KHVPF Insight

Who’s The Boss? Evolution Of The Join Employer Rule

Who’s The Boss? Evolution Of The Join Employer Rule

The Biden Administration quickly took action to rescind the employer-friendly joint employer standard adopted by the Trump Administration. Only a few months into Biden’s presidency, the White House Office of Information and Regulatory Affairs announced that the Trump Administration’s version of the Joint Employer Rule (“2020 Joint Employer Rule”) (85 Fed. Reg. 2820), which became effective in March 2020, was pending regulatory review. On July 30, 2021, the Department of Labor (“DOL”) made it official and released a Final Rule entitled “Rescission of Joint Employer Status under the Fair Labor Standards Act,” 86 Fed. Reg. 40939, which became effective on September 28, 2021 (“2021 Rescission Rule”). This represents a significant shift that, if ultimately left unchanged, would likely result in increased liability for employers under the Fair Labor Standards Act (“FLSA”).

What Is a Joint Employer Under the FLSA?

The FLSA does not use the term “joint employer” but instead only defines an “employer” to “include[] any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. §203(d). Courts interpreting this definition have opined that “[m]ore than one ‘employer’ can be responsible for FLSA obligations.” U.S. Dep’t of Labor v. Cole Enter., Inc., 62 F.3d 775, 778 (6th Cir. 1995). Courts have also recognized that the FLSA directly contemplates the existence of several simultaneous employers who may be responsible for compliance with the FLSA. Falk v. Brennan, 414 U.S. 190, 195 (1973). Whether one is an employer within the meaning of the FLSA is a question of law. Dept. of Labor v. Cole Enter., supra, 62 F.3d at 778.

2020 Joint Employer Rule

The 2020 Joint Employer Rule explicitly stated that its goal was that “employees will have the legal right to collect wages due under the [FLSA] from fewer employers,” 85 Fed. Reg. at 2821. To that end, under the 2020 Joint Employer Rule, there were two constructs for determining whether multiple employers could be jointly and severally liable for a violation of the FLSA. The first concerned “vertical” joint employment, which exists “when an employee of one employer (referred to . . . as an ‘intermediary employer’) is also, with regard to the work performed for the intermediary employer, economically dependent on another employer.” Opinion Letter from U.S. Dep’t of Labor, Wage & Hour Div., 2016 WL 284582, at *4 (Jan. 20, 2016). Four factors were used in a vertical joint employment analysis, i.e., whether the entity (1) hires and fires employees; (2) supervises and controls employees’ work schedules or conditions of employment to a substantial degree; (3) determines employees’ rates and methods of payment; and (4) maintains employment records. See 85 Fed. Reg. 2820.

A “horizontal” joint employment analysis is “considered when an employee is employed by two (or more) technically separate but related or overlapping employers.” 2016 WL 284582, at *5. Under the horizontal joint employment analysis, if the employers are “sufficiently associated” with the employee’s employment, they are considered joint employers.

2021 Rescission Rule

Though the 2021 Rescission Rule may seem like another left turn in employment law jurisprudence, the 2020 Joint Employer Rule was already on life support before the Biden Administration stepped in and levied the final blow. Most of the 2020 Joint Employer Rule had been vacated by the Southern District of New York in New York v. Scalia, 490 F. Supp.3d 748 (S.D.N.Y. Sept. 8, 2020), just 6 months after the rule went into effect. Seventeen states, including Michigan, sued the DOL arguing that the 2020 Joint Employer Rule violated the Administrative Procedures Act because it improperly narrowed who is considered a joint employer. The Court agreed: “[i]f the Department departs from its prior interpretation, it must explain why . . . And it must make more than a perfunctory attempt to consider important costs, including costs to workers, and explain why the benefits of the new rule outweigh those costs. Because the [2020] Rule does none of those things, it is legally infirm.” Id. at 757. The Court specifically vacated the portion of the 2020 Rule that applied to “vertical” employment relationships because the four factor test was “a proxy for control”; and “the FLSA rejected control as the standard for determining employment.” Hence “any vertical joint employment analysis must [examine] more than the potential joint employer’s control over the employee.” Id. at 761 (internal citations omitted). The Court, however, let stand the portion applying to horizontal employment relationships. Id. at 795.

As recently as January 12, 2021, the federal court in the Eastern District of Michigan similarly relied on Scalia and eschewed the factors outlined in the 2020 Joint Employer Rule. See Reyes-Trujillo v. Four Star Greenhouse, Inc., 513 F. Supp. 3d 761, 783 (E.D. Mich. 2021). In quoting Scalia, the Reyes-Trujillo Court held, “the FLSA does not distinguish between employers and joint employers. Any factor that is relevant to whether an entity is an employer is also relevant to whether the entity is a joint employer. Scalia, supra, 490 F.Supp.3d at 790.

Since President Biden took office, however, the Second Circuit vacated the prior decision on the 2020 Trump Rule and remanded with instructions to dismiss the case as moot. The Second Circuit reasoned that since the DOL had rescinded the regulation from which the injunctive relief was sought, there was no claim for relief. Scalia, unpublished order of the Second Circuit, issued October 29, 2021.

Where Do We Go From Here?

The effect of the 2021 Rescission Rule will be increased liability for employers because it is more likely that an employer will be determined to be a joint employer and therefore liable under the FLSA for another employer’s actions. Since the DOL has yet to issue its own version of the Joint Employer Rule, courts will likely continue to analyze the issue of joint employment based on past precedent regarding what constitutes an “employee” or “employer.”

The test or factors that a court may turn to in order to answer that question will vary from jurisdiction to jurisdiction and court to court. Courts in the Sixth Circuit, for example, may follow the “economic reality test” used in Reyes-Trujillo. In evaluating whether there was a joint employer relationship, in that case, the Court considered the six factors outlined in Acosta v. Off Duty Police Servs., Inc., 915 F.3d 1050, 1055 (6th Cir. 2019):

  • (1) the permanency of the relationship between the parties;
  • (2) the degree of skill required for the rendering of the services;
  • (3) the worker’s investment in equipment or materials for the task;
  • (4) the worker’s opportunity for profit or loss, depending upon his skill;
  • (5) the degree of the alleged employer’s right to control the manner in which the work is performed . . . ; and
  • (6) whether the service rendered is an integral part of the alleged employer’s business.

The Court went on to state that “[n]one of these factors is determinative on its own, and each must be considered ‘with an eye toward the ultimate question—[the worker’s] economic dependence on or independence from’ the alleged employer.’” Id.

Overall, the analysis of what is a joint employer for FLSA purposes is a fact-intensive process. But the current test is certainly more favorable to employees and less favorable to employers than the now-rescinded test adopted by the Trump Administration.

Michelle Ruggirello