Friday, March 12, 2021: Biden Administration Proposes to Rescind Trump FLSA Joint-Employer Rule in Most Recent “Whiplash” Change to Legal Standard
The Wage and Hour Division (“WHD”) of the U.S. Department of Labor (“DOL”) was busy this week taking bold but nonetheless cautious, stutter steps to roll back everything Trump. Along with the WHD’s equally controversial attempt to roll-back the Trump Final Independent Contractor Rule (reported below), the Division also published an equally controversial Notice of Proposed Rulemaking seeking public comment on its proposal to rescind the Trump Administration’s Final Rule (WIR 1/12/20) defining joint-employer status for wage-hour violations under the Fair Labor Standards Act (“FLSA”). The Biden Administration’s proposed rescission came just 4 days before the Trump Administration’s Final Joint-Employer Rule under the FLSA was scheduled to become legally effective. The WHD’s proposal to rescind the Trump Final Rule thus interrupts and stops the Trump Final Rule from becoming legally effective tomorrow.
The public has until April 12, 2021, to comment on the DOL’s proposed rescission.
With this action, the Biden Administration has taken its first steps to attempt to systematically dismantle the Trump Administration’s interagency effort to expand liability protections for franchisers and businesses as to the actions of their affiliate entities.
What Was All The Fuss With The Trump Final Rule?
Under the Trump Final Rule the Biden Administration is seeking to rescind, a business or person is a joint-employer with another entity for purposes of wage-hour law if BOTH entities actually, directly or indirectly:
- hired or fired the employee;
- supervised and controlled the employee’s work schedule or conditions of employment to a substantial degree (rejecting the commenters’ suggestion that evidence of supervision on a day-to-day basis alone indicates the existence of a “joint employer”);
- determined the employee’s rate and method of payment; and
- maintained the employee’s employment records.
The Trump Administration published its Final FLSA Rule in coordination with its National Labor Relations Board (“NLRB”) Final Rule (WIR 2/26/20) as to joint-employer relationships. At the same time, the Trump Administration EEOC published its intent in 2019 to issue a proposed Rule regarding joint employer analyses under federal anti-discrimination laws (although no such proposed Rule emerged).
What’s The Beef From The Biden Administration?
The Biden Administration’s proposed rescission of the Trump FLSA Final Rule is based on its claim that the Trump Final Rule is unduly narrow, relies too much on the so-called “control factor,” is contrary to prior Wage-Hour Department guidance, and adopted analyses which the courts have not widely adopted in joint-employer case decisions. DOL’s roll-back proposal also relies heavily on the September 8, 2020, ruling in the U.S. District Court for the Southern District of New York in the case of New York, et al. v. Scalia. That Court set aside the Trump Final Rule’s new FLSA joint-employer standard as “arbitrary and capricious” and inconsistent with the FLSA.
Note: Long-time WIR subscribers will recognize the “arbitrary and capricious” and “not otherwise in accordance with law” findings to be the primary legal standards courts use to overturn federal agency Rulemakings they find to have violated the Administrative Procedure Act.
The New York suit, brought by 17 states and the District of Columbia, successfully overturned the Trump Final Rule as to its interpretation of vertical joint-employer liability (for example, a business obtaining contractors from a staffing agency). At the same time, the New York decision kept n place the non-substantive revisions the Trump Final Rule made in its analysis of horizontal joint-employer liability situations (for example, where an individual works for one company for a set number of hours in a workweek while also working for another company for another set of hours in the same workweek).
Similar to its approach earlier in the day when it sought to withdraw the Trump Administration’s Independent Contractor legal test under the FLSA, the Biden WHD did not propose a joint-employer test or analysis to replace the Joint-Employer Rule it seeks to rescind. Too, like the Biden WHD’s attempted roll-back of the Trump Independent Contractor Rule, the Biden WHD now has two ways forward.
First, if it successfully rescinds the Joint-Employer FLSA Rule, the WHD could decide to make no new Rule, but rather could simply remain with and enforce the current Obama-era joint-employer FLSA interpretations which continue in effect and which the Trump Final (but not yet legally effective) Rule sought to displace.
Alternatively, the WHD could exercise its discretion to attempt to “slingshot” new FLSA interpretations sifted out of the new comments WHD will receive in coming weeks from the public.
What’s Next?
Keep an eye on the New York, et al. v. Scalia case discussed above. The Trump Administration WHD filed an appeal in November 2020 to the District Court’s ruling. That case is still pending, although the WHD has now, of course, changed political hands. There are reasons, however, both for the Biden WHD to now “change sides” and to withdraw the appeal the Trump WHD filed.But, there are also reasons to allow the appeal to go forward. Either way, the Scalia case will likely continue to impact the WHD Rulemaking. If the appeal does not go forward at the suggestion of the Biden WHD as moot, USDOL would lose the benefit of the lower District Court decision to support its attempted rescission of the Trump Rule. (See United States v. Munsingwear, Inc.) If the appeal goes forward to decision, perhaps because the current WHD does not like the court’s “horizontal” ruling and wants to have that portion of the District Court’s decision overturned, one side or the other will then have reason to rejoice and use the decision as more legal cannon-fodder to aim at the other side in the WHD’S ongoing Rulemaking proceeding, and its (likely) ensuing litigation.
What Rule Is WHD Enforcing Now?
In the absence of the Trump Final Rule becoming legally effective because stalled by the new proposed WHD Rule to rescind it, WHD is currently enforcing the joint-employer interpretations the FLSA has been enforcing for years…since the Obama Administration. Nothing has changed, YET, other than that the business community has had a Mr. Toad’s Wild roller coaster regulatory ride. And, just like that popular Disneyland ride, the regulatory ride has thus far ended up exactly where it started: we have all gone in one, long, slow (but exciting!) circle.
Mr. Toad’s Wild Roller Coaster
Have you missed the ride? Or are you so thrilled (or confused you want to ride again?) Not to worry, we’ve got every twist and turn for you to enjoy!
And for those die-hard riders, see our March 5, 2018 OFCCP Week in Review where we provide a table breaking down all of the twists and turns back to August of 2015!
Thanks to Jay J. Wang, Esq. from Fox, Wang & Morgan, P.C. for contributing to this article.