Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule
Final rule; rescission.
CFR Part: "29 CFR Part 791"
RIN Number: "RIN 1235-AA37"
Citation: "86 FR 40939"
Page Number: "40939"
"Rules and Regulations"
Agency: "Wage and Hour Division (WHD),
SUMMARY: This action finalizes the Department's proposal to rescind the final rule titled "Joint Employer Status Under the Fair Labor Standards Act," which published on
DATES: This final rule is effective on
FOR FURTHER INFORMATION CONTACT:
Questions of interpretation and/or enforcement of the agency's regulations may be directed to the nearest WHD district office. Locate the nearest office by calling WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243)
SUPPLEMENTARY INFORMATION:
I. Background The Fair Labor Standards Act (FLSA or Act) requires all covered employers to pay nonexempt employees at least the Federal minimum wage for every hour worked in a non-overtime workweek. /1/ In an overtime workweek, for all hours worked in excess of 40 in a workweek, covered employers must pay a nonexempt employee at least one and one-half times the employee's regular rate. /2/ The FLSA also requires covered employers to make, keep, and preserve certain records regarding employees. /3/
FOOTNOTE 1 See 29 U.S.C. 206(a). END FOOTNOTE
FOOTNOTE 2 See 29 U.S.C. 207(a). END FOOTNOTE
FOOTNOTE 3 See 29 U.S.C. 211(c). END FOOTNOTE
The FLSA does not define "joint employer" or "joint employment." However, section 3(d) of the Act defines "employer" to "include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee." /4/ Section 3(e) generally defines "employee" to mean "any individual employed by an employer" /5/ and identifies certain specific groups of workers who are not "employees" for purposes of the Act. /6/ Section 3(g) defines "employ" to "include[ ] to suffer or permit to work." /7/
FOOTNOTE 4 29 U.S.C. 203(d). END FOOTNOTE
FOOTNOTE 5 29 U.S.C. 203(e)(1). END FOOTNOTE
FOOTNOTE 6 See 29 U.S.C. 203(e)(2)-(5). END FOOTNOTE
FOOTNOTE 7 29 U.S.C. 203(g). END FOOTNOTE
A. Prior Guidance Regarding FLSA Joint Employment
In 1939, a year after the FLSA's enactment, the Department's Wage and Hour Division (WHD) issued Interpretative Bulletin No. 13, addressing, among other topics, whether two or more companies may be jointly and severally liable for a single employee's hours worked under the FLSA. /8/ WHD recognized in the Bulletin that there is joint employment liability under the FLSA and provided examples of situations where two companies would or would not be joint employers of an employee. /9/ For situations where an employee works hours for one company and works separate hours for another company in the same workweek, WHD focused on whether the two companies "are acting entirely independently of each other with respect to the employment of the particular employee" (in which case they would not be joint employers) or, "on the other hand, the employment by [the one company] is not completely disassociated from the employment by [the other company]" (in which case they would be joint employers and the hours worked for both would be aggregated for purposes of the Act). /10/ WHD stated in the Bulletin that it "will scrutinize all cases involving more than one employment and, at least in the following situations, an employer will be considered as acting in the interest of another employer in relation to an employee: If the employers make an arrangement for the interchange of employees or if one company controls, is controlled by, or is under common control with, directly or indirectly, the other company." /11/
FOOTNOTE 8 See Interpretative Bulletin No. 13, "Hours Worked: Determination of Hours for Which Employees are Entitled to Compensation Under the Fair Labor Standards Act of 1938," [Para.][Para.] 16-17. In
FOOTNOTE 9 See id. END FOOTNOTE
FOOTNOTE 10 Id. [Para.] 17. END FOOTNOTE
FOOTNOTE 11 Id. END FOOTNOTE
In 1958, the Department published a rule introducing 29 CFR part 791, titled "Joint Employment Relationship under Fair Labor Standards Act of 1938." /12/ Section 791.2(a) reiterated that there is joint employment liability under the Act and stated that the determination "depends upon all the facts in the particular case." /13/ It further stated that two or more employers that "are acting entirely independently of each other and are completely disassociated" with respect to the employee's employment are not joint employers, but joint employment exists if "employment by one employer is not completely disassociated from employment by the other employer(s)." /14/ Section 791.2(b) explained that, "[w]here the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:
FOOTNOTE 12 See 23 FR 5905 (
FOOTNOTE 13 29 CFR 791.2(a) (1958). END FOOTNOTE
FOOTNOTE 14 Id. END FOOTNOTE
(1) Where there is an arrangement between the employers to share the employee's services, as, for example, to interchange employees; or
(2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or
(3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer." /15/
FOOTNOTE 15 29 CFR 791.2(b) (1958) (footnotes omitted). END FOOTNOTE
In 1961, the Department amended a footnote in
FOOTNOTE 16 See 26 FR 7730, 7732 (
In 2014, WHD issued an Administrator's Interpretation (Home Care AI) addressing how joint employment under the FLSA applies to certain home care workers. /17/ The Home Care AI explained that the FLSA's definitions of "employer," "employee," and "employ," "and therefore the scope of employment relationships the Act covers, are exceedingly broad." /18/ The Home Care AI discussed application of 29 CFR 791.2 and stated that its "focus . . . is the degree to which the two possible joint employers share control with respect to the employee and the degree to which the employee is economically dependent on the purported joint employers." /19/ WHD recognized that, "when making joint employment determinations in FLSA cases, the exact factors applied may vary," but also stated that "a set of factors that addresses only control is not consistent with the breadth of employment under the FLSA" because an analysis based solely on the potential employer's joint control " 'cannot be reconciled with [FLSA section 3(g)'s "suffer or permit" language], which necessarily reaches beyond traditional agency law.' " /20/ Accordingly, the Home Care AI applied a non-exclusive set of "economic realities factors" relating to the potential joint employer's control and other aspects of the relationship to provide guidance regarding the possibility of joint employment in numerous hypothetical scenarios specific to the home care industry. /21/ WHD withdrew the Home Care AI on
FOOTNOTE 17 See Administrator's Interpretation No. 2014-2, "
FOOTNOTE 18 Id. at *2. END FOOTNOTE
FOOTNOTE 19 Id. at *2 n.4. END FOOTNOTE
FOOTNOTE 20 Id. at *2 n.5 (quoting Zheng v.
FOOTNOTE 21 See id. at *7-14; see also id. at *3 ("[A]ny assessment of whether a public entity is a joint employer necessarily involves a weighing of all the facts and circumstances, and there is no single factor that is determinative[.]") (citing
In 2016, WHD issued an Administrator's Interpretation (Joint Employment AI) addressing joint employment generally under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), which uses the same definition of "employ" as the FLSA. /22/ Relying on the text and history of FLSA section 3(g) and case law interpreting it, the Joint Employment AI explained that joint employment, like employment generally, is expansive under the FLSA and "notably broader than the common law concepts of employment and joint employment." /23/ The Joint Employment AI further explained that "the expansive definition of "employ" as including "to suffer or permit to work" rejected the common law control standard and ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible." /24/ The AI described how "suffer or permit" or "similar phrasing was commonly used in state laws regulating child labor and was 'designed to reach businesses that used middlemen to illegally hire and supervise children.' " /25/ The AI thus concluded that "the "suffer or permit to work" standard was designed to expand child labor laws' coverage beyond those who controlled the child laborer," "prevent employers from using "middlemen" to evade the laws' requirements," and ensure joint liability in a type of vertical joint employment situation (explained below). /26/
FOOTNOTE 22 See Administrator's Interpretation No. 2016-1, "Joint Employment Under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act" (
FOOTNOTE 23 Id. at *3 (citing, inter alia, Torres-Lopez v. May, 111 F.3d 633, 639 (9th Cir. 1997); Antenor v.
