Court Strikes Down Department of Labor Rule Narrowing the Definition of “Joint Employer”

On September 8, 2020, the Honorable Gregory H. Woods of the Southern District of New York struck down a final rule (the “Rule”) issued earlier this year by the U.S. Department of Labor (“DOL”).  The Rule narrowed the definition of a vertical joint employer under the Fair Labor Standards Act (“FLSA”) to require that a company actually exercise control, as opposed to merely having the power to exercise control, over its workers.  

Specifically, the Rule stated that, while the “ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status,” these factors cannot “demonstrate joint employer status” unless the entity “actual[ly] exercise[s] . . . control.”  29 C.F.R. § 791.2(a)(1)(i).  This represented a vast departure from previously articulated joint employer standards, as did the Rule’s narrowed definition of what constitutes “indirect control” and deeming of economic dependence – as is often seen, for example, in the context of franchisor-franchisee relationships – irrelevant to the joint employer test.

Based on the foregoing, Judge Woods deemed the Rule arbitrary and capricious, as it ignored the FLSA’s broad definition of “employer” without sufficient justification by the DOL for its departure from prior interpretations.  

Judge Woods’ decision marks a significant victory for hourly workers at a time when federal laws protecting them seem to be constantly rolling back.  That said, the DOL apparently plans to respond to the ruling, perhaps by filing an appeal, as indicated in part by an email sent to all Wage-and-Hour Division employees on September 10, 2020 asking them to report any cases that may be affected.