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DOL Proposes Ditching Trump’s Narrowed Joint Employer Rule (1)

March 11, 2021, 1:52 PM; Updated: March 11, 2021, 5:11 PM

The U.S. Labor Department proposed rescinding a high-priority Trump administration regulation that would have limited scenarios in which multiple businesses share liability for wage violations, arguing that it served to undermine worker protections.

A proposed rule released Thursday seeks public comment on whether to repeal the Trump-era joint-employer rule—dealing a blow to franchisers such as McDonald’s Corp. that argue they’re not responsible for the workplace conditions of their franchisees.

The business community—particularly those major franchisers—championed the Trump administration’s narrowed joint-employment test for its departure from past practice. The Obama administration had increased government investigations and lawsuits that alleged a lead corporation shared liability over workers at affiliate entities, such as franchisees and subcontractors.

The Trump rule went into effect last year but was then mostly vacated by a federal judge in New York. The department appealed that ruling in November to the U.S. Court of Appeals for the Second Circuit, and the case is pending.

The Biden administration, in what amounts to an about-face of that legal position, is giving greater credence to the New York judge’s opinion that the Trump era joint-employment test was “unduly narrow.” The agency cited that decision in its latest proposal, noting the court found the rule to be inconsistent with the Fair Labor Standards Act and in violation of the Administrative Procedure Act.

Legal Obstacle

A coalition of industry groups intervened in the litigation to defend the Trump rule, presenting an obstacle to the Biden administration’s bid to dismantle the regulation.

Even if the Biden administration cites its proposed rescission in asking the appellate court to pause the case, the intervenors may ask the judge to press onward in considering the legality of last year’s measure.

While the proposal released Thursday doesn’t describe a new joint-employer standard, the Biden administration indicated a desire to return to the Obama-era enforcement approach, in which a company can be held more broadly accountable for the wage violations of its business partners.

“Removing a standard for joint employment that may be unduly narrow would protect more workers’ wages and improve their well-being and economic security,” Jessica Looman, acting administrator of DOL’s Wage and Hour Division, said in an accompanying statement.

The Trump rule, finalized in 2020, adopted a four-part test to assess whether one business is a joint employer of another company’s workers. That now-vacated standard, which considered all factors collectively, probed whether the potential joint employer hires or fires an employee; supervises or controls work schedules; sets pay rates; and maintains employment records.

Crucially, it also required an employer to exercise one of the four factors to qualify as a joint employer, rather than merely having the ability to do so.

Citing the court’s decision to set aside that test, the Biden DOL’s latest rulemaking stated that it “proposes to rescind the Rule to allow it to engage in further legal analysis, in order to ensure that lawful and clear guidance is being provided to the regulated community.”

Starting Friday, members of the public will have 30 days to comment on the proposal to rescind the rule.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com

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