DOL's "Vertical" Joint Employment Rule Struck Down

Author: Michael Cardman, XpertHR Legal Editor

September 9, 2020

A federal district court has vacated a new rule from the US Department of Labor (DOL) for determining whether two employers that simultaneously benefit from an employee's work are joint employers under the Fair Labor Standards Act (FLSA).

Known as the "vertical joint employment rule," the short-lived rule had made it easier for businesses to avoid liability for wage and hour violations made by staffing agencies, subcontractors and others.

However, the court left intact the DOL's "horizontal joint employment rule" for determining joint employment when one employer employs a worker for one set of hours in a workweek, and another employer employs the same worker for a separate set of hours in the same workweek.

The US District Court for the Southern District of New York on September 8 issued an order vacating the vertical joint employment rule on the grounds that:

• It conflicts with the FLSA because it ignores the statute's broad definitions; and
• The DOL failed to adequately justify its departure from its prior interpretations and to account for some of the rule's important costs.

It remains to be seen whether the order will be appealed. A DOL spokesperson told XpertHR, "The Department is disappointed in the decision and will review and evaluate our options with the Department of Justice."

Several business groups - including the International Franchise Association, the US Chamber of Commerce and the National Retail Federation - are a party in the case and could also appeal the order.

Earlier this year, a coalition of state attorneys general filed a lawsuit challenging the rule, saying it would "unlawfully narrow the joint employment standard ... undermine critical workplace protections for the country's low- and middle-income workers, and lead to increased wage theft and other labor law violations."