Federal Court Strikes Down DOJ’s Narrow Definition of “Joint Employer”

The economic reality for many employees is that they work for more than one employer. Under long-standing federal law and regulations, when a “joint employer” condition exists, then BOTH employers are jointly liable for violations of federal labor laws including unpaid wages and overtime under the federal Fair Labor Standards Act (“FLSA”). 29 U.S.C. 201, et seq. In legal terms, joint employers are jointly and severally liable for payment of wages and damages under the FLSA, the federal wage and overtime law.

The joint employer doctrine is good for workers because it prevents the employer from playing a shell game. It allows workers to sue ALL of their employers if wages are stolen, overtime is not paid, and if other labor law violations occur. The joint employer doctrine is also good for workers because it is a protection for those circumstances in which one of the joint employers goes out of business or files for bankruptcy. For practical reasons, wages and money damages generally cannot be collected from a defunct business. Under the joint employer doctrine, employees can sue all of their joint employers, which helps ensure that workers can recover the wages they are owed.

Earlier this year, the federal Department of Labor (“DOJ”) issued new regulations under the FLSA weakening the joint employer doctrine. See DOJ’s 2020 Final Rule here. This was a pro-employer Final Rule and was very much “anti-worker.”

Essentially, the DOJ’s 2020 Final Rule crafted a very narrow definition of “joint employer” in circumstances of vertical joint employment. As an example, in the construction industry, imagine an employee who works for a subcontractor which, in turn, is hired by a general contractor. Depending on various factors, that might be an example of vertical joint employment. Staffing agencies and restaurant franchises are other common examples of vertical joint employment. The DOJ’s 2020 Final Rule created a very narrow definition of joint employment taking into account only four factors:

  • Which employer actually hires or fires an employee
  • Which employer actually supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  • Which employer actually determines the employee’s pay and method of payment and
  • Which employer actually maintains employment records

The DOJ’s 2020 Final Rule explicitly excluded various factors that are traditionally considered when courts evaluate whether joint employer liability exists. For example, the 2020 Final Rule explicitly excluded whether an employer has the right or ability to hire or fire an employee. Rather, the 2020 Final Rule looks only to which employer actually did the hiring or firing. The Final Rule also excluded other factors like whether the work involves a special skill, initiative or use of judgment, whether a worker has the opportunity for profit or loss, whether the worker uses his/her own tools and equipment, whether the worker has similar relationships with other businesses and more.

As noted, in good news for workers, a federal judge has struck down the DOJ’s 2020 Final Rule with respect to situations of alleged vertical joint employment. See New York v. Scalia, Case No. 1:20-cv-1689 (SDNY, September 8, 2020). More than 20 Attorneys General from various States around the country sued to overturn the 2020 Final Rule. They argued that, in issuing its narrow definition of joint employer, the Final Rule was contrary to what the FLSA required, was contrary to Supreme Court and other legal precedents, was without logic and was capricious. Fortunately for workers, the court agreed. The DOJ will now have to use the previous, more expansive, definition of “joint employer” which is more protective of employees.

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