Recent Trump
Administration efforts to chip away at employee protections under federal law
faced a setback earlier this month. A federal court in New York struck down a
large portion of a
January 2020 Department of Labor (“DOL”) rule that changed how to determine whether
multiple entities are an individual’s employer under the “joint employer
doctrine.” The case is New York v. Scalia.
Non-exempt employees
are entitled to a federal minimum wage and overtime under the federal Fair
Labor Standards Act (“FLSA”). But sometimes it can be tricky to determine who
is supposed to pay these wages when more than one entity directly benefits from
the employee’s work—for example, when an employee works at a franchise or is
placed by a staffing agency. Prior to the new rule, which took effect in March
2020, the Department of Labor’s guidance instructed that, in circumstances like
these, multiple entities could be considered employers of the same individual
if that individual economically depended on the multiple entities. The Trump
Administration rule scrapped this analysis in favor of an employer-friendly
four-factor test based solely on the level of control each possible joint
employer exerts over the worker. The factors in the rejected test were whether
the possible joint employer:
(i)
Hires or fires
the employee;
(ii)
Supervises
and controls the employee's work schedule or conditions of employment to a
substantial degree;
(iii)
Determines
the employee's rate and method of payment; or
(iv)
Maintains
the employee's employment records.
This change strongly
benefited employers who maintain franchise relationship or rely heavily on
contractors or workers staffed by an agency. This corporate windfall would come
at the expense of workers, who are far less likely to be able to enforce their
FLSA rights under the new standard, if, for example, multiple entities govern
their employment so that no one employer meets the new test.
Seventeen states and
the District of Columbia sued to block the rule, culminating in the decision
striking down much of the rule earlier this month. The Court’s ruling rested on
two main reasons. First, the rule improperly relied solely on the FLSA’s
definition of “employer,” out of context. The FLSA’s definition of “employer” defines
an employer as “any person acting directly or indirectly in the interest of an
employer in relation to an employee,” requiring that a court deciding
which entities are liable consider the definition of the term, “employee.” The
definition of “employee,” in turn, necessitates reference to the definition of
“employ.” Accordingly, the Court determined that the DOL should not have taken
the word “employer” out-of-context by ignoring the other statutory definitions
in crafting its employer-friendly rule. In its analysis, the Court emphasized the
background and purpose of the FLSA and noted that the law’s definitions of
“employer,” “employ,” and “employee” are intentionally broad in order to
provide robust protections for workers.
Second, the Court held
that the new rule was too restrictive. The FLSA had intentionally refused to
place its focus entirely on control in order to give the law a broader scope. Although
control could be sufficient to establish joint employer liability, the Trump
Administration rule made control necessary to establish an employer-employee
relationship, which was a step too far.
The Court also found
procedural deficiencies with the new rule. For one, the rule deviated from past
DOL interpretations in 1997, 2014, and 2016 without adequate explanation. In
another notable portion of the opinion, the Court observed that the DOL initially
did not consider the cost of the new rule to employees when considering the
rule—the DOL had merely stated that the rule would not affect wages “assuming
that all employers always fulfill their legal obligations,” a position which
the Court aptly described as “silly.” Although the DOL ultimately acknowledged
that the impact of the new rule on wages before passing the rule, the DOL completely
disregarded this impact and ignored an estimate by the Economic Policy
Institute that the new rule would cost employees $1,000,000,000 (a billion
dollars) per year. This decision laid bare the business community’s bald-faced
power grab in passing the new rule, catering to business interests by
short-changing their workers.
The ruling was not a
complete victory for employees. The court struck down the new rule only as it
applies to “vertical” joint employer liability, but not “horizontal” joint
employer liability. A “vertical” joint employer relationship involves an
employee who has a relationship with both an employer and another business
contracting the employee’s services (such as a contractor, subcontractor,
staffing agency, or franchise), whereas a “horizontal” relationship involves an
employee who employed by two sufficiently related entities (such as a joint
venture). The Court left the DOL’s changes to “horizontal” joint employment
intact.
If you have been denied minimum wage or overtime due, contact Bryan Schwartz
Law.
