Ask the Experts: Joint Employer Rule |
By: Mark Burzych
Q: Is there anything new in the joint employer area?
A: Yes! The story continues. Recall, earlier this year, the Department of Labor (DOL) issued a new rule regarding the definition of “joint employer” under the Fair Labor Standards Act (FLSA). The rule was the product of the DOL to create a clear definition of who qualifies as a joint employer. The rule requires a joint employer to actually exercise control over certain conditions of a person’s employment. But while many employers welcomed the DOL’s new rule with a sigh of relief, their reprieve may be short lived.
On September 8, 2020, in New York v. Scalia, a U.S. District Court in the Southern District of New York found that the rule was invalid both because of its substance, and the DOL’s procedure in creating the rule. Though the decision will likely be appealed, franchisors and other affected businesses could again face the uncertainty surrounding joint employer status that the rule was meant to resolve. Specifically, the former standard providing that merely “reserved or potential authority” over employment conditions could establish joint employer status may again become the law.
The critical court analysis was on the issue of “vertical” joint employer status. The court separated the rule’s new standard for determining vertical joint employer status from its “non-substantive revisions to existing law for horizontal joint employer liability” (emphasis added). Because the court found that the former was severable from the latter, only the rule’s change to vertical joint employer liability was vacated as being “legally infirm.” This is particularly concerning for franchisors who are more likely to be in a “vertical” relationship with purported joint employers (their franchisees).
Q: Is there anything new in the joint employer area?
A: Yes! The story continues. Recall, earlier this year, the Department of Labor (DOL) issued a new rule regarding the definition of “joint employer” under the Fair Labor Standards Act (FLSA). The rule was the product of the DOL to create a clear definition of who qualifies as a joint employer. The rule requires a joint employer to actually exercise control over certain conditions of a person’s employment. But while many employers welcomed the DOL’s new rule with a sigh of relief, their reprieve may be short lived.
On September 8, 2020, in New York v. Scalia, a U.S. District Court in the Southern District of New York found that the rule was invalid both because of its substance, and the DOL’s procedure in creating the rule. Though the decision will likely be appealed, franchisors and other affected businesses could again face the uncertainty surrounding joint employer status that the rule was meant to resolve. Specifically, the former standard providing that merely “reserved or potential authority” over employment conditions could establish joint employer status may again become the law.
The critical court analysis was on the issue of “vertical” joint employer status. The court separated the rule’s new standard for determining vertical joint employer status from its “non-substantive revisions to existing law for horizontal joint employer liability” (emphasis added). Because the court found that the former was severable from the latter, only the rule’s change to vertical joint employer liability was vacated as being “legally infirm.” This is particularly concerning for franchisors who are more likely to be in a “vertical” relationship with purported joint employers (their franchisees).
The court’s analysis seems misplaced, since the rule attempted to return the joint employer analysis to a pre-2015 standard, (that required actual control to be exercised to create a joint employer relationship) which was the standard for decades. The DOL and those who intervened in the case, which include numerous trade associations, such as the International Franchise Association, have until November 9, 2020, to file their appeal. Rest assured that this case will be appealed. The joint employer saga continues, despite a four-year battle to settle the joint employer analysis to the standard in place for decades prior to 2015.