April 01, 2019

The U.S. Department of Labor on Monday proposed a four-part test for determining when businesses jointly employ workers under the Fair Labor Standards Act, winning plaudits from the management bar but drawing criticism from plaintiffs lawyers who said the agency ignored court precedent that took an expansive view of joint employment.  
The DOL's proposed rule laid out four key factors that it will analyze to figure out whether a business qualifies as a joint employer of a group of workers: If the business can hire or fire employees, whether it controls their schedules, whether it determines workers' pay rate and how they are paid, and if it maintains workers' employment records.

If two businesses are deemed joint employers under the FLSA, they share responsibility for workers' wages, including the obligation to properly pay them minimum wages and overtime.

Labor Secretary Alex Acosta said in a statement that the proposed rule "will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections."

"Providing public notice and comment is the best way to move forward with another significant deregulatory proposal," Acosta added.

Monday’s proposed rule is the first major overhaul of the DOL’s joint employer regulations since the late 1950s. The agency indicated that a new joint employment rule was in the works when it included the proposal as an item in its portion of the fall 2018 regulatory agenda, but no public details about the proposal were offered before the proposed rule was unveiled Monday.

The DOL under President Barack Obama had broadened liability for joint employment under the FLSA, when then-head of the Wage and Hour Division David Weil issued guidance in 2016 calling for greater scrutiny of business relationships in which multiple companies might jointly employ workers. The Trump DOL rescinded that guidance in mid-2017.

The four-factor test proposed Monday, which the agency said is designed to make its joint employer analysis "simple, clear-cut, and easy to apply," is mostly the same as a test adopted by the Ninth Circuit in a 1983 case called Bonnette v. California Health & Welfare Agency, according to the agency.

A "plurality" of appellate circuits, including the First and Fifth Circuits, already either apply the Bonnette test or have adopted a similar version of it, the agency said.

Although it largely adopted the Ninth Circuit's Bonnette factors, the DOL said it modified the hiring and firing element to mean that a business' "reserved contractual right to act with respect to the employee's terms and conditions of employment" isn't relevant to whether it is a joint employer.

"Only actions taken with respect to the employee's terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status under the [FLSA]," the DOL said in its proposed rule.

Besides the four-key factors it laid out for analyzing joint employment, the DOL's proposed rule also noted that "additional" factors could be used if it appears that a potential joint employer is either "exercising significant control" over employees' work or "otherwise acting directly or indirectly in the interest of the employer in relation to the employee."

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But lawyers on the plaintiffs’ side of the bar took issue with numerous aspects of the DOL’s proposal, suggesting the agency adopted a test that essentially upended Bonnette while purporting to adopt it.

While the Ninth Circuit “made clear” in Bonnette that the employment relationship under the FLSA is much broader than it is under common law, the DOL’s proposed test would essentially bar most companies that are joint employers under common law from having any liability under the FLSA.

. . .

Michael Hancock of Cohen Milstein Sellers & Toll PLLC, formerly an assistant administrator for the DOL’s Wage and Hour Division, similarly told Law360 that the agency appears to have “cherry-picked the most employer-friendly circuit court case they could” in Bonnette to incorporate into its proposed rule and looked past a significant amount of court precedent to the contrary.

“Frankly, I think it’s a pretty straightforward and brazen attempt to roll back decades worth of case law that have been going in the other direction,” Hancock said, noting that the Fourth Circuit in 2017 was among those that laid out a more expansive test than what the DOL has proposed.

“I think what you have here is this administration trying to put their imprimatur on the most narrowly defined test for joint employment that they could reasonably cite to,” Hancock added. “The joint employment test is basically a court-made test, so the department ignored a whole vast body of case law, including some case law in the Ninth Circuit, that has a much more expansive test of what joint employment means.”

The proposed rule will be subject to a public comment period as soon as the DOL publishes it in the Federal Register, which it has yet to do despite unveiling it on Monday.

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