Federal Court Strikes Down Department of Labor’s Joint Employer Rule

By Carissa Davis

In State of New York v. Scalia, No. 1:20-cv-1689-GHW (S.D.N.Y. September 8, 2020), the Southern District of New York struck down part of the Department of Labor’s (the “DOL”) rule on joint employment under the Fair Labor Standards Act (the “FLSA”).  

In some circumstances, multiple employers may qualify as “joint employers” under the FLSA, and the two may be jointly and severally liable for wage and hour violations. While there are two circumstances giving rise to joint employer relationships, recent controversy surrounds vertical joint employment, i.e. relationships that arise in the context of subcontracting, staffing agencies, or other circumstances where the two employers are “not completely disassociated.”

This year, the DOL issued a rule that narrowed the definition of joint employer under the FLSA (the “Final Rule”). Read more: Sherman & Howard Blog Post – “Joint Employer Status Muddied Further.The Final Rule adopted a four-factor test.  The relevant factors for determining joint employer status were: whether the entity hires or fires the employee; supervises and controls the employee’s work schedule or employment conditions; determines the rate and method of pay; and maintains employee records. The Final Rule made the entity a joint employer only if the entity actually exercised control over one or more factors. This Final Rule significantly narrowed the circumstances previously thought to give rise to a joint employer relationship.

In response to the Final Rule, eighteen states (the “States”) sued, arguing the Final Rule violated the Administrative Procedure Act (the “APA”) and did not comport with the FLSA’s broad definitions and coverage. The District Court partially found for the States, holding the Final Rule, as applied to vertical joint employment, conflicted with the FLSA and violated the APA. The DOL considered the FLSA’s definition of “employer,” but failed to consider the definitions of “employee” and “employ,” which were deliberately drafted to create broad coverage. The four-factor test was impermissibly narrow because it focused on the touchstone of control, which was expressly rejected by the FLSA. Moreover, the DOL failed to justify its departure from prior interpretations and caselaw finding joint employment in a broader array of circumstances.

Anticipating whether an entity would be held liable as a joint employer was already difficult; the legal landscape was far from clear. But this decision injects even greater uncertainty. Moreover, the DOL commented that it was “disappointed” with the court’s decision and was “weighing all options,” indicating the DOL may file an appeal. Consider contracts with staffing agencies and compliance with wage and hour laws carefully.