Second Circuit Strikes Down DOL Joint Employer Rule

Monday, September 14, 2020

On September 8, 2020, Decide Gregory Woods of the U.S. District Courtroom for the Southern District of New York struck down the center of the U.S. Division of Labor’s (DOL) remaining rule revising DOL laws on joint employer standing underneath the Truthful Labor Requirements Act (FLSA).1

The ultimate rule (obtainable right here) narrowed the check for “vertical” joint employment underneath the FLSA by adopting a four-part balancing check to find out whether or not one other entity that concurrently advantages from an worker’s work is a joint employer (for instance, a staffing company or franchisor). The DOL’s check targeted on the entity’s diploma of management over the worker by assessing the flexibility to rent and hearth, the best to oversee the worker’s work schedule, authority over the worker’s pay, and upkeep of employment information.2 This was a big departure from the DOL’s prior check for vertical joint employment, which seemed holistically on the relationship to find out whether or not the financial realities present that the worker is economically depending on the potential joint employer.3

After the issuance of the ultimate rule in January 2020, a coalition of 17 states and the District of Columbia instantly challenged the ultimate rule underneath the Administrative Process Act (APA). Together with his ruling, Decide Woods sided with the coalition, vacating the revised normal for vertical joint employer legal responsibility as a result of it “conflicts with the FLSA” and is unfair and capricious. The ultimate rule didn’t substantively change the check for “horizontal” joint employment, and the ruling left that check intact.4

THE FINAL RULE FAILS ON TWO GROUNDS

Decide Woods held that the ultimate rule violates the APA on two grounds.

First, the ultimate rule conflicts with the FLSA as a result of it improperly depends on the FLSA definition of “employer” as the only textual foundation for figuring out joint employer standing. This strategy contradicts the FLSA’s plain textual content, prior DOL interpretations of the FLSA, and related case legislation from the Supreme Courtroom and decrease courts. 

The FLSA defines “employer” to “embody any particular person appearing instantly or not directly within the curiosity of an employer in relation to an worker.” 29 U.S.C. §203(d). Decide Woods discovered that DOL’s singular deal with this definition to set the joint employer check ignored the circularity of that definition and the interconnectedness of the FLSA’s definitions of “employer,” “worker,” and, most significantly, “make use of.” The FLSA’s definition of “make use of” is central to the joint employer inquiry, he defined, because the time period’s “‘endure or allow to work’ normal offers ‘substance and massive breadth’ to the in any other case unhelpful definitions.” 

Decide Woods concluded that the DOL’s use of the FLSA definition of “employer” to slender the joint employer check ignores the well-established precept that the FLSA’s phrases have to be interpreted expansively to effectuate the FLSA’s broad remedial goal. He defined that this goal is achieved by defining the joint employment relationship based mostly on the financial dependence of the employee, not limiting it to a four-part check based mostly totally on management. 

Second, the ultimate rule is unfair and capricious as a result of the DOL didn’t clarify why it departed from its prior interpretations of joint employer standing or why the ultimate rule conflicts with the joint employment laws underneath the Migrant and Seasonal Agricultural Employees Safety Act. The ultimate rule can also be arbitrary and capricious as a result of DOL did not adequately take into account the ultimate rule’s price to employees.

Whereas Decide Woods acknowledged that the DOL’s justifications for implementing the ultimate rule to advertise uniformity and supply readability had been legitimate, he defined that the DOL “should do higher than this.” Any future rulemaking, he cautioned, should adhere to the textual content of the FLSA and Supreme Courtroom precedent, should embody a proof for departing from the DOL’s prior interpretation, and should take into account vital prices and clarify why the advantages of the brand new rule outweigh these price. 

NEXT STEPS

The federal government has not but introduced whether or not it’ll enchantment the ruling. Nevertheless, a bunch of commerce associations intervened within the district courtroom case and should advocate for the federal government to problem the ruling.

Within the meantime, companies ought to consider their present preparations and work with counsel to establish and mitigate potential joint employment dangers (particularly within the context of franchises, staffing companies, and subcontractors) as a result of a joint employer may be chargeable for the correct cost of an worker’s wages underneath the FLSA.

It is very important observe that Decide Woods’ ruling solely impacts the DOL’s remaining rule on vertical joint employment underneath the FLSA. It doesn’t affect the Nationwide Labor Relations Board’s (NLRB) comparable control-based rule that went into impact in April 2020, or the Equal Employment Alternative Fee’s anticipated rule.5  This ruling might, nevertheless, embolden opponents of these guidelines and result in extra lawsuits sooner or later. 

Footnotes

1 The case is State of New York et al. v. Eugene Scalia et al., No. 1:20-cv-01689 (S.D.N.Y. Sept. 8, 2020). 

2 See Kathleen D. Parker, Amy L. Groff, and Jonathan R. Vaitl, Division of Labor Points Closing Rule to Make clear Joint Employer Customary, Ok&L GATES (Jan. 17, 2020), obtainable right here.

3 Further info on the DOL’s “financial realities” check for vertical joint employment is obtainable right here. See Amy L. Groff and Brianne Bridegum, Division of Labor Proclaims Broad Interpretation of Joint Employment, Ok&L GATES (Feb. 12, 2016). 

4 “Horizontal joint employment” happens when two or extra employers make use of a person for various units of hours in a workweek. Further info on horizontal joint employment is obtainable right here. See Amy L. Groff and Brianne Bridegum, Division of Labor Proclaims Broad Interpretation of Joint Employment, Ok&L GATES (Feb. 12, 2016). 

5 Further info on the NLRB’s joint employer rule is obtainable right here. SeeSang-yul Lee, Amy L. Groff, Melanie Stratton Lopez, and Kathleen D. Parker, The Nationwide Labor Relations Board Points Second in Trio of Company Guidelines to Make clear its Joint Employer Customary, Ok&L GATES (Mar. 2, 2020).