DOL Rescinds Previous Administration’s Final Rule That Narrowed the Circumstances for Finding Joint Employer Relationships

As of October 5, 2021, more businesses may discover they are “joint employers” under the Fair Labor Standards Act (FLSA) for workers they may not even consider to be their employees. That is because earlier this year, the U.S. Department of Labor (DOL) rescinded a final rule issued in January 2020 under the previous administration that dramatically limited the number of situations in which companies would be considered “joint employers” equally responsible for a worker’s wages and overtime pay.

What Are Joint Employers?

Liability for failing to pay minimum wage or overtime pay rests on whether a person or entity is an “employer,” defined as including “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Under the FLSA, an employee may have one or more joint employers, defined as any employer that is jointly and severally liable with another employer for the employee’s FLSA-mandated wages and overtime pay.

The Rescinded Final Rule

The now-rescinded Final Rule established two standards for determining whether an employer was a joint employer under the FLSA: a Vertical Joint Employment Standard and a Horizontal Joint Employment Standard. The former standard involved a four-part test in situations where an employee performs work for an employer that simultaneously benefits another individual or entity. Under that test, a company would be considered a joint employer if it “actually exercises” the power to:

• Hire or fire the employee.
• Supervise and control the employee’s work schedules or conditions of employment.
• Determine the employee’s rate and method of payment.
• Maintain the employee’s employment records.

The rule’s focus on the actual exercise of control over an employee significantly narrowed the circumstances giving rise to joint employer liability. The Horizontal Joint Employment Standard focused on whether purported joint employers were acting independently of each other or were “sufficiently associated” with each other concerning the employee’s employment.

Return to the Previous Status Quo

In announcing the rescission of the rule, the DOL said that “the rescinded rule included a description of joint employment contrary to statutory language and Congressional intent.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 new Final Rule rescinds not only the Vertical Joint Employment Standard that narrowed the definition of joint employer but also the Horizontal Joint Employment Standard, according to the DOL’s reasoning that “it was intertwined with the vertical joint employer analysis.”

The rescission returns the joint employer analysis to the way it was for decades before the 2020 Final Rule. That analysis is much murkier and expansive, focused on whether “the economic realities show that the employee is economically dependent on, and thus employed by” a company. The revival of the pre-2020 standard makes it more likely that an employer using certain shared workforce models, such as staffing agencies, subcontractors, or other labor providers, will be deemed a joint employer.

The rescission of the 2020 final rule resulted in the October 30, 2021, dismissal of an appeal in a case that had struck down the previous administration’s version of the rule.

Speak With a Michigan Employment Law Attorney About Your Joint Employer Questions

If you have questions or concerns about the rescission of the 2020 Final Rule regarding joint employment and your company’s potential obligations as a joint employer, please contact Kreis Enderle.