The U.S. Department of Labor (DOL) has issued a final rule to rescind regulations that established a new test for joint employment under the federal Fair Labor Standards Act (FLSA). The change takes effect September 28, 2021.
Background:
The FLSA requires employers to pay non-exempt employees at least the minimum wage for each hour worked and overtime when they work more than 40 hours in a workweek. There are also certain recordkeeping requirements. Under the FLSA, more than one employer may be responsible for complying with the FLSA and for violations when a joint-employer relationship exists. By way of example provided by the DOL, a joint employer relationship could occur where a hotel contracts with a staffing agency to provide cleaning staff, which the hotel directly controls. If the agency and the hotel are joint employers, they are both responsible for worker protections.
In early 2020, the Trump Administration issued regulations that changed the test for determining whether a joint-employer relationship exists for the purposes of the FLSA. Under those regulations, joint employment exists where the other entity is acting directly or indirectly in the interest of the employer in relation to the employee. To apply this standard, the regulations established a four-part test that looked at whether the potential joint employer:
· Hires or fires the employee;
· Supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;
· Determines the employee’s rate and method of payment; and
· Maintains the employee’s employment records.
Those regulations took effect March 16, 2020 but were vacated by a federal court in New York in September 2020.
Final Rule:
Effective September 28, 2021, the final rule formally rescinds the Trump-era regulations on joint employment in their entirety. In rescinding the regulations, the DOL said the four-part test was too rigid and may not have easily encompassed all scenarios in which joint employment may arise. The DOL also said the test was different, to varying degrees, from the tests applied by every court to have considered joint-employer questions.
Compliance Recommendations:
With the joint employer rule rescinded, employers must now again consider various interpretations of the FLSA’s joint employer test derived from federal court decisions. The DOL says it will continue to consider legal and policy issues relating to joint employment before determining whether alternative guidance is appropriate. In the meantime, impacted employers should watch for developments closely and consult legal counsel when determining whether a joint-employment relationship exists. Click here for more information.