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New Joint Employer Rule Hinges on Reception in Court (1)

Bloomberg Law—Daily Labor Report—

A new Trump administration regulation making it harder for workers to sue multiple employers for wage violations is already generating significant questions about how much sway it will have on federal courts.

The Labor Department said the rule will decrease the risk of court battles for some businesses, like franchisers and those who use contracted labor. The regulation narrows the circumstances in which two or more companies can be “joint employers” who share legal liability for paying employees minimum wages and overtime.

The agency is hoping the rule will foster a more uniform view from courts on joint employment, providing more clarity for businesses and workers. Yet even as business groups and Republican lawmakers praised the rule for promoting clarity and for retreating from the Obama administration’s more expansive approach to joint liability, both management and plaintiff lawyers agreed it won’t necessarily shield companies from joint employment lawsuits.

The regulation establishes how the department will determine joint employment when investigating and prosecuting wage violations under the Fair labor Standards Act. Some courts have taken a different approach to the joint employer question, however, and don’t necessarily need to adopt the four-part test established in the new regulation.

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The rule is an interpretive regulation, meaning it’s not likely to get as much deference in court as other “legislative” regulations. Judges must decide how much weight to give to the DOL in determining whether to apply the department’s new four-factor test for joint employment, or base their decisions on a broader set of circumstances.

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Central to the final rule is DOL’s adoption of the four-part test for assessing whether one company is a joint employer of another company’s workers. The test, which considers all factors collectively, probes whether the potential joint-employer hires or fires an employee; supervises or controls work schedules; sets pay rates; and maintains employment records.

Some courts, most notably the U.S. Court of Appeals for the Fourth Circuit, have used a broader, six-factor test to determine joint employer liability under the FLSA. That analysis probes the relationship between the potential joint employer and the workers, but also between the two or more companies alleged to share liability.

DOL Enforcement

While the influence on judges remains to be seen, a more concrete impact will come in the Wage and Hour Division’s own enforcement of the rule, once it takes effect March 16.

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“Clearly this is the secretary and the wage-and-hour administrator saying this is our interpretation of joint employment, it’s very narrow, and we’re not going to pursue it in lots of cases that historically, even under this administration, they have,” said David Weil, who ran the Wage and Hour Division under President Barack Obama. “This is going to clearly dampen both the solicitors’ and wage-and-hour investigators’ use of joint employment as a concept.”

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Live Cases

There are a number of wage and hour joint employment cases percolating across the country. Attorneys on both sides likely will soon file pleadings calling attention to the new rule.

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It’s “certainly possible” that some workers’ attorneys will decide the new rule makes it not worth their energy to file new FLSA joint employment claims, Justin Swartz, a partner at Outten & Golden in New York, said.

“But the plaintiffs’ firms that I know and respect will take it on a case-by-case basis and certainly aren’t afraid to confront obstacles like this one,” Swartz said. “We’re a creative group and almost always find a positive way forward.”