DOL Issues Final Rule Addressing Joint Employer Status Under the Fair Labor Standards Act

On Thursday, January 16, 2020, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) published in the Federal Register the much-anticipated Final Rule regarding joint employer status under the Fair Labor Standards Act.  This rule completes the rulemaking process initiated in early April of last year, when WHD published its Notice of Proposed Rulemaking (“NPRM”), which we discussed here.

The new standards reflected in the Final Rule become effective, barring court action in the interim, on March 16, 2020.  This interval of just 342 days from publication of the NPRM to effective date of the Final Rule is in line with WHD’s efforts in recent months to move quickly to complete rulemakings well in advance of any potential change in administration.

The Final Rule largely tracks the NPRM, though with a number of interesting clarifications, including the following:

1. Deleting the reference to Skidmore v. Swift & Co., 329 U.S. 134 (1944), thereby potentially giving litigants greater flexibility to argue regarding the degree of deference that courts should give the Final Rule (§ 791.1);
2. Modifying the second of the four factors relevant to joint employment in the simultaneous beneficiary context to clarify that the focus is on whether a person “[s]upervises and controls the employee’s work schedule or conditions of employment to a substantial degree” (§ 791.2(a)(1)(ii) (emphasis added to show the language added in the Final Rule));
3. Adding a new section expanding on the meaning of “employment records” (§ 791.2(a)(2));
4. Modifying the role of reserved rights by replacing the original statement that “[t]he potential joint employer’s ability, power, or reserved contractual right to act in relation to the employee is not relevant for determining joint employer status” with the following verbiage: “The potential joint employer’s ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control. Standard contractual language reserving a right to act, for example, is alone insufficient for demonstrating joint employer status.”  (§ 791.2(a)(3)(i) (emphases added));
5. Adding a new section addressing indirect control (§ 791.2(a)(3)(ii));
6. Adding a fourth example of factors that are not relevant to the joint employer analysis because they address economic dependence: “The number of contractual relationships, other than with the employee, that the potential joint employer has entered into to receive similar services.” (§ 791.2(c)(4));
7. Clarifying that labor organizations and their officers and agents are ordinarily not joint employers (§ 791.2(d)(1));
8. Replacing the original statement that “[t]he potential joint employer’s business model—for example, operating as a franchisee—does not make joint employer status more or less likely under the Act” with a more specific statement: “Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model does not make joint employer status more likely under the Act.” (§ 791.2(d)(2));
9. Clarifying the proposed language and adding a new section addressing the role of various types of contractual arrangements that do not make joint employer status more likely (§ 791.2(d)(3)-(4)); and
10. Changing several of the illustrative examples, including:
    1. Replacing the fourth proposed example with two new examples that illustrate a comparable principle but reach opposite conclusions (§ 791.2(g)(4)-(5);
    2. Changing a significant fact in the fifth proposed example to make the scenario a closer call (§ 791.2(g)(6));
    3. Adding a new example (§ 791.2(g)(7)); and
    4. Adding new facts to supplement the eighth and ninth proposed examples (§ 791.2(g)(9)-(10)).

This rulemaking has unfolded at the same time as the National Labor Relations Board (“NLRB”) and the Equal Employment Opportunity Commission (“EEOC”) consider regulations to address joint employment under the National Labor Relations Act and Title VII.  The NLRB published a joint employer NPRM in September 2018, and the current Unified Agenda of Federal Regulatory and Deregulatory Actions — fall 2019 (issued on November 20, 2019) indicates December 2019 as a target date for a Final Rule.  That same regulatory agenda indicates, for the first time under the present administration, that the EEOC is planning to issue a joint employer NPRM shortly, having likewise stated a December 2019 target date.

For WHD’s joint employer rule, the next significant test will come in the courts, as parties either challenge the rule directly or else urge the courts to follow or to reject it in the course of wage and hour litigation.