On July 29, 2021, the Department of Labor announced a final rule rescinding the “Joint Employer Status Under the Fair Labor Standards Act” final rule (Joint-Employer Rule). [86 FR 40939]. The recission goes into effect on September 28, 2021.
The Department of Labor found the prior administration’s Joint-Employer Rule improperly narrowed the test for vertical joint employment and conflicted with decades of Department interpretation, the text of the Fair Labor Standards Act, and Congressional intent. In addition, the Rule’s vertical joint employment standard failed to account for prior Department guidance and did not significantly impact courts’ resolution of vertical joint employment cases while it was in effect. The Department of Labor also agreed that the Joint Employer Rule “unlawfully limits the factors the Department will consider in the joint employer inquiry” by focusing on a control-based test to the exclusion of economic dependence and certain other considerations, as the Rule’s approach is not consistent with the totality-of-the-circumstances economic realities standard that has generally been used by the courts.
In effect, the Department of Labor found the 2020 rule’s definition of “joint employment” to be too narrow as it only considered companies joint employers of contract and franchise workers if they hire, fire, and supervise employees, set their pay, and maintain employment records. The rule recission returns to the previous standard which takes into account a “totality of the circumstances” standard that is meant to look at numerous factors that explore the “economic realities” of an employer-employee relationship.
Once the 2020 rule is officially rescinded, there will be many factors to consider in determining the existence of joint employers of the same employees by examining “economic realities,” which may include the following: whether a business’ employees are compensated by a third-party entity; whether a third-party entity manages human resources functions for a particular business; whether a third-party entity is engaged in hiring and retention of employees of a business, and whether a third-party entity controls the day-to-day tasks or assignments of a business’ employees.
Simply put, the outsourcing of staffing, employee management, and the administration of human resources to a third-party entity, such as a PEO, may no longer shield employers from liability exposure or exemption from adherence to federal guidelines like the Fair Labor Standards Act.
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Christian & Small LLP represents a diverse clientele throughout Alabama, the Southeast, and the nation with clients ranging from individuals and closely-held businesses to Fortune 500 corporations. By matching highly experienced lawyers with specific client needs, Christian & Small develops innovative, effective, and efficient solutions for clients. With offices in Birmingham, metro-Jackson, Mississippi, and the Alabama Gulf Coast, Christian & Small focuses on the areas of litigation and business, is a member of the International Society of Primerus Law Firms, and is the only Alabama-based member firm in the Leadership Council on Legal Diversity. Our corporate social responsibility program is focused on education, and diversity is one of Christian & Small’s core values.
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