DOL rescinds Trump-era rule on joint employment

July 29, 2021
In The News

(Reuters) - The U.S. Department of Labor on Thursday withdrew a Trump administration rule that made it more difficult to hold companies liable as "joint employers" of contractors and franchise workers under federal wage law, after a federal judge blocked the rule from taking effect.

DOL's Wage and Hour Division (WHD) said the March 2020 rule was inconsistent with the Fair Labor Standards Act and improperly limited the factors that courts and the agency could use to determine whether companies could be jointly liable for.

Joint employment has been one of the most contentious issues in employment law over the last decade. Worker advocates and many Democrats have accused companies of farming out their legal obligations to contractors, staffing firms and franchisees while still maintaining control over workers. But trade groups and Republicans have countered that a strict joint employment standard undermines the franchising model and limits job growth.

Under the 2020 rule, companies are considered joint employers of contract and franchise workers only if they hire, fire and supervise employees, set their pay, and maintain employment records.

DOL in 2017 had withdrawn Obama-era guidance that said a finding of joint employment hinges on numerous factors that look at the "economic realities" of the employment relationship, such as the nature of the work being performed, whether workers were integral to a company's business, and whether companies could potentially control working conditions.

The regulation rescinding the Trump-era rule will be formally published on Friday and will take effect Sept. 28.

Jessica Looman, the acting administrator of WHD, said in a statement that the department would follow the longstanding policy for determining joint employment under the FLSA.

WHD "will continue to follow the law and judicial precedent when evaluating joint employer relationships to enforce worker protections," she said.

Thursday's move was criticized by Republicans in Congress. Reps. Virginia Foxx of North Carolina and Fred Keller of Pennsylvania in a joint statement said rescinding the rule "creates needless confusion, ambiguity and red tape during an already difficult time for employers, who are facing an onslaught of anti-business policy and rhetoric from this administration."

Ben Brubeck, vice president of construction trade group Associated Builders and Contractors, said the withdrawal of the rule was disappointing, if not surprising. “ABC supported the prior final rule because it promised to bring additional clarity to a confusing area of the law, help alleviate unnecessary barriers to and burdens on contractor and subcontractor relationships throughout the construction industry, reduce needless litigation and encourage innovation in the economy.”

A Manhattan federal judge last year blocked the Trump administration rule from taking effect, saying its definition of "employment" was too narrow and DOL had not adequately considered the effects of the rule on workers.

The ruling came in a lawsuit by New York and several other Democrat-led states, who said the rule would make it more difficult for states to enforce their own wage laws. The U.S. Chamber of Commerce, International Franchise Association and other major business groups intervened in the case on behalf of DOL.

An appeal of the judge's ruling is currently pending before the 2nd U.S. Circuit Court of Appeals. DOL in a May brief took no position on the merits of the rule but urged the 2nd Circuit to find that the states did not have standing to challenge it.