A federal district court judge in New York has struck down regulations relating to joint employment under the Fair Labor Standards Act (FLSA).
Among other things, 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. Under the FLSA, more than one employer may be responsible for FLSA violations when a joint-employer relationship exists.
There are generally two different types of joint employment:
- Scenario 1: The employee has an employer who employs them to work, but another entity simultaneously benefits from that work. For example, the employer could be a subcontractor, and the potential joint employer is the general contractor. Or a joint employer relationship might exist where a business uses a contractor for cleaning services. This is also known as vertical joint employment.
- Scenario 2: One employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek, but the jobs and the hours worked for each employer are separate.
Earlier this year, the U.S. Department of Labor issued a final rule that primarily addressed vertical joint employment (Scenario 1 above). Under the final rule, joint employment exists in Scenario 1 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 final rule established a four-part test that looks 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.
Shortly after the final rule was issued, a group of states filed a lawsuit challenging it.
New York District Court's Ruling:
On September 8, 2020, a federal judge for the Southern District of New York struck down the final rule's interpretation of vertical joint employment, finding that it conflicts with the FLSA and is arbitrary and impermissibly narrow. The court said that while the four factors the DOL adopted for the test can be relevant to the determination of joint employment, the DOL went too far in requiring that an entity satisfy one or more of those factors in order to be considered a joint employer. The court also criticized the DOL's final rule for excluding economic dependence as irrelevant to joint employer status, finding that it contradicts caselaw and the DOL's own views.
The judge's ruling creates confusion about how to determine whether joint employment exists. For instance, it's unclear whether the ruling applies to just employers in the Southern District of New York (the counties of New York, Bronx, Westchester, Rockland, Putnam, Orange, Dutchess, and Sullivan) or employers nationally. The ruling itself doesn't address this issue, and the DOL hasn't responded to the ruling yet. All employers should monitor the situation closely and discuss the implications of the ruling with their legal counsel. Please contact your dedicated service professional with any questions.