FOOTNOTE 24 Id. END FOOTNOTE
FOOTNOTE 25 Id. (quoting Antenor, 88 F.3d at 929 n.5). END FOOTNOTE
FOOTNOTE 26 Id. END FOOTNOTE
The Joint Employment AI described and discussed two types of joint employment. It discussed horizontal joint employment, which exists where an employee is separately employed by, and works separate hours in a workweek for, more than one employer, and the employers "are sufficiently associated with or related to each other with respect to the employee" such that they are joint employers. /27/ The Joint Employment AI explained that "the focus of a horizontal joint employment analysis is the relationship between the two (or more) employers" and that 29 CFR 791.2 provided guidance on analyzing that type of joint employment, and the AI provided some additional guidance on applying
FOOTNOTE 27 Id. at *4. END FOOTNOTE
FOOTNOTE 28 Id. at *4-8. END FOOTNOTE
FOOTNOTE 29 Id. at *2. END FOOTNOTE
FOOTNOTE 30 Id. at *4. END FOOTNOTE
FOOTNOTE 31 Id. END FOOTNOTE
FOOTNOTE 32 Id. at *5 (citing WHD's multi-factor economic realities analysis for joint employment under MSPA set forth at 29 CFR 500.20(h)(5)). The Department issued its current MSPA joint employment regulation in 1997 via a final rule following notice-and-comment rulemaking. See 62 FR 11734 (
FOOTNOTE 33 See 2016 WL 284582, at *8-12. END FOOTNOTE
FOOTNOTE 34 See News Release 17-0807-NAT, "US Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance" (
B. 2020 Joint Employer Rule
In
FOOTNOTE 35 See 85 FR 2820 (
FOOTNOTE 36 See 29 CFR 791.1, 791.2, and 791.3 (2020). END FOOTNOTE
1. Joint Employer Rule's Vertical Joint Employment Standard
For vertical joint employment,
FOOTNOTE 37 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) (emphasis added). END FOOTNOTE
FOOTNOTE 38 See generally 85 FR 2825-28. END FOOTNOTE
FOOTNOTE 39 Id. at 2827. END FOOTNOTE
FOOTNOTE 40 Id. (citing 29 U.S.C. 203(d)); see also id. ("This language from section 3(d) makes sense only if there is an employer and employee with an existing employment relationship and the issue is whether another person is an employer."). END FOOTNOTE
FOOTNOTE 41 Id. END FOOTNOTE
FOOTNOTE 42
FOOTNOTE 43 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds, Garcia v. San Antonio Metro. Transit Auth.,
FOOTNOTE 44 85 FR 2827. END FOOTNOTE
Section 791.2(a)(1) of the Joint Employer Rule stated that "four factors are relevant to the determination" of whether the other employer is a joint employer in the vertical joint employment situation. /45/ Those four factors were whether the other employer: (1) Hires or fires the employee; (2) supervises and controls the employee's work schedule or conditions of employment to a substantial degree; (3) determines the employee's rate and method of payment; and (4) maintains the employee's employment records. /46/ The Joint Employer Rule stated that its four-factor test was "derived from" Bonnette. /47/ In Bonnette, the Ninth Circuit affirmed a finding of vertical joint employment after considering whether the other employer: (1) Had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records. /48/
FOOTNOTE 45 29 CFR 791.2(a)(1) (2020). END FOOTNOTE
FOOTNOTE 46 See 29 CFR 791.2(a)(1)(i)-(iv) (2020). END FOOTNOTE
FOOTNOTE 47 85 FR 2830. END FOOTNOTE
FOOTNOTE 48 See 704 F.2d at 1469-1470. END FOOTNOTE
The Joint Employer Rule's four-factor analysis deviated from the analysis in Bonnette in several ways. First, the Rule articulated the first factor as whether the other employer "[h]ires or fires the employee" as opposed to whether it had "the power" to hire and fire. /49/ Section 791.2(a)(3)(i) stated that the "potential joint employer must actually exercise . . . one or more of these indicia of control to be jointly liable under the Act," and that "[t]he 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." /50/ Second, the Joint Employer Rule modified the Bonnette factor requiring consideration of whether the potential joint employer supervises and controls work schedules or conditions of employment by adding the phrase "to a substantial degree." This phrase was absent from the test articulated in Bonnette (although Bonnette found that, on the factual record before it, the potential joint employers "exercised considerable control" in that area). /51/ Third,
FOOTNOTE 49 Compare 29 CFR 791.2(a)(1)(i) (2020) with Bonnette, 704 F.2d at 1469-1470. END FOOTNOTE
FOOTNOTE 50 29 CFR 791.2(a)(3)(i) (2020) (citing 29 U.S.C. 203(d)). END FOOTNOTE
FOOTNOTE 51 Compare 29 CFR 791.2(a)(1)(ii) (2020) with Bonnette, 704 F.2d at 1469-1470. END FOOTNOTE
FOOTNOTE 52 Compare 29 CFR 791.2(a)(2) (2020) with Bonnette, 704 F.2d at 1469-1470. END FOOTNOTE
FOOTNOTE 53 29 CFR 791.2(b) (2020). END FOOTNOTE
FOOTNOTE 54 704 F.2d at 1470 (quoting Rutherford Food, 331 U.S. at 730). END FOOTNOTE
In addition to generally excluding factors that are not indicative of the potential joint employer's control over the employee's work, the Joint Employer Rule specifically excluded any consideration of the employee's economic dependence on the potential joint employer. /55/ The Rule asserted that "[e]conomic dependence is relevant when applying section 3(g) and determining whether a worker is an employee under the Act; however, determining whether a worker who is an employee under the Act has a joint employer for his or her work is a different analysis that is based on section 3(d)." /56/ The Rule further asserted that, "[b]ecause evaluating control of the employment relationship by the potential joint employer over the employee is the purpose of the Department's four-factor balancing test, it is sensible to limit the consideration of additional factors to those that indicate control." /57/
FOOTNOTE 55 29 CFR 791.2(c) (2020) ("[T]o determine joint employer status, no factors should be used to assess economic dependence."). END FOOTNOTE
FOOTNOTE 56 85 FR 2821. END FOOTNOTE
FOOTNOTE 57 Id. at 2836. END FOOTNOTE
2. Joint Employer Rule's Horizontal Joint Employment Standard
To determine horizontal joint employment, the Joint Employer Rule adopted the longstanding standard articulated in the prior version of 29 CFR 791.2 with "non-substantive revisions." /58/ Section 791.2(e)(2) stated that, in this "second joint employer scenario," "if the employers are acting independently of each other and are disassociated with respect to the employment of the employee," they are not joint employers. /59/ It further stated that, "if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the Act." /60/ It identified the same three general examples of horizontal joint employment provided in the prior version of 29 CFR 791.2. /61/
FOOTNOTE 58 Id. at 2823; see also id. at 2844-45. END FOOTNOTE
FOOTNOTE 59 29 CFR 791.2(e)(1)-(2) (2020). END FOOTNOTE
FOOTNOTE 60 29 CFR 791.2(e)(2) (2020). END FOOTNOTE
FOOTNOTE 61 Compare 29 CFR 791.2(e)(2)(i)-(iii) (2020) with 29 CFR 791.2(b)(1)-(3) (1958). END FOOTNOTE
3. Joint Employer Rule's Additional Provisions
The Joint Employer Rule adopted additional provisions that apply to both vertical and horizontal joint employment. Section 791.2(f) addresses the consequences of joint employment and provided that "[f]or each workweek that a person is a joint employer of an employee, that joint employer is jointly and severally liable with the employer and any other joint employers for compliance" with the Act. /62/ Section 791.2(g) provided 11 "illustrative examples" of how the Rule may apply to specific factual situations implicating both vertical and horizontal joint employment. /63/
FOOTNOTE 62 29 CFR 791.2(f) (2020). END FOOTNOTE
FOOTNOTE 63 29 CFR 791.2(g) (2020). END FOOTNOTE
C. Decision Vacating Most of the Joint Employer Rule
In
FOOTNOTE 64 See New York v. Scalia, No. 1:20-cv-01689 (S.D.N.Y. filed
FOOTNOTE 65 See 464 F. Supp. 3d 528. END FOOTNOTE
FOOTNOTE 66 See 2020 WL 3498755. END FOOTNOTE
FOOTNOTE 67 See 490 F. Supp. 3d 748. END FOOTNOTE
The district court vacated the Joint Employer Rule's "novel standard for vertical joint employer liability" because its "revisions to that scenario are flawed in just about every respect." /68/ The district court found that the Rule violated the APA because it was contrary to the law--specifically, it conflicted with the FLSA. /69/ The district court identified three conflicts: The Rule's reliance on the FLSA's definition of "employer" in section 3(d) as the sole textual basis for joint employment liability; its adoption of a control-based test for determining vertical joint employer liability; and its prohibition against considering additional factors beyond control, such as economic dependence. /70/ In addition, the district court found that the Rule was "arbitrary and capricious" in violation of the APA for three reasons: The Rule did not adequately explain why it departed from the Department's prior interpretations; the Rule did not consider the conflict between it and the Department's MSPA joint employment regulations; and the Rule did not adequately consider its cost to workers. /71/
FOOTNOTE 68 Id. at 795. END FOOTNOTE
FOOTNOTE 69 See id. at 774. END FOOTNOTE
FOOTNOTE 70 See id. at 774-92. END FOOTNOTE
FOOTNOTE 71 See id. at 792-95. END FOOTNOTE
The district court concluded that the Joint Employer Rule's "novel interpretation for vertical joint employer liability" was unlawful under the APA and vacated all of
FOOTNOTE 72 Id. at 795-96. END FOOTNOTE
FOOTNOTE 73 Id. END FOOTNOTE
In
FOOTNOTE 74 See New York v. Scalia, 490 F. Supp. 3d 748, appeal docketed, No. 20-3806 (2d Cir.
