Court Strikes Down Recent Joint Employer Rule

On September 8, 2020, a New York federal judge struck down most of a U.S. Department of Labor (“DOL”) rule that had narrowed the definition of “joint employer” by limiting when multiple businesses would be liable to the same worker under federal wage and hour law.  The lawsuit was filed by the attorneys general of 17 states and Washington, DC, who argued that the narrowing of the standard would eliminate important labor protections for workers and would make it more difficult to hold companies liable for violations by franchisees and contractors of minimum wage and overtime laws.

Brief History of the Joint Employer Rule

Although the Fair Labor Standards Act (“FLSA”) does not explicitly reference joint employment, the DOL has long recognized that workers may have multiple employers when employment by one employer is “not completely disassociated” from employment by the other employer.  The DOL has periodically updated this definition via informal guidance, most recently in 2014 and 2016, when it issued bulletin memorandums directing agency investigators to look past employers’ control over workers to the “economic realities” of their relationship.

The DOL rescinded those memorandums soon after President Trump took office in 2017 and proposed the first update to its formal joint employment regulations in decades, which was finalized in January 2020.  January’s final rule emphasized a company’s control over its workers, saying joint employment hinges on the division of powers to (1) hire and fire; (2) supervise and schedule; (3) set pay; and (4) maintain employment records.

The DOL’s attempt at narrowing the joint employer standard was seen as business-friendly and anti-labor, as labor advocates argued that employers who have franchise relationships or rely on subcontractors benefited from the new standard.  As a result, in February 2020, New York and 17 other states sued to block the rule, accusing the DOL of exposing workers to wage theft by narrowing its definition of joint employment further than the FLSA allows.

New York Federal Court Ruling

On September 8, 2020, Judge Gregory Woods of the U.S. District Court for the Southern District of New York issued a ruling striking down the majority of the new rule and agreeing with New York and the other 17 states who had challenged the rule.

According to Judge Woods, the new rule was “arbitrary and capricious” because the DOL failed to justify its departure from its prior interpretations of the joint employer rule or account for its costs to workers, which the states estimated at more than $1 billion annually. Judge Woods also ruled that the Trump administration’s changes to the joint employer doctrine were too narrow since they required a company to actually exercise control in the workplace instead of simply having the right to exercise control, and the DOL did not adequately explain why it disregarded evidence that narrowing its joint employment test would expose workers to wage theft.  Additionally, Judge Woods found that the new rule conflicted with the plain language of the FLSA because it ignored the statute’s broad definitions. 

As a result, Judge Woods vacated the portion of the rule applying to “vertical” employment relationships, in which workers for a staffing company or other intermediary are contracted to another entity.  However, he let stand the portion applying to “horizontal” relationships, in which a worker is employed by two “sufficiently associated” businesses.

Impact to Employers

It is likely that the DOL will appeal this ruling to the U.S. Court of Appeals for the Second Circuit, so this will not be the last time that a court opines on this issue.  In the meantime, however, there is no disputing that this ruling (especially if upheld on appeal) is a blow for the business community, which had urged the Trump administration to narrow the federal joint employment doctrine that had been expanded under the Obama administration. 

Due to this court ruling, employers now have less certainty about their relationship with one another in the joint employment context.  Thus, if any employers have revised their contracts with staffing agencies, subcontractors, or other intermediary employers since January, they should review those contracts to make sure they do not violate the joint employment standard that was in place prior to January.  And, until an appeal is ruled on or further guidance from the courts is issued, employers should adhere to the more expansive definition of joint employment when drafting contracts with staffing agencies or other subcontractors going forward.  

As always, we will keep you apprised of future developments in this ever-changing area of the law.

[BONUS WEBINAR] HR and Workplace Safety Implications of COVID-19 for Brewers, Distillers, and Winemakers

On Monday, March 30, 2020 at 1 PM Eastern, join Eric J. Conn, Kara M. Maciel, and Daniel C. Deacon of the law firm Conn Maciel Carey for a complimentary webinar: “HR and Workplace Safety Implications of COVID-19 for Brewers, Distillers, and Winemakers.”

There have been a number of significant developments related to the 2019 Novel Coronavirus – now officially called “COVID-19.” The World Health Organization declared a global pandemic, President Trump initiated a National Emergency Order, and state and local officials have been ordering shutdowns of non-essential businesses and mandatory shelter-in-place orders. Furthermore, Congress passed emergency legislation that temporarily requires employers to provide paid sick and family leave and the Department of Labor has issued guidance on how employers should comply with employment and workplace safety laws.

Local craft breweries, distilleries, and wineries have been deemed essential businesses under current federal and state directives, such as the Virginia and Maryland governors March 23, 2020 orders, but the traditional way of doing business has changed considerably. These changes have raised numerous questions regarding how small businesses can successfully operate while complying with these new requirements.

