What’s Next for the DOL’s Proposed Joint-Employer Rule?

 

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Despite recent changes in leadership at the U.S. Department of Labor (DOL), key workplace rules still need to be finalized, including a proposed update to the joint-employer rule.

Patrick Pizzella, the previous labor deputy secretary, became acting secretary of labor on July 20, replacing Alexander Acosta, who resigned under pressure in July. President Donald Trump named management-side attorney Eugene Scalia as his pick to permanently fill the role, but his confirmation could take a while.

Michael Lotito, an attorney with Littler in San Francisco, said Pizzella is committed to getting key rules finalized. "The joint-employer rule has been under consideration for some time," Lotito said. "I am sure the new leadership will want to review the status of the rule and ensure it is meeting whatever internal timelines there are for finalization."

The DOL proposed a multifactor test that would be used to determine whether businesses are joint employers that share liability for federal Fair Labor Standards Act (FLSA) wage and hour violations. The proposal aims to provide clarity for businesses, which will likely not be deemed joint employers if they stay out of the day-to-day employment decisions of their contractors and franchisees.

"If adopted, it may result in fewer businesses being found liable for minimum wage, overtime and other similar liability under the FLSA," said John Polson, an attorney with Fisher Phillips in Irvine, Calif. "The proposed rule is intended to reduce uncertainty and inconsistency in court and agency decisions with respect to joint-employer status."

Easing the Standard for Employers

The DOL wants to narrow the FLSA's joint-employer definition by creating a four-factor test that considers whether a potential joint employer exercises the power to do the following:

  • Hire or fire an employee.
  • Supervise and control an employee's work schedule or employment conditions.
  • Determine an employee's rate and method of pay.
  • Maintain a worker's employment records.

Reserving the right to control the employee's working conditions would not be enough to show that a business is a joint employer; the company would have to actually exert that control.

The DOL's proposed rule would also clarify that the following factors don't influence the joint-employer analysis:

  • Having a franchisor business model.
  • Providing a sample employee handbook to a franchisee.
  • Allowing an employer to operate a facility on the company's grounds.
  • Participating with an employer in an apprenticeship program.
  • Offering an association health or retirement plan to an employer or participating in a plan with the employer.
  • Requiring a business partner to establish minimum wages and policies that address workplace safety, sexual-harassment prevention and other issues.

"This proposal would ensure employers and joint employers clearly understand their responsibilities to pay at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek," according to the DOL.

The rule would make the FLSA's definition of joint-employer status consistent with the National Labor Relations Board's proposed rule, and it would update the DOL's definition, which was adopted more than 60 years ago.

"I think the new leadership will look very closely at the rationale behind the final rule," Lotito said. "The goal is not just to issue a final rule; the goal is to make sure the new rule is sustained by the courts."

Employer Advocates Want More Clarification

The Society for Human Resource Management (SHRM) generally supports the DOL's proposal, because it "recognizes that the current regulatory framework around joint employment is unclear and difficult to apply," according to SHRM's comment on the anticipated rule.

"The proposal represents a large step forward and will assist HR professionals with a more uniform, clear and certain standard," wrote Emily M. Dickens, J.D., SHRM's corporate secretary and chief of staff.

The National Retail Federation also supports the new rule and noted that it would remove many uncertainties in the existing law, said Charlie Morgan, an attorney with Alston & Bird in Atlanta.

[SHRM members-only platform: SHRM Connect]

However, employer and HR advocates would like the final rule to provide more clarity. For instance, SHRM said the final rule should provide examples of "economic dependence" factors that are no longer relevant to the joint-employer analysis, and that the list of certain business practices that do not "make joint-employer status more or less likely" should be expanded.

The National Retail Federation said the final rule should ensure that limited and routine control, such as measures to maintain brand quality, would not trigger joint-employer status, Morgan noted.

Polson also thinks the proposal's language should be refined. He noted that the proposed rule implies that a single factor in the four-factor balancing test—such as the basic act of maintaining employment records—may be sufficient to establish joint-employer status.

"The proposed rule also contains several catchall provisions that may support joint-employer status even when the four-factor test does not lead to a joint-employer finding," he said. "If these issues are not addressed, the proposed rule could lead to more uncertainty and inconsistency, not less, in the context of professional employer organizations and human resources outsourcing."

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