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Labor Department Appealing Decision Nixing Joint-Employer Test

Nov. 6, 2020, 4:15 PM

The U.S. Department of Justice will ask a federal appeals court to restore the Labor Department’s joint-employer test, which formed the crux of one of the Trump administration’s signature pro-business regulations until a judge invalidated it in September.

The rule, which took effect in March, limited the scenarios in which multiple businesses can be held liable under the Fair Labor Standards Act for failing to pay minimum wages and overtime to workers.

DOJ attorneys filed a notice of appeal Friday, informing the U.S. Court of Appeals for the Second Circuit that it seeks to overturn the U.S. district court ruling. The district court found the pro-employer measure violates administrative law and is inconsistent with the FLSA.

The results of the presidential election are likely to play a role in how the appeal progresses. Although a winner hasn’t been declared, the distinct possibility that Democrat Joe Biden will outlast President Donald Trump once all votes are counted would mean DOJ’s legal strategy is likely to be reconsidered next year.

The Trump administration’s narrowed joint employment test was championed by the business community, particularly major franchise brands, for its departure from past practice. The Obama administration had increased government investigations and lawsuits alleging that a lead corporation shares liability over workers at affiliates, such as franchisees and subcontractors.

The appeal comes as corporations such as McDonald’s, Amazon, and Comcast have faced separate, private lawsuits arguing the companies are jointly responsible, along with third-party contractors, for workers’ unpaid minimum wages and overtime.

Business Groups in the Mix

Once the appeal is fully briefed, the New York-based Second Circuit will consider arguments on the legality of a regulation that has strong support from Republicans but would almost certainly fall out of favor at the White House next year if Biden is declared the winner.

Anticipating such a scenario, a coalition of industry groups has intervened as a party in the case. They could continue the appeal if a new administration were to instruct DOJ to abandon its defense of the prior administration’s measure.

The business groups, which include the International Franchise Association and the U.S. Chamber of Commerce, will be backing the Trump administration’s appeal in an accompanying filing with the Second Circuit, according to Michael Lotito, an attorney for Littler Mendelson, which is representing the industry coalition.

“This appeal is crucial for American small businesses. The Department of Labor’s joint employer rule is the type of thoughtful, responsible regulation that America’s businesses need to survive and grow, particularly during this challenging time,” said Matthew Haller, a senior vice president at IFA, in a prepared statement. “IFA looks forward to ensuring this rule can help strengthen the franchise business model and help America’s 733,000 franchise small businesses grow and give back.”

Although the administration’s decision to appeal comes in the immediate aftermath of the Nov. 3 election, the timing is tied to DOJ facing a Monday, Nov. 9 deadline to ask the Second Circuit to hear the case.

Judge Gregory H. Woods of the U.S. District Court for the Southern District of New York blocked the so-called “vertical employment” portion of the final rule. That refers to a methodology outlined in the regulation to determine joint employment when a worker enters an employment relationship with one company, such as at a staffing agency or a subcontractor, but is economically dependent on another employer.

Woods left in place another, less-applicable standard for “horizontal employment,” or when a worker has separate employment relationships with multiple businesses.

A group of attorneys general from 17 states plus the District of Columbia had sued in February to block the rule.

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; Andrew Harris at aharris@bloomberglaw.com

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