Repeal of Joint Employer Rule Puts Franchisors, Others Back in DOL's Crosshairs
Author: Michael Cardman, XpertHR Legal Editor
July 29, 2021
The repeal of the rule will make it easier for the DOL to renew enforcement efforts aimed at businesses that use franchising, subcontractors or third-party intermediaries such as temporary employment agencies or labor brokers.
David Weil, President Biden's nominee to lead the DOL's Wage and Hour Division (WHD), targeted these types of relationships when he headed WHD during the Obama administration - and he appears poised to go after them again.
The joint employment rule, which took effect in March 2020, is intended for determining joint employer status when an employee performs work for an employer that simultaneously benefits another individual or entity.
Last year, a federal district court vacated part of the rule used for determining whether two employers that simultaneously benefit from an employee's work are joint employers, which was known as the "vertical joint employment rule."
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.
An appeal is pending before the 2nd Circuit Court of Appeals. Now that the rule is being repealed, the Biden administration is expected to move to dismiss the case.
The DOL has no immediate plans to fill the void. But it left the door open for issuing new regulations or other guidance in the future, saying it "will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate."
In the meantime, there is a strong body of case law on which the courts can rely. The DOL noted that all of the appellate courts that have considered FLSA joint employment have looked to the economic realities test as the proper framework.
"Joint employment is part of our longstanding federal labor laws. [WHD] will continue to follow the law and judicial precedent when evaluating joint employer relationships to enforce worker protections," said Jessica Looman, acting administrator of the WHD.
Many business groups had welcomed the Trump-era rule, saying it provided "much-needed clarity" around the often-ambiguous criteria for joint employment. By throwing it out, the DOL will "place a cloud of uncertainty over the heads of local small business owners that are trying to lead this economic recovery," the International Franchise Association warned.