D. Proposal To Rescind the Joint Employer Rule
On
FOOTNOTE 75 See 86 FR 14038. END FOOTNOTE
FOOTNOTE 76 See 86 FR 14042-46. END FOOTNOTE
FOOTNOTE 77 See 86 FR 14042-43. END FOOTNOTE
FOOTNOTE 78 See 86 FR 14043. END FOOTNOTE
The Department also believed that it should consider and address the district court's conclusion 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 generally, certain economic dependence factors, and certain other considerations, as this approach is not consistent with the totality-of-the-circumstances economic realities standard that has generally been used by the courts. /79/ The Rule's approach was also different than the Department's prior guidance on joint employment, and the Department acknowledged in the NPRM the district court's concerns that the Rule did not adequately explain the reasons for the significant departure. /80/ Relatedly, the Department recognized in the NPRM that courts have generally declined to adopt the Rule's vertical joint employment analysis as a replacement for their existing analyses, indicating that the Rule had not provided the intended clarity and that rescinding the Rule would not be disruptive to stakeholders. /81/ Finally, the Department was concerned that the Rule may not have sufficiently considered the negative effect that it would have on employees by reducing the number of businesses who were FLSA joint employers from which employees may be able to collect back wages due to them under the FLSA. /82/ For all of these reasons, the Department proposed in the NPRM to rescind the entire Joint Employer Rule. /83/
FOOTNOTE 79 See 86 FR 14043-44 (quoting Scalia, 490 F. Supp. 3d at 790). END FOOTNOTE
FOOTNOTE 80 See 86 FR 14044. END FOOTNOTE
FOOTNOTE 81 See 86 FR 14044-45. END FOOTNOTE
FOOTNOTE 82 See 86 FR 14045. END FOOTNOTE
FOOTNOTE 83 See 86 FR 14045-46. END FOOTNOTE
E. Status of Pending Appeal of Decision Vacating Most of the Joint Employer Rule
Although its filing deadline was not until
II. Comments and Decision
The Department received over 290 comments in response to the NPRM. State officials, members of
FOOTNOTE 84 Nationwide Mut. Ins. Co. v. Darden,
Various trade associations, business advocacy organizations, law firms, and individual commenters submitted comments opposing the Department's proposal to rescind the Joint Employer Rule. These commenters generally supported the Rule for, in their view, providing a clearer, common-sense standard for determining joint employer status. Several expressed the view that the Department was relying too much on a district court decision which the commenters believe to be erroneous, and encouraged the Department to stay this rulemaking pending the outcome of the appeal to the Second Circuit. They raised numerous other legal and policy arguments in defense of the Rule (or in objection to the proposed rescission), discussed in greater detail below. /85/
FOOTNOTE 85 In addition, some commenters provided political or ideological statements that did not specifically support or oppose the proposed rescission. For example, some comments were limited to offering support for working people without suggesting how best to do so in the context of this rulemaking. A few other commenters appeared to confuse the proposed rescission of the Joint Employer Rule with the proposed withdrawal of the Department's rule related to independent contractors. See 86 FR 14027 (
Having considered the comments submitted in response to the NPRM, the Department has decided to finalize the rescission of the Joint Employer Rule. The Rule was inconsistent with the FLSA's text and purpose. The Rule's vertical joint employment analysis had never before been applied by WHD, was different from the analyses applied by every court to have considered the issue prior to the Rule's issuance, and has generally not been adopted by courts. The Rule's horizontal joint employment analysis, although consistent with prior guidance, was intertwined with the vertical joint employment analysis, and thus the Department is rescinding the entire Rule as explained below. The Department's response to commenter feedback on specific aspects of the proposed rescission is also provided below.
A. Statutory Analysis and Control-Based Test for Vertical Joint Employment
The NPRM observed that the statutory analysis and control-based test for vertical joint employment set forth in the Joint Employer Rule was different, to varying degrees, from the analyses and tests applied by every court to have considered joint employer questions prior to the Rule's issuance, as well as WHD's previous enforcement approach. The NPRM further noted that the Rule may have been impermissibly narrow due to its exclusive focus on control.
1. The Rule's Reliance on Section 3(d) as the Sole Textual Basis for Determining Joint Employer Status
In the Rule, the Department stated that section 3(d) of the FLSA, which contains the definition of employer, is the sole statutory basis for determining joint employer status under the Act, and asserted that sections 3(e) and 3(g), which define "employee" and "employ," respectively, are not relevant to determining joint employer status. /86/ In the NPRM, the Department explained its concern that, upon further consideration, the text of section 3(d) alone may not easily encompass all scenarios in which joint employment may arise under the Act. /87/
FOOTNOTE 86 85 FR 2825, 2827-28. END FOOTNOTE
FOOTNOTE 87 86 FR 14042. END FOOTNOTE
Multiple commenters representing employees agreed that by limiting the statutory basis of the vertical joint employment analysis to section 3(d) and ignoring the "suffer or permit" language of section 3(g)'s definition of "employ," the Joint Employer Rule's test for vertical joint employment was unduly narrow and contrary to law and the Act. See, e.g.,
FOOTNOTE 88 Quoting 85 FR 2857. END FOOTNOTE
Employers and trade associations generally commented that the Joint Employer Rule was consistent with the FLSA and case law and should be upheld. See, e.g.,
Having reviewed the comments and considered the issue further, the Department has concluded that the Rule's interpretation that section 3(d) is the "sole" textual basis for determining joint employer status in vertical joint employment scenarios /89/ potentially excluded important aspects of joint employment arrangements.