During this webinar, participants will learn about recent developments, new federal legislation, EEOC, CDC and OSHA guidance, including:

  • Federally required Paid Family Leave and Paid Sick Leave;
  • Strategies for employers to prevent workplace exposures while complying with Federal and State labor and employment laws;
  • OSHA’s guidance about preventing workers from exposure to COVID-19 and related regulatory risks;
  • FAQs for employers about managing the Coronavirus crisis in the workplace;
  • Federal and state orders concerning essential businesses and financial assistance; and
  • Tips to maintain a thriving brewery, distillery, or winery while shifting business models.

​Click here to register for this webinar.

For additional employer resources on issues related to COVID-19, please visit the Employer Defense Report and OSHA Defense Report.  Conn Maciel Carey’s COVID-19 Task Force is monitoring federal, state, and local developments closely and is continuously updating these blogs with the latest news and resources for employers.

DOL Releases Final Rule for Determining Joint Employer Status

Department of LaborEarlier this week, on January 12, 2020, the U.S. Department of Labor (DOL) announced the release of its final rule revising and updating its regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA).  According to DOL, “The final rule provides updated guidance for determining joint employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity, including guidance on the identification of certain factors that are not relevant when determining joint employer status.”  The DOL published its Notice of Proposed Rulemaking (NPRM) on April 9, 2019, and received over 12,000 comments within the 30-day comment period.  The final rule becomes effective on March 16, 2020, 60 days after publication in the Federal Register today, January 16, 2020.

As a threshold matter, under the FLSA, an employee working for one company may be found to be the joint employee of a second, independent company, depending on the nature and extent of control over the employee’s work.  Joint employer status is important for numerous reasons, including the fact that a joint employer can be held joint and severally liable for FLSA wage and hour obligations.  In 1958, DOL published an interpretive regulation, 29 C.F.R. § 791, explaining that joint employer status depends on whether multiple persons are “not completely disassociated” or “acting entirely independently of each other” with respect to the employee’s employment. 

Specifically, the regulation provided three situations where two or more employers are generally considered joint employers: (1) where there is an arrangement between the employers to share the employee’s services (e.g., to interchange employees); (2) where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or (3) where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.  The DOL issued its NPRM out of concern that Continue reading

The Final Overtime Rule Explained:  What Every Employer Must Do Next

By: Kara M. Maciel and Lindsay A. DiSalvo

shutterstock_losing moneyAfter receiving over 116,000 comments on its Proposed Rule to revise the version of the Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees Rule (“Overtime Rule”) promulgated in 2016, the U.S. Department of Labor (“DOL”) has issued a final, revised version of the Overtime Rule.  On September 24, 2019, the DOL announced the final Overtime Rule (“revised Overtime Rule”) through a press release touting the impact of the Rule and highlighting its major changes.  Notably, the press release reflects the significant impact the change in the threshold salary level for the white-collar exemptions is projected to have on employees – lowering the number of employees likely to become eligible for overtime pay from 4.2 million under the 2016 version of the Overtime Rule to 1.3 million.  This is due to the DOL decreasing the salary threshold level from $913.00 per week to $684.00 per week under the revised Overtime Rule.    

Significantly, the Rule takes effect on January 1, 2020 – in just under 100 days.  This timeline does not provide for a phase-in period as advocated for by many commenters and trade associations, and is a much shorter time period than 192 days employers were given in 2016 when the Overtime Rule was promulgated, and the 120 days given in 2004.  As justification for this timeline, the DOL stated that Continue reading

DOL Opinion Letter Clarifies One-Month Representative Period under Section 7(i) Overtime Exemption for Retail and Service Industry Employees

stack of moneyOn September 10, 2019, the U.S. Department of Labor (DOL) issued a new Opinion Letter providing clarity on the Fair Labor Standards Act’s (FLSA)’s Section 7(i) retail or service establishment overtime pay exemption that commissions on goods or services represent more than half an employee’s compensation for a representative period of not less than one month

The FLSA Section 7(i) exempts Continue reading

Hurricane Headaches: HR Tips for Employers

Hurricane.jpgHurricane Dorian is approaching the Southeastern United States, and first and foremost, employers need to make sure their employees, customers, and guests are safe from the storm.

Natural disasters such as hurricanes, earthquakes and tornadoes have posed unique human resource (HR) challenges from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time.

Although no one can ever be fully prepared for such natural disasters, it is important to be aware of the federal and state laws that address these situations. Our guidance can be used by employers in navigating through the legal and business implications created by events such as hurricanes.  In addition, the information may be applicable to other crises and disasters, such as fires, flu epidemics and workplace violence.

Frequently Asked Questions 

If a work site is closed because of the weather or cannot reopen because of damage and/or loss of utilities, am I required to pay affected employees?

