payment ; and ( 4 ) maintains the employee ’ s employment records . No one factor is dispositive and the weight of any individual factor depends on the facts of each case . This new rule was a significant departure from AI 2016-1 , assuring employers that so long as they did not actually exercise one or more of these control factors , they would not face joint employer liability under the FLSA .
Challenges to DOL ’ s Joint Employment Rule
The DOL ’ s joint employment rule came under attack by a group of 17 states and the District of Columbia , which sued in the Southern District of New York to block the DOL from enforcing the rule . [ 1 ] Leading business groups including the International Franchise Association , the Chamber of Commerce of the United States of America , HR Policy Association , the National Retail Federation , Associated Builders and Contractors , and The American Hotel and Lodging Association subsequently intervened and joined the lawsuit as defendants . The plaintiffs contended that the rule made workers “ even more vulnerable to underpayment and wage theft ” and created a perverse incentive for businesses to “ offload their employment responsibilities to smaller , less sophisticated companies with fewer resources .” They further alleged that the rule violated the Administrative Procedure Act and was arbitrary and capricious in that it impermissibly departed from the DOL ’ s prior interpretations . Judge Gregory Woods agreed and granted partial summary judgment for the plaintiffs on September 8 , 2020 .
With respect to vertical employment relationships , Judge Woods found that the
DOL had failed to justify why it departed so significantly from the prior rule and did not adequately explain its reasons for changing the rule . The DOL ’ s analysis failed to account for the costs to workers and how the new rule ’ s benefits justified those costs . Without a more developed rationale , the judge concluded that the new rule was “ arbitrary and capricious .” Further , Judge Woods took issue with the conflicts between the FLSA ’ s broad definitions of “ employer ” and “ employee ” and the new rule ’ s extremely narrow definition of joint employer . Since the new rule required an entity to actually exercise , rather than just reserve the right to exercise , one of the four control factors , the joint employer standard conflicted with the FLSA .
As a result , the portion of the DOL ’ s rule that applies to “ vertical employment relationships ” has been vacated . The rule ’ s application to “ horizontal employment relationships ,” however , remains unchanged .
What ’ s Next for Employers
As noted above , the district court ’ s ruling is subject to appeal , either by the DOL or the business group intervenors . In the meantime , employers who share employees or who contract with staffing agencies are wise to carefully assess those relationships to avoid unintended indicia of joint employer status . Employers should also consider whether the businesses with whom they share employees have conducted wage and hour audits and whether any indemnification provisions for joint employer lawsuits are part of their agreements .
If you have any questions about compliance with state , federal , and local statutes and regulations , Carlton Fields ’ Labor and
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