FOOTNOTE 89 85 FR 2825. END FOOTNOTE
As an initial matter, the statutory language of section 3(d) itself raises concerns as to whether relying on that provision as the sole textual basis encompasses all scenarios in which joint employment may arise. Section 3(d) uses the word "includes" rather than the word "means." /90/ Under the Act, an "employer" "includes any person acting directly or indirectly in the interest of an employer in relation to an employee," "includes a public agency," but "does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization." /91/ Thus, by its own terms, section 3(d) is not exhaustive. Throughout section 3--the "definitions" section of the FLSA--Congress chose to vary its language for each definition between "means" and "includes," and its use of "includes" when defining "employer" indicates that the definition that follows "includes" is not an exhaustive definition of "employer." /92/
FOOTNOTE 90 29 U.S.C. 203(d). END FOOTNOTE
FOOTNOTE 91 Id. (emphases added). END FOOTNOTE
FOOTNOTE 92 Compare, for example, sections 203(a), 203(b), and 203(e), which use the word "means" to define "person," "commerce," and "employee," respectively, with sections 203(d) and 203(g), which use the word "includes" to define "employer" and "employ," respectively. "It is a well-established canon of statutory interpretation that the use of different words or terms within a statute demonstrates that
Furthermore, the Joint Employer Rule limited joint employment in the vertical context to persons "acting directly or indirectly in the interest of the employer in relation to the employee," confining joint employment to persons acting in the interest of a single employer. /93/ In other words, the Rule assumed that an employee had one employer and that any other person that was liable was a joint employer. However, section 3(d) of the Act specifically defines a person "acting directly or indirectly in the interest of an employer in relation to the employee" as an "employer" itself. /94/ Thus, while the Rule allowed only a single employer--"the employer"--to "suffer[ ], permit[ ], or otherwise employ[ ] the employee to work" in the vertical scenario, /95/ section 3(d) itself provides for any number of other employers that can suffer, permit, or otherwise employ employees. /96/ In light of this, the Joint Employer Rule did not even adhere to the statutory text--section 3(d)--which was its cited basis.
FOOTNOTE 93 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) (emphasis added). END FOOTNOTE
FOOTNOTE 94 29 U.S.C. 203(d) (emphasis added). END FOOTNOTE
FOOTNOTE 95 29 CFR 791.2(a)(1) (2020). The Joint Employer Rule preamble acknowledged the possibility that "multiple employers [may] suffer, permit, or otherwise employ an employee to work," but only in the horizontal scenario involving "separate sets of hours." 85 FR 2823. END FOOTNOTE
FOOTNOTE 96 29 U.S.C. 203(d). END FOOTNOTE
Additionally, there is case law indicating that section 3(d) was intended for the purpose of imposing responsibility upon the agents of employers, rather than to provide an exhaustive definition of joint employers under the Act. /97/ The Rule acknowledged commenter arguments regarding this distinction within the Act's "definitions" section, as well as the import of section 3(d)'s "includes" language, /98/ but did not address these arguments. Confining the analysis to only the Act's definition of "employer" resulted in an incomplete analysis of some potential joint employment scenarios.
FOOTNOTE 97 See Greenberg v. Arsenal Bldg. Corp., 144 F.2d 292, 294 (2d Cir. 1944) (explaining that "the section would have little meaning or effect if such were not the case"). The
FOOTNOTE 98 85 FR 2826. END FOOTNOTE
The Department has also evaluated the Rule's singular focus on section 3(d) against the backdrop of the history and purpose of the "suffer or permit" language in section 3(g). As the Rule acknowledged, the Act's definition of "employ" was a rejection of the common law standard for determining who is an employee under the Act in favor of a broader scope of coverage. See Nationwide Mut. Ins. Co. v. Darden,
Section 3(g)'s "suffer or permit" language was intended to include as employers entities that used intermediaries to shield themselves from liability. /99/ Rather than being derived from the common law of agency, the FLSA's definition of "employ" and its "suffer or permit" language originally came from state laws regulating child labor. /100/ This language was "designed to reach businesses that used middlemen to illegally hire and supervise children." Antenor v.
FOOTNOTE 99 See Rutherford Food, 331 U.S. at 728; Salinas v.
FOOTNOTE 100 See Rutherford Food, 331 U.S. at 728 & n.7. END FOOTNOTE
FOOTNOTE 101 See generally People ex rel. Price v.
Moreover, the Joint Employer Rule's textual analysis needlessly bifurcated the statutory terms "employ" and "employer" in the vertical context. Specifically, it interpreted section 3(g) as defining who is an "employer" (person A is an employer of person B because person A suffers, permits, or otherwise employs person B to work), and section 3(d) as defining someone who is a "joint employer" (person C is a joint employer of employee B because person C acts directly or indirectly in the interest of employer A in relation to employee B). The Rule thus applied a different analytical framework to different employers. This bifurcated approach has not been used by any court nor is this stratification of employers supported by the text of the Act. Instead, all employers under the Act--joint employers or otherwise--are jointly and severally liable for wages owed. If anything, the Rule's section 3(d) analysis was backwards to the extent that it inquired whether entities which are higher in the "vertical" structure of a particular industry (such as a general contractor or staffing agency client) are "acting . . . in the interests of" acknowledged employers which are lower in the structure (such as a subcontractor or staffing agency). This bifurcation also makes it unclear which standard--"suffer or permit" under section 3(g) or the control-based standard under section 3(d)--should apply to which entity if, for example, both potential employers deny any employment relationship with a worker.
The Joint Employer Rule discussed the
FOOTNOTE 102 Notably, the district court in New York v. Scalia concluded that "Falk cuts against the Department's argument that section 3(d) is the sole textual basis for joint employer liability" because Falk cited to the statutory definition of "employee" as well as "employer" and observed that the FLSA's definition of employer is expansive. See 490 F. Supp. 3d at 783-84. END FOOTNOTE
FOOTNOTE 103 414 U.S. at 195. END FOOTNOTE
FOOTNOTE 104 Shultz v. Falk, 439 F.2d 340, 344 (4th Cir. 1971). END FOOTNOTE
FOOTNOTE 105 414 U.S. at 195. END FOOTNOTE
FOOTNOTE 106 Brief for Respondent Secretary of Labor, Falk v.
FOOTNOTE 107 Id. at *26. END FOOTNOTE
FOOTNOTE 108 Id.; see Rutherford Food, 331 U.S. at 728; Salinas, 848 F.3d at 136-140. END FOOTNOTE
Similarly, all of the circuit courts of appeals to have considered joint employment under the FLSA have looked to the economic realities test as the proper framework, and none have explicitly identified section 3(d) as the sole textual basis for joint employment. In particular, the case law heavily relied upon in the Joint Employer Rule from the First, Third, and Fifth Circuits, as well as the Bonnette decision itself, all apply an economic realities analysis when determining joint employment under the FLSA. /109/ The Rule's approach also represented a significant shift from WHD's longstanding analysis; WHD had never excluded sections 3(e) and (g) from the joint employment analysis and had instead consistently applied an economic realities framework that did not exclude the definitions of "employ" or "employee" when determining joint employer liability, as discussed above.
FOOTNOTE 109 See, e.g.,
In view of the foregoing, limiting the statutory basis for joint employment analyses solely to section 3(d), to the exclusion of the other highly relevant definitions of "employee" in section 3(e) and "employ" in section 3(g), was problematic and inhibited compliance with the Act.