The Fair Labor Standards Act requires employers to pay their non-exempt employees only for hours that the employees have actually worked. Therefore, an employer is not required to pay nonexempt employees if it is unable to provide work to those employees due to a natural disaster.

An exception to this general rule exists when there are employees who receive fixed salaries for fluctuating workweeks. These are nonexempt employees who have agreed to work a specified number of hours for a specified salary. An employer must pay these employees their full weekly salary for any week in which any work was performed.

For exempt employees, an employer will be required to pay the employee’s full salary if the work site is closed or unable to reopen due to inclement weather or other disasters for less than a full workweek. However, an employer may require exempt employees to use available leave for this time. Continue reading

U.S. Department of Labor Receives Close to 60,000 Comments to its Proposed Overtime Rule Raising the Minimum Salary Threshold for Exempt Workers

Increasing Money GraphOn March 22, 2019, the U.S. Department of Labor (DOL) released its proposed rule to raise the annual salary threshold for a worker to qualify as exempt under its “white collar” regulations from $23,660.00 to $35,308.00.  The public comment period closed yesterday, May 21, 2019, with almost 60,000 comments from the business and worker communities.

History of the Proposed Rule

The road to a final rule over the salary threshold has been long and bumpy for the DOL.  In 2014, President Obama directed the DOL to “update and modernize” the existing Fair Labor Standards Act’s (“FLSA”) white collar exemptions.  Two years later, the DOL released its final rule revising the regulations by doubling the salary threshold to $47,476.00.

The final rule dramatically increased the number of workers who would qualify for overtime pay, forcing every employer in the country to carefully assess how to handle the additional financial burden. Continue reading

DOL Revises Field Operations Handbook to Clarify Interpretation of FLSA’s Dual Jobs Regulation

Department of LaborThe U.S. Department of Labor (“DOL”) has officially curtailed another controversial interpretation of its dual jobs regulation that has plagued employers for more than decade – i.e. the 20% rule.  This is welcome news for the hospitality industry and other employers who employ tipped employees, as the previous rule effectively forced employers to track and monitor the time that tipped employees spent on non-tipped tasks and “related duties.”  Although the DOL issued an opinion letter rescinding its interpretation of the 20% rule in November 2018, the DOL’s recent revisions to its Field Operations Handbook has official dispelled lingering concerns about the DOL’s interpretation of the Fair Labor Standards Act’s dual jobs regulation and potential enforcement of the 20% rule.

The Tip Credit

Under the federal Fair Labor Standards Act (“FLSA”), employers must pay employees a minimum wage of $7.25 per hour. Various state wage and hour laws impose higher minimum wage requirements, but employers covered Continue reading

DOL Says Goodbye to the 80/20 Rule for Tip Credits

On November 8, 2018, the Department of Labor (DOL) issued an opinion letter retracting the controversial “80/20 rule” for tipped employees.  shutterstock_losing moneyUnder this rule, if a tipped employee spent more than 20% of his or her working time performing “non-tipped” duties, his or her employer could not take a tip credit for time spent performing those non-tipped duties.  The rule caused years of confusion, especially among employers.  After all, what duties exactly qualified as “non-tipped”?   Would folding napkins in between waiting tables count?  And were employers expected to track every second of an employee’s day to determine if those non-tipped duties exceeded 20% of the total workday?

Under the DOL’s latest opinion letter on this issue, it has made clear that the it “do[es] not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the [Fair Labor Standards] Act are met.”  Accordingly, employers should be able to breathe at least a sigh of relief.  So how did we get here, and what should employers be able to expect in the new year?

By way of background, under the Fair Labor Standards Act (FLSA), “tipped employees” are defined as Continue reading

U.S. Supreme Court to Hear Legal Challenge to Auer Deference Standard

shutterstock_gavelIn 1997, the U.S. Supreme Court decided the case of Auer v. Robbins, establishing the standard for what has become known as Auer deference (or Seminole Rock Deference from Bowles v. Seminole Rock and Sand Co. (1945)).  This decision and the standard it set is significant for employers because it gives substantial latitude to federal agencies, like the Department of Labor, to interpret their own ambiguous standards.  Specifically, in Auer, the Supreme Court held that an Agency’s, in this case the Department of Labor, interpretation of its own standards is “controlling unless ‘plainly erroneous or inconsistent with the regulation.’”  In other words, if it’s not clear what is required by the plain language of the standard, the Court will generally defer to the Agency’s own reasonable interpretations of its regulations.

However, the Supreme Court will now have the opportunity to reconsider Auer deference in the case of Kisor v. Wilkie.  On December 10, 2018, the Court agreed to review Question 1 of the petition for certiorari, which specifically asks “[w]hether the Court should overrule Auer and Seminole Rock.”  Continue reading