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08.27.21   |   Insights

Department of Labor Rescinds Joint Employer Rule, Increases Employer Exposure

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Effective September 28, 2021, the U.S. Department of Labor (“DOL”) will rescind the Joint Employer Rule, a Trump administration rule that made it more difficult to hold companies liable as joint employers of workers under federal wage and hour law. This will likely increase the possibility of “joint employer status” under the Fair Labor Standards Act (“FLSA”).

The FLSA requires covered employers to pay their non-exempt employees at least the federal minimum wage for every hour worked and overtime for every hour worked over forty hours in a workweek. To be liable for paying minimum wage or overtime, a person or entity must be an “employer,” which includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” It is well established that an employee can have two or more employers who are jointly and severally liable for the wages due to the employee (i.e., joint employers). Joint employer status is most often raised in the context of franchisee-franchisor relationships, or when utilizing temporary staffing agencies for labor.

The previous rule provided clarity to employers by establishing four non-exclusive factors which weighed an employer’s ability to exercise control over the employee. Factors included an employer’s ability to supervise, terminate, determine pay rate and maintain pay records of the employee. No factor was more important than another, nor was a single factor determinative.

While the DOL has made the decision to rescind the previous rule, it has not announced any new analysis or standard to replace it. As a result, U.S. courts will continue to apply various, often inconsistent, multi-factor tests in cases with this FLSA issue in question. The lack of a clear standard makes it more likely that a broader interpretation will be used, resulting in more frequent findings that an employer is a “joint employer” and thus jointly liable under the FLSA.

As joint employment standards continue to evolve, it is important to keep up-to-date on ongoing developments in this area to best evaluate the risks of joint employment claims. For more information on how to ensure compliance with the laws that impact your business, contact the attorneys at Critchfield, Critchfield & Johnston, Ltd.

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