2. The Vertical Joint Employment Test's Singular Emphasis on Control
For vertical joint employment scenarios, the Joint Employer Rule adopted a four-factor test focused on the actual exercise of control. Generally, it excluded factors that were not indicative of a potential joint employer's control, directed that additional factors may be considered "only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee's work," and specifically excluded any consideration of the employee's economic dependence on the potential joint employer. /110/ The NPRM questioned whether the four-factor test's emphasis on control was unduly narrow. /111/ While recognizing that the tests for vertical joint employment differ among the circuit courts of appeals, the NPRM observed that "all courts consistently use a totality-of-the-circumstances economic realities approach to determine the scope of joint employment under the FLSA, rather than limiting the focus exclusively to control." /112/
FOOTNOTE 110 29 CFR 791.2(b) and (c) (2020). END FOOTNOTE
FOOTNOTE 111 86 FR 14043. END FOOTNOTE
FOOTNOTE 112 Id. END FOOTNOTE
Organizations representing employee interests generally opposed the four-factor test's emphasis on control and, in particular, criticized the Joint Employer Rule's requirement that actual control be exercised. The
Organizations representing employers generally supported the Joint Employer Rule's four-factor test, and specifically commented that the requirement for an actual exercise of control would provide much-needed clarity for employers.
Upon consideration of the comments received, the Department has concluded that the four-factor test's exclusive focus on control--and specifically, its mandate for an actual exercise of control--was not the most appropriate standard for vertical joint employment scenarios in view of the Act and case law. It is well-settled that in enacting the FLSA,
FOOTNOTE 113 503 U.S. at 326. END FOOTNOTE
Although the specific factors may vary, all courts consistently use a totality-of-the-circumstances economic realities approach to determine the scope of joint employment under the FLSA. In addition to Bonnette, upon which the Rule heavily relied, multiple other circuit court decisions relied upon by the Rule also ground their joint employment analyses in the overarching totality-of-the-circumstances economic realities standard. /114/ Court decisions that have not applied the Bonnette factors generally ground their joint employment analyses in the totality-of-the-circumstances economic realities standard as well. /115/ Although some courts have applied an analysis that addresses only, or primarily, the potential joint employer's control, /116/ these cases have nonetheless recognized that the control factors considered "do not constitute an exhaustive list of all potentially relevant facts" and "should not be 'blindly applied' "; rather, a joint employment determination must consider the employment situation in totality, including the economic realities of the working relationship. /117/ In contrast, the Rule provided that "[a]dditional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee's work." /118/ While the exercise of "significant control" may certainly establish joint employment under the Act, no court has set this standard as the requirement for a finding of joint employment.
FOOTNOTE 114 See, e.g., Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at 469; Gray, 673 F.3d at 354-55. END FOOTNOTE
FOOTNOTE 115 See, e.g., Zheng, 355 F.3d at 69-75; Salinas, 848 F.3d at 142-43; Torres-Lopez, 111 F.3d at 639-644 (noting that an economic realities analysis applies when determining joint employment and that the concept of joint employment, like employment generally, "should be defined expansively" under the FLSA). END FOOTNOTE
FOOTNOTE 116 See Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at 468-69. END FOOTNOTE
FOOTNOTE 117 Enterprise, 683 F.3d at 469 (emphasis in original) (quoting Bonnette, 704 F.2d at 1469-1470). END FOOTNOTE
FOOTNOTE 118 29 CFR 791.2(b) (emphasis added). END FOOTNOTE
Especially problematic was the Rule's requirement for the actual exercise of control, a standard adopted by no court. The Rule stated that it was "not the Department's intent" to promulgate a rule narrower than the common law. /119/ However, the Rule also plainly required an actual exercise of control, stating that "the regulation now makes clear that an actual exercise of control, directly or indirectly, is required for at least one of the factors and is the clearer indication of joint employer status." /120/ Under the common law standard, the mere right to control indicates a common law employment relationship; in contrast, the Rule required an actual exercise of control for at least one factor. /121/ For this reason too, the Rule's test for vertical joint employment was in tension with the economic realities analysis used by courts across the country, which was intended to be more comprehensive than the common law standard. /122/
FOOTNOTE 119 85 FR 2834. END FOOTNOTE
FOOTNOTE 120 Id. END FOOTNOTE
FOOTNOTE 121 See, e.g., Zheng, 355 F.3d at 69 ("Measured against the expansive language of the FLSA, the four-part test [based on Bonnette] employed by the District Court is unduly narrow, as it focuses solely on the formal right to control the physical performance of another's work. That right is central to the common-law employment relationship, see Restatement of Agency section 220(1) (1933) ('A servant is a person employed to perform service for another in his affairs and who, with respect to his physical conduct in the performance of the service, is subject to the other's control or right to control.')"). END FOOTNOTE
FOOTNOTE 122 See Falk, 439 F.2d at 344 (observing that courts find employment under the FLSA "far more readily than would be dictated by common law doctrines");
The Department appreciates employers' desire for clarity and certainty regarding compliance under the Act. The Rule's narrowing of the analysis of control, however, was contrary to the Act and longstanding case law and thus did not guarantee enhanced clarity. Because the Rule's test (including the requirement for the actual exercise of control) conflicted with the tests used from every circuit, there likely was more uncertainty under this new interpretation.
B. Taking Into Account Prior WHD Guidance
The Department's NPRM noted that the Joint Employer Rule's vertical joint employment analysis, in addition to having never before been applied by a court, had never before been applied by WHD. /123/ The Department indicated that it tentatively shared the concern that the Rule did not sufficiently take into account and explain departures from WHD's prior joint employment guidance, including its MSPA joint employment regulation and the withdrawn Home Care AI and Joint Employment AI. /124/ The Department further indicated that this concern provided additional support for rescinding the Rule. /125/
FOOTNOTE 123 See 86 FR 14044. END FOOTNOTE
FOOTNOTE 124 See id. END FOOTNOTE
FOOTNOTE 125 See id. END FOOTNOTE
Other commenters disputed the concerns raised by the Department in the NPRM. The
Some commenters contrasted the Department's brief before the Second Circuit with the NPRM.
FOOTNOTE 126
In response, the Department agrees that "[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change." /127/ When an agency changes its position, "it need not demonstrate . . . that the reasons for the new policy are better than the reasons for the old one." /128/ "But the agency must at least 'display awareness that it is changing position.' " /129/ The agency's explanation is sufficient if "the new policy is permissible under the statute, . . . there are good reasons for it, and . . . the agency believes it to be better, which the conscious change of course adequately indicates." /130/ When explaining a changed position, "an agency must also be cognizant that longstanding policies may have 'engendered serious reliance interests that must be taken into account.' " /131/ In such cases, the policy change itself does not need "further justification," but "a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy." /132/ For these reasons, " 'an unexplained inconsistency' in agency policy is 'a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.' " /133/
FOOTNOTE 127
FOOTNOTE 128 FCC v.
FOOTNOTE 129 Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 U.S. at 515, and removing emphasis). END FOOTNOTE
FOOTNOTE 130 Fox Television, 556 U.S. at 515. END FOOTNOTE
FOOTNOTE 131 Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 U.S. at 515). END FOOTNOTE
FOOTNOTE 132 Fox Television, 556 U.S. at 515-16. END FOOTNOTE
FOOTNOTE 133 Encino, 136 S. Ct. at 2126 (quoting
Having considered the comments and reviewed the issue further, the Department believes that the Joint Employer Rule did not provide a reasoned explanation for the new FLSA vertical joint employment standard that it adopted. As explained above in Section II.A.1., there was not a reasonable basis for relying exclusively on section 3(d) and completely excluding sections 3(e) and (g) when interpreting who is a joint employer under the FLSA. As further explained in Section II.A.2., there was not a reasonable basis for adopting a narrow standard limited to control for determining who is a joint employer under the FLSA. The Rule's stated desire to provide a uniform vertical joint employment standard may have been valid, /134/ and the Department recognizes that there may be more than one permissible interpretive vertical joint employment standard under the FLSA; however, the standard that the Rule adopted was not permissible under the FLSA.
