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Department of Labor Rescinds 2020 Rule, Making It Easier to Label Companies as Joint Employers

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By rescinding a March 2020 rule, the U.S. Department of Labor (DOL) is making it more likely that companies will be considered joint employers under the Fair Labor Standards Act (FLSA).  

What is a joint employer?

For minimum wage and overtime requirements, two companies are considered joint employers when they hire a worker for the same job, such as when a company uses a temporary staffing agency to hire workers. Although the temp agency is the employer of record, the company contracts with the temp agency for its benefit.  

If the companies are considered joint employers, they are both liable for the worker’s minimum wage, child labor, and overtime compensation at no less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek for nonexempt employees. Staffing firms, subcontractors, franchisees, or other affiliated companies can all be deemed joint employers.

The previous rule contained standards for both “vertical” joint employment, in which an employee works for only one employer but depends on another business for their work, and “horizontal” joint employment, in which an employee works for more than one distinct company. 

Under the 2020 rule, employers were considered to be “joint” only if they: 

  •     Hire and fire employees
  •     Supervise and control employees’ work schedules or conditions of employment
  •     Determine employees’ rate and method of payment 
  •     Maintain employment records

The rescinded rule also said that the following factors should not determine who is considered a joint employer: 

  •     Having a franchise business model
  •     Providing a sample employee handbook to a franchisee
  •     Allowing an employer to operate a facility on the company’s grounds 
  •     Jointly participating in an apprenticeship program
  •     Offering association health or retirement plan 
  •     Requiring that a business partner establish minimum wage and workplace safety, sexual harassment prevention, and other policies. 

Workers advocates say that rescinding the 2020 rule will ensure more workers receive minimum wage and overtime protections under the Fair Labor Standards Act (FLSA), while trade groups are criticizing the decision, saying that the new rule undermines the franchising model and limits growth.

Why the DOL is rescinding the 2020 rule 

The DOL said it is rescinding the rule because it includes a description of employment that is contrary to the statutory language and congressional intent. The rule also failed to consider the department’s prior joint employment guidance, according to the DOL. 

“Joint employment is part of our longstanding federal labor laws,” said Wage and Hour Division Acting Administrator Jessica Looman. “The U.S. Department of Labor’s Wage Wage and Hour Division will continue to fill the law and judicial precedents when evaluating joint employer relationships to enforce worker protections.” 

Past and pending court cases

A federal judge from the U.S. District for the Southern District of New York struck down much of the previous rule in September 2020, calling it “arbitrary and capricious” (https://news.bloomberglaw.com/daily-labor-report/judge-shoots-down-part-of-labor-department-joint-employer-rule) and saying it weakened workplace protections. 

A case is also pending for the U.S. Court of Appeals for the Second Circuit to determine the legality of the 2020 rule. While the Biden administration may seek dismissal of the case, business groups will likely intervene to defend the 2020 rule. 

How we can help you! 

Founded in 1992, Complete Payroll specializes in payroll, timekeeping, HR, and human capital management. Among the pillars of our organization are talking less and doing more, letting people run the show, investing in our clients, and giving it you straight. Contact us to find out how we can help you navigate the new FLSA rule and any other payroll and HR needs.

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