Provisions of DOL’s New Joint Employer Rules Blocked

On September 8, 2020, Judge Gregory Woods of the US District Court for the Southern District of New York set aside portions of the Department of Labor’s new rule governing joint employer liability that went into effect in March of this year.

There are two types of joint employment under the FLSA – horizontal joint employment and vertical joint employment. This rule, and the subsequent decision invalidating the rule, only concerns vertical joint employment. The standards for consideration of horizontal joint employment remain unchanged. If you have questions regarding horizontal joint employment, please contact Employers Council.

The portion of the rule affected by the ruling involves so-called “vertical joint employment” relationships. Vertical joint employment relationships exist where workers are employed by a “middle-man,” such as a staffing agency or subcontractor, and are then contracted out to do work for other businesses. If a vertical joint employment relationship exists, both employers are simultaneously liable for the proper payment of employee wages under the FLSA.

Under the DOL’s Final Rule, actual control over the terms and conditions of an employee’s employment became the touchstone of the analysis. This is a significant departure from the prior standard, which considered the broader economic realities of the situation when determining joint employment.

The decision by Judge Wood to vacate the provisions of the Final Rule setting the new standard for vertical joint employment renders those provisions moot. For now, employers are left with little guidance as to how to properly structure relationships with staffing agencies, subcontractors, or other similar third parties. If you need assistance determining how to best implement arrangements that may implicate vertical joint employer liability, please contact Employers Council.