FOOTNOTE 134 See Scalia, 490 F. Supp. 3d at 795 (making clear that its decision to vacate most of the Rule did "not imply that the Department cannot engage in rulemaking to try to harmonize joint employer standards"). END FOOTNOTE
The Department also believes that the Joint Employer Rule did not sufficiently take into account prior WHD guidance. The Department's MSPA joint employment regulation /135/ and its 1997 final rule /136/ implementing it have been in effect for about 24 years. In keeping with MSPA and its legislative history, /137/ the MSPA regulation expressly ties its joint employment analysis to the FLSA. The MSPA regulation provides that "[j]oint employment under the Fair Labor Standards Act is joint employment under the MSPA" /138/ and sets forth a multi-factor analysis for determining vertical joint employment that is different than the Rule's analysis. /139/ The Joint Employer Rule, however, did not address or account for any differences between its new regulatory standard and MSPA's existing regulatory standard or any effects that it may have on joint employment under MSPA. In addition, the Department's interpretive guidance in the Home Care AI and the Joint Employment AI rejected a joint employment analysis that was limited to control, and those AIs relied on FLSA sections 3(e) and (g) in addition to section 3(d). /140/ Although the Home Care AI and the Joint Employment AI were withdrawn before the effective date of the Joint Employer Rule, the Department did not address or sufficiently account for its departures from their analyses in the Rule. In summary, the Department was and is allowed to change its interpretation of joint employment under the FLSA; however, the Rule failed to account for and address inconsistences with WHD's prior and existing guidance, which is an additional reason to rescind the Rule.
FOOTNOTE 135 See 29 CFR 500.20(h)(5). END FOOTNOTE
FOOTNOTE 136 See 62 FR 11745-46. END FOOTNOTE
FOOTNOTE 137 See note 99, supra. END FOOTNOTE
FOOTNOTE 138 See 29 CFR 500.20(h)(5)(i). END FOOTNOTE
FOOTNOTE 139 See 29 CFR 500.20(h)(5)(iv). END FOOTNOTE
FOOTNOTE 140 See 2016 WL 284582, at *2-4 & 9; 2014 WL 2816951, at *2 & n.5. END FOOTNOTE
In response to comments asserting an inconsistency between the Department's opening brief to the Second Circuit in the appeal of the district court's decision vacating most of the Joint Employer Rule and its NPRM proposing to rescind the Rule, the Department's filings with the Second Circuit have been consistent with the status of this rescission rulemaking. The Department filed its opening brief with the Second Circuit on
In addition, the Department filed a reply brief with the Second Circuit on
C. The Joint Employer Rule's Vertical Joint Employment Analysis Did Not Significantly Impact Judicial Analysis of FLSA Cases
The NPRM stated that courts have generally declined to adopt the Joint Employer Rule's vertical joint employment analysis since its promulgation. /141/ The NPRM further stated that, in light of this judicial landscape, rescinding the Joint Employer Rule would not be disruptive. /142/ The NPRM added that WHD does not believe that it would be difficult or burdensome to educate and reorient its enforcement staff if the Rule is rescinded. /143/
FOOTNOTE 141 See 86 FR 14044-45 (citing cases, including two exceptions). END FOOTNOTE
FOOTNOTE 142 See 86 FR 14045. END FOOTNOTE
FOOTNOTE 143 See id. END FOOTNOTE
The State AGs agreed in their comment that, "based on the judicial landscape," rescinding the Joint Employer Rule "would not be disruptive." They added that it was "not surprising" that only two district court decisions had adopted the Rule's vertical joint employment analysis given that, in their view, the Rule's analysis "runs counter to
Having considered the comments and reviewed the issue further, the Department believes that courts' general non-adoption of the Joint Employer Rule's vertical joint employment analysis provides additional support for rescinding the Rule. As a general matter, courts have declined to adopt the Joint Employer Rule's analysis. In addition to the
FOOTNOTE 144 See Reyes-Trujillo v. Four
FOOTNOTE 145 See Clyde v. My Buddy
Moreover, as the Joint Employer Rule acknowledged, a number of circuit courts of appeals had previously established analytical frameworks for vertical joint employment cases, and all of these analyses are different from the analysis in the Joint Employer Rule. /146/ Notwithstanding the Rule, district courts in those circuits have generally continued to apply binding precedent from their circuit courts of appeals when deciding FLSA vertical joint employment issues--often with little, if any, meaningful discussion of the Rule's analysis. /147/ In sum, despite the Joint Employer Rule's stated purpose of "promot[ing] greater uniformity in court decisions," /148/ there has been no widespread adoption of the Rule's vertical joint employment analysis, and the Rule has not significantly affected judicial analysis of FLSA joint employment cases.
FOOTNOTE 146 See 85 FR 2831 (comparing the Rule's four-factor analysis to the various analyses adopted by circuit courts of appeals). END FOOTNOTE
FOOTNOTE 147 See, e.g.,Hamm v.
FOOTNOTE 148 85 FR 2823. END FOOTNOTE
Additionally, rescinding the Joint Employer Rule would not be disruptive for WHD. WHD has not issued subregulatory guidance that would need to be withdrawn or modified as a result of the rescission. For all of these reasons, rescission of the Rule will have little effect on courts' and WHD's analyses in FLSA vertical joint employment cases.
D. Effects on Employees of the Vertical Joint Employment Analysis
The Joint Employer Rule acknowledged that, although it would not change the wages due an employee under the FLSA in the vertical joint employment scenario, "it may reduce the number of businesses currently found to be joint employers from which employees may be able to collect back wages due to them under the Act." /149/ The Rule further acknowledged that, "[t]his, in turn, may reduce the amount of back wages that employees are able to collect when their employer does not comply with the Act and, for example, their employer is or becomes insolvent." /150/ One commenter, the
FOOTNOTE 149 85 FR 2853. END FOOTNOTE
FOOTNOTE 150 Id. END FOOTNOTE
FOOTNOTE 151 See id. END FOOTNOTE
FOOTNOTE 152 Id. END FOOTNOTE
FOOTNOTE 153 Id. END FOOTNOTE
FOOTNOTE 154 Id. END FOOTNOTE
Many commenters expressed concerns that the Joint Employer Rule would incentivize companies to expand their use of temporary staffing agencies, contractors, and subcontractors rather than employing workers directly, which is a concern that the Department shares. Congressman
Several commenters asserted that the increase in temporary, staffing agency, and subcontracting jobs is detrimental to workers, because on average, "temporary help agency workers earn 41 percent less" than workers in "standard work arrangements," they "experience large benefit penalties relative to their counterparts in standard work arrangements," and although their jobs tend to be more hazardous than those of "permanent, direct hires," "they often receive insufficient safety training and are more vulnerable to retaliation for reporting injuries than workers in traditional employment relationships." Some commenters, including the
Many commenters also stated that the increased use of temporary staffing agencies disproportionately impacts people of color and women. NELP, the
Numerous organizations that provide legal representation to workers shared accounts of particular cases where, in their view, their clients would not have been able to recover back wages owed but for the fact that courts applied broader joint employer liability principles than those set forth in the Joint Employer Rule. For example, the
FOOTNOTE 155 See Rutherford, 331 U.S. at 726; Wirtz v.
FOOTNOTE 156 Carrillo v. Schneider Logistics Trans-Loading & Distrib., Inc., No. 2:11-CV-8557-CAS, 2014 WL 183956, at *6-15 (
FOOTNOTE 157 Id. at *6, 16. END FOOTNOTE
Other commenters also emphasized the importance that joint employment liability plays in the recovery of back wages. For example, the
FOOTNOTE 158 The case appears to be Silva v.
