The Labor Department hasn’t yet issued a new regulation on the controversial issue of shared employer liability in franchise and staffing arrangements, but there are already questions in some quarters about how well the policy change could hold up in court.

The DOL plans to update current regulation by the end of the year. The policy would govern “joint employer liability,” or when multiple businesses share legal responsibility for minimum wage and overtime violations by their partners.

Some lawyers say the department doesn’t have the power under the language of the Fair Labor Standards Act to make a rule legally binding. Others insist it does.

The agency “doesn’t have rulemaking authority in order to make this a binding legislative rule,” Patricia Smith, senior counsel for the National Employment Law Project, told Bloomberg Law. Smith, the labor solicitor during the Obama administration, said the DOL only has the ability to publish an “interpretive” rule, which wouldn’t hold the same force of law as other regulations.

Tammy McCutchen, a Wage and Hour Division administrator for George W. Bush, and principal attorney for Littler Mendelson, said the DOL is empowered to issue regulations to clarