Department of Labor Releases Highly Anticipated Final Rule Rescinding 2020 Joint Employer Standard Under the Fair Labor Standards Act

As anticipated, on July 29, the Department of Labor (“DOL”) released a final rule rescinding the “joint employer” standard that became effective in March 2020. The “joint employer” rule addresses instances where there are two different entities that appear to employ workers. When employers are found to be joint employers, one of the employers may be responsible for employment issues, such as minimum wage and overtime violations, even if that employer is not the entity managing the employee. The standard issued in 2020 required that the employer at issue exercise significant control over the employee’s work. The significant control test was narrow and considered “employer-friendly.” The newly issued final rule returns us to a more “employee-friendly” standard, protecting more workers under federal wage-and-hour law as well as other employment laws. The final rule goes into effect on Sept. 28.

The DOL’s final rule has been described by some representatives as a “one-size-fits-all regulatory” approach to determining joint employment. The final rule marks a return to the standard that had been in effect since 1958. See 29 CFR part 791. Under this standard, joint employment exists between two or more employers if “employment by one employer is not completely disassociated from employment by the other employer.” Essentially, where the employee performs work that simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship will generally be considered to exist. Ultimately, a business with merely indirect control over another business’s employees could be held jointly liable. A return to this broader standard will classify more companies as joint employers, increasing potential liability for minimum wage and overtime violations.

In rescinding the prior rule, the DOL noted that the prior rule included a description of joint employment “contrary to statutory language and congressional intent” and failed to account for the department’s prior joint employment guidance. The DOL also cited public policy concerns, including the fact that the prior rule had a “negative effect” on workers’ rights under the Fair Labor Standards Act. We expect additional “employee-friendly” labor and employment regulations will be issued in the coming months.

If you have questions regarding this article, please contact Stephanie V. Romeo (sromeo@clarkhill.com) or another member of Clark Hill’s Labor & Employment Business Unit.

The views expressed are those of the author and not necessarily of Clark Hill PLC. This article is not intended to give legal advice or create an attorney-client relationship. It is comprised of general information. Employers facing specific issues should seek the assistance of an attorney.