Some organizations that provide legal assistance to agricultural workers commented that joint employment is particularly important in the agricultural industry.
In contrast, several commenters who oppose rescinding the Joint Employer Rule asserted that the Rule promotes job growth. WPI stated that, "[d]uring the 'period in which [the Department] consistently applied the 'right of control' factors identified with the Bonnette test of the Ninth Circuit, significant job growth took place in the industries represented by WPI," including temporary staffing, construction, retail, and hospitality. It is not clear what period of time WPI is referring to, as all of the statistics cited by WPI predate the effective date of the Joint Employer Rule. Moreover, the Joint Employer Rule was in effect for only a brief period of time, and WPI did not present any direct evidence that job growth during that short window of time was driven, in whole or in part, by the adoption of the Rule. Given data limitations, it would not be possible to determine whether job growth in these industries was related to the Joint Employer Rule. Further, as the comments discussed above indicate, to the extent that jobs with temporary staffing agencies or thinly capitalized subcontractors have replaced standard employment arrangements, such a trend is disadvantageous to workers in many respects, and could have a particularly negative effect on people of color and women. The
Upon consideration of the comments, the Department concludes that the Joint Employer Rule did not satisfactorily consider the costs to employees. This conclusion is premised in part on WHD's role as the agency responsible for enforcing the FLSA and for collecting back wages due to employees when it finds violations, as well as a recent Presidential Memorandum instructing the Director of the
FOOTNOTE 159 Modernizing Regulatory Review: Memorandum for the Heads of Executive Departments and Agencies (
FOOTNOTE 160 Annette Bernhardt et al., Broken Laws,
FOOTNOTE 161 The Joint Employer Rule described workplace fissuring as the "increased reliance by employers on subcontractors, temporary help agencies, and labor brokers rather than hiring employees directly." 85 FR 2853 n.100. END FOOTNOTE
E. Effects on Other Stakeholders of the Vertical Joint Employment Analysis
In addition to discussing the issues identified in the NPRM, commenters also noted other ways in which rescission of the Joint Employer Rule would affect various stakeholders. In particular, most commenters opposed to rescission of the Rule emphasized the importance of clarity and predictability to the business community. However, the Department generally believes that the impact of rescission on the business community and other stakeholders will not be substantial because the Rule has not been widely adopted by the courts. Furthermore, for the reasons set forth above, the Department believes that the Rule should be rescinded because it was inconsistent with the text and purpose of the FLSA.
Many commenters asserted that the Joint Employer Rule provided clarity and predictability to the regulated community, and argued that rescinding the Rule would lead to confusion and uncertainty. The
FOOTNOTE 162 See, e.g., Reyes-Trujillo, 2021 WL 103636, at *6-9 (agreeing that the Joint Employer Rule's exclusive focus on the potential joint employer's control runs counter to the FLSA's expansive definition of "employer" and thus declining to adopt the Rule's analysis); Elsayed, 2020 WL 4586788, at *4 (finding "it unnecessary to wade into whether the DOL's [Joint Employer] Rule is entitled to
Other commenters expressed concerns that rescinding the Joint Employer Rule could impose additional costs on businesses. The
FOOTNOTE 163 Other commenters expressed concerns about the imposition of additional costs on particular industries in the wake of the COVID-19 pandemic. For example, the
Commenters who support the Rule also asserted that rescinding the Rule would make companies less likely to offer assistance to related companies, such as a franchisor offering sexual harassment training materials to a franchisee, for fear of becoming a joint employer. These commenters pointed out that this type of assistance can benefit workers by, for example, reducing sexual harassment in the workplace or improving workplace safety. /164/ However, the commenters did not cite any court decision finding that a company is a joint employer primarily on this basis, while at least some courts have not regarded the provision of training assistance as strong evidence of a joint employer relationship. /165/ Furthermore, to the extent that a court might consider this type of assistance as part of the joint employer analysis, it would be merely one aspect of one factor among many that the courts use to assess whether a joint employer relationship exists, and no one factor is dispositive. Moreover, as the comments discussed above noted, the prospect of joint employer liability can incentivize a company to "provide better oversight of working conditions, to ensure that child labor, minimum wage and overtime rules are followed." See, e.g.,
FOOTNOTE 164 Commenters provided various examples of the types of assistance that a company might offer a related company. The
FOOTNOTE 165 See, e.g., Moreau v. Air
Some commenters expressed particular concern as to how rescinding the Joint Employer Rule would affect the construction industry.
F. Horizontal Joint Employment Analysis
As described in the NPRM, horizontal joint employment may be present where one employer employs an employee for one set of hours in a workweek, and one or more other employers employs the same employee for separate hours in the same workweek. If the two (or more) employers jointly employ the employee, the hours worked by that employee for all of the employers must be aggregated for the workweek and all of the employers are jointly and severally liable. /166/
FOOTNOTE 166 See 86 FR 14045. END FOOTNOTE
For horizontal joint employment, the Joint Employer Rule adopted the standard in the prior version of 29 CFR 791.2 with non-substantive revisions and set forth that standard in 29 CFR 791.2(e). /167/ The Joint Employer Rule's horizontal joint employment standard focused on the degree of the employers' association with respect to the employment of the employee, reflected the Department's historical approach to the issue, and was consistent with the relevant case law. The NPRM stated that the Department was not considering revising its longstanding horizontal joint employment standard but proposed to rescind the entire Joint Employer Rule (including 29 CFR 791.2(e)) because the structure of the Joint Employer Rule made it impractical for the horizontal joint employment provisions to stand on their own. /168/
FOOTNOTE 167 See 85 FR 2844-45. END FOOTNOTE
FOOTNOTE 168 See 86 FR 14045-46. END FOOTNOTE
Few commenters addressed horizontal joint employment. The
Having considered the comments and the issue further, the Department is rescinding the Joint Employer Rule in its entirety (i.e., all of 29 CFR part 791, including the horizontal joint employment standard in
FOOTNOTE 169 See 85 FR 2860-62 (29 CFR 791.2(f), (g)) (2020)). END FOOTNOTE
Although the Department is rescinding the Joint Employer Rule in its entirety, it did not reconsider the substance of its longstanding horizontal joint employment analysis. The focus of a horizontal joint employment analysis will continue to be the degree of association between the potential joint employers, as it was in the Joint Employer Rule and the prior version of part 791. /170/ As has been the Department's position for decades, the association will be sufficient to demonstrate joint employment in the following situations, among others: (1) There is an arrangement between the employers to share the employee's services; (2) one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) the employers share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer. /171/
FOOTNOTE 170 See 85 FR 2859-60 (29 CFR 791.2(e) (2020)); 23 FR 5906 (29 CFR 791.2) (1958). END FOOTNOTE
FOOTNOTE 171 23 FR 5906 (29 CFR 791.2) (1958). END FOOTNOTE
G. Effect of Rescission
The NPRM stated that, if the Joint Employer Rule is rescinded as proposed, part 791 of title 29 of the Code of Federal Regulations would be removed in its entirety and reserved. /172/ The NPRM also noted that the Department was not proposing regulatory guidance to replace the guidance located in part 791. /173/ Because this final rule adopts and finalizes the rescission of the Joint Employer Rule, part 791 is removed in its entirety and reserved. As stated in the NPRM, the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate. /174/
FOOTNOTE 172 See 86 FR 14046. END FOOTNOTE
FOOTNOTE 173 See id. END FOOTNOTE
FOOTNOTE 174 See id. END FOOTNOTE
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and its attendant regulations, 5 CFR part 1320, require the Department to consider the agency's need for its information collections, their practical utility, as well as the impact of paperwork and other information collection burdens imposed on the public, and how to minimize those burdens. This final rule does not contain a collection of information subject to
IV. Executive Order 12866, Regulatory Planning and Review; and Executive Order 13563, Improved Regulation and Regulatory Review
A. Introduction
Under Executive Order 12866,
FOOTNOTE 175 See 58 FR 51735, 51741 (
Executive Order 13563 directs agencies to, among other things, propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored to impose the least burden on society, consistent with obtaining the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. Executive Order 13563 recognizes that some costs and benefits are difficult to quantify and provides that, when appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts. The analysis below outlines the impacts that the Department anticipates may result from this rescission and was prepared pursuant to the above-mentioned Executive orders.
