On February 23, 2021, the U.S. Department of Labor (DOL) submitted a proposed rule on joint employer status under the Fair Labor Standards Act (FLSA) to the White House for review. This is not the first time the DOL has attempted to clarify guidance on the determination of joint employer status under the FLSA. A little over a year ago, on January 12, 2020, the DOL announced a final rule narrowing the definition of joint employer.
The final rule specifies that when an employee performs work for the employer that simultaneously benefits another person, that other person will be considered a joint employer only if they are acting directly or indirectly in the interest of the employer in relation to the employee. The final rule also adopts a four-factor balancing test for assessing whether the potential joint employer 1) hires or fires the employee, 2) supervises the employee’s schedule or conditions of employment, 3) determines the employee’s rate and method of payment, and 4) maintains the employee’s employment records.
This rule was short lived. On September 8, 2020, a federal judge in the Southern District of New York invalidated substantial portions of the rule. See State of New York et al. v. Eugene Scalia et al., No. 1:20-cv-01689 (S.D.N.Y. Sept. 8, 2020). The rule was first challenged in February 2020 by a group of state attorney generals in the U.S District Court for the Southern District of New York. The complaint claims that 1) the rule was promulgated in violation of the Administrative Procedure Act and 2) it will harm workplace protections in their states. In his September 8 opinion, Judge Gregory Wood found the new regulations were inconsistent with the FLSA as well as arbitrary and capricious. The Department of Labor appealed the decision to the Second Circuit Court of Appeals requesting reversal of the district court opinion and reinstatement of the final rule. See State of New York et al. v. Eugene Scalia et al., No. 20-3806 (2d Cir. 2020).
The Biden administration has now sought to abandon the rule by starting a new rulemaking process. The substance of the proposed rule is still unknown. However, it is likely that the proposed rule recommends a return to a broader and more expansive interpretation of the joint employer rule. The next steps in the rulemaking process will be publication of the rule in the Federal Register for public comment. The public comment period generally stays open for 30 to 60 days, but may stay open for longer. Public comments submitted will be considered before the final rule is announced.