Hunton Employment & Labor Perspectives

Last month, the United States District Court for the Southern District of New York invalidated portions of the Department of Labor’s Final Rule on joint employment, holding that parts of the Final Rule conflicted with the statutory language of the FLSA and chiding the DOL for failing to adequately explain why the Final Rule departed from the DOL’s own prior interpretations.

As we previously reported, the DOL’s Final Rule adopted a four-part test to determine when two or more business jointly employ the same worker.  Focusing primarily on the level of control exercised over the worker, the four-part test assesses the extent to which the putative employer has the authority to: (1) hire or fire employees, (2) control their schedules or conditions of employment to a substantial degree, (3) determine workers’ pay rates and the methods by which they are paid, and (4) whether it maintains workers’ employment records.  The Final Rule’s focus on actual control significantly narrowed the circumstances giving rise to a joint employer relationship and was widely seen as more employer-friendly.

In response to the Final Rule, 18 states brought suit, claiming that the Final Rule did not comport with the FLSA’s broad protections for workers.  The Southern District of New York agreed in part, holding that the Final Rule applicable to “vertical” joint employment relationships—where an employee works for one employer but is economically dependent on another business—was in violation of the Administrative Procedure Act.  The Court ruled that the Final Rule’s focus on the exercise of direct control conflicted with the FLSA’s broad definitions of “employee” and “employ,” which were specifically designed to cover a large swath of individuals.  The Court noted that the Final Rule centered too heavily around the FLSA’s definition of “employer” as the basis of joint employer liability while failing to account for the more expansive definitions of “employee” and “employ” also found in the statute.  The Court also questioned the Final Rule’s reliance on certain concepts, such as “primary” and “secondary” employers, which are absent from the FLSA itself.  The Court likewise chided the DOL for failing to adequately explain its departure from its own prior interpretations of the FLSA, observing that an agency may depart from prior interpretations of federal law, but it must provide a reasoned explanation for the departure.  Here, the Court concluded the DOL failed to do so.  The Court also held that the Final Rule conflicted with the definition of joint employment under the Migrant and Seasonal Agricultural Workers Protection Act (while other agency regulations state that joint employment should be the same under both the MSPA and FLSA), and failed to consider the potential cost of implementation on workers.  All of these observations lead to Court to conclude that the agency’s actions were arbitrary and capricious.

It remains to be seen whether the DOL will appeal the decision or attempt to revise the Final Rule.  Either way, the DOL’s Final Rule will remain on hold for the foreseeable future.  While the Court endorsed the DOL’s more employee-friendly 2014 and 2016 Administrator’s Interpretations of joint employment, those guidance documents have been revoked by the Trump Administration and are no longer DOL policy.  Thus, for the time being, employers are left to grapple with a patchwork of various court decisions for guidance as to the existence of joint employment status.