 29, 2021, the Department of Labor (“DOL”) announced that it will rescind a Trump administration rule that limited the circumstances in which multiple employers could be deemed “joint” employers of the same employee. As a result, employers will likely face an increased risk of joint employer liability for violations of the Fair Labor Standards Act (“FLSA”).
In March 2020, the Trump administration established a rule for determining when an employee would be considered jointly employed by two or more distinct employers. The rule went into effect on March 16, 2020, and set forth a four-factor balancing test for determining when a business would be considered the “employer” of a worker who simultaneously performed work for another business. Also, contrary to guidance issued under the Obama administration, the Trump DOL’s rule deemed an employer’s reserved right or ability to exercise control, without more, insufficient to find a joint employment relationship. The rule was deemed an employer-friendly development, as it provided employers more clarity about when they would be deemed a joint employer, and permitted employers to exercise more control over non-employees without risking liability for wage and hour violations. The rule, however, faced legal challenges, and an appeal of the Southern District of New York’s ruling that the rule violated the Administrative Procedure Act (“APA”) remains pending before the Second Circuit Court of Appeals.
Signaling a change in course, the Biden DOL has announced that it will rescind the Trump DOL rule, effective September 28, 2021. In justifying the rescission, the Biden DOL, referencing the SDNY decision, indicated that that the Trump DOL rule unlawfully limited the factors that should be weighed when determining joint employment status, and did not follow legal precedent set by courts, the Congressional intent that motivated the FLSA, or the text of the statute itself. The DOL concluded that rescinding the Trump administration’s rule would benefit workers, and in particular provide important protections for lower-wage workers.
The shift signals the Biden administration’s commitment to usher in rules and legislation that are more employee friendly, and provide stronger wage protections for workers. Businesses – particularly those that license franchises or rely on temporary staffing agencies for labor – should be aware of the broader scope of joint employment that Biden’s DOL is embracing, and ensure compliance with all aspects of the FLSA.