B. Costs
1. Rule Familiarization Costs
Rescinding the Joint Employer Rule will impose direct costs on businesses that will need to review the rescission. To estimate these regulatory familiarization costs, the Department determined: (1) The number of potentially affected entities, (2) the average hourly wage rate of the employees reviewing the rescission, and (3) the amount of time required to review the rescission. It is uncertain whether these entities would incur regulatory familiarization costs at the firm or the establishment level. For example, in smaller businesses there might be just one specialist reviewing the rescission, while larger businesses might review it at corporate headquarters and determine policy for all establishments owned by the business. To avoid underestimating the costs of this rescission, the Department uses both the number of establishments and the number of firms to estimate a potential range for regulatory familiarization costs. The lower bound of the range is calculated assuming that one specialist per firm will review the rescission, and the upper bound of the range assumes one specialist per establishment.
The most recent data on private sector entities at the time this final rule was drafted are from the 2017 Statistics of
FOOTNOTE 176
The Department believes ten minutes per entity, on average, to be an appropriate review time here. This rulemaking is a rescission and will not set forth any new regulations or guidance regarding joint employment. Additionally, as it believed when it issued the Joint Employer Rule, the Department believes that many entities are not joint employers and thus would not spend any time reviewing the rescission. Therefore, the ten-minute review time represents an average of no time for the majority of entities that are not joint employers, and potentially more than ten minutes for review by some entities that might be joint employers.
The Department's analysis assumes that the rescission would be reviewed by Compensation, Benefits, and
FOOTNOTE 177
FOOTNOTE 178 The benefits-earnings ratio is derived from the
The Department estimates that the lower bound of regulatory familiarization cost range would be
Additionally, the Department estimated average annualized costs of regulatory familiarization with this rescission over 10 years. Over 10 years, it would have an average annual cost of
2. Other Costs
As discussed above, some commenters asserted that there may be other potential costs to the regulated community, such as reduced clarity from the lack of the Rule's regulatory guidance. Because it lacks data on the number of businesses that are in a joint employment relationship or those that changed their policies as a result of the Joint Employer Rule, the Department has not quantified these potential costs, which are expected to be de minimis. Although the rescission removes the regulations at 29 CFR part 791, the Department believes that this will not result in substantial costs or decreased clarity for the regulated community because, as discussed above, most courts apply a vertical joint employment analysis different from the analysis in the Joint Employer Rule and have not adopted the Rule's analysis. The State AGs agree with this assertion in their comment.
WPI asserted that using an "expanded" joint employment standard instead of the standard put forth in the Joint Employer Rule would result in a loss of output of
C. Transfers
In the Joint Employer Rule's regulatory impact analysis, the Department acknowledged that the Rule could limit the ability of workers to collect wages due to them under the FLSA because when there is only one employer liable, there are fewer employers from which to collect those wages and no other options if that sole employer lacks sufficient assets to pay. /179/ Because the Joint Employer Rule provided new criteria for determining joint employer status under the FLSA and given the specifics of those criteria, it potentially reduced the number of businesses found to be joint employers from which employees may be able to collect back wages due to them under the Act. This, in turn, potentially reduced the amount of back wages that employees were able to collect when an employer did not comply with the Act and, for example, was or became insolvent.
FOOTNOTE 179 See 85 FR 2853. END FOOTNOTE
Like the Joint Employer Rule, this rescission will not change the amount of wages due any employee under the FLSA. However, rescinding the Joint Employer Rule could result in a transfer from employers to employees in the form of back wages owed that employees would thereafter be able to collect. The Department lacks data on the current number of businesses that are in a joint employment relationship, or to estimate the financial capabilities (or lack thereof) of these businesses and therefore is unable to estimate the magnitude of an increase in the number of employers liable as joint employers.
Although the Rule would not have changed the amount of wages due to an employee, the narrower standard for joint employment in the Rule could have incentivized "workplace fissuring." Research has shown that this type of domestic outsourcing can suppress workers' wages, especially for low-wage occupations. /180/ The State AGs asserted, "[f]issured workplaces result in lower wages, greater wage theft, and less job security, especially for immigrants or people of color who make up a disproportionate share of low-wage workers in nonstandard work arrangements."
FOOTNOTE 180 Arindrajit Dube &
In 2019, the
FOOTNOTE 181 Celine McNicholas &
This rescission could also benefit some small businesses, because the Joint Employer Rule's narrowing of the joint employment standard could have made them solely liable and responsible for complying with the FLSA without relying on the resources of a larger business in certain situations.
The
D. Benefits
The Department believes that rescinding the Joint Employer Rule will result in benefits to workers and will strengthen wage and hour protections for vulnerable workers. Removing a standard for joint employment that is narrower than the standard applied by courts and WHD's prior standards may enable more workers to collect back wages to which they would already be entitled under the FLSA. This could particularly improve the well-being and economic security of workers in low-wage industries, many of whom are immigrants and people of color, because FLSA violations are more severe and widespread in low-wage labor markets. /182/
FOOTNOTE 182 Annette Bernhardt et al., Broken Laws,
V. Regulatory Flexibility Act (RFA) Analysis
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C.
FOOTNOTE 183
The per-entity cost for small business employers is the regulatory familiarization cost of
VI. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (UMRA) /184/ requires agencies to prepare a written statement for rules with a Federal mandate that may result in increased expenditures by state, local, and tribal governments, in the aggregate, or by the private sector, of
FOOTNOTE 184 See 2 U.S.C. 1501. END FOOTNOTE
FOOTNOTE 185 Calculated using growth in the Gross Domestic Product deflator from 1995 to 2019.
Authorizing Legislation
This final rule is issued pursuant to the Fair Labor Standards Act of 1938, 29 U.S.C. 201-219.
Assessment of Costs and Benefits
For purposes of UMRA, this rescission is not expected to result in increased expenditures by the private sector or by state, local, and tribal governments of
UMRA requires agencies to estimate the effect of a regulation on the national economy if such estimates are reasonably feasible and the effect is relevant and material. /186/ However, OMB guidance on this requirement notes that such macroeconomic effects tend to be measurable in nationwide econometric models only if the economic effect of the regulation reaches 0.25 percent to 0.5 percent of Gross Domestic Product (GDP), or in the range of
FOOTNOTE 186 See 2 U.S.C. 1532(a)(4). END FOOTNOTE
FOOTNOTE 187 According to the
VII. Executive Order 13132, Federalism
The Department has (1) reviewed this rescission in accordance with Executive Order 13132 regarding federalism and (2) determined that it does not have federalism implications. The rescission would not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government.
VIII. Executive Order 13175, Indian Tribal Governments
This rescission would not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
List of Subjects in 29 CFR Part 791 Wages.
PART 791--[REMOVED AND RESERVED]
For the reasons set forth in the preamble, and under the authority of the FLSA, 29 U.S.C. 201-219, the Department removes and reserves 29 CFR part 791.
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-15316 Filed 7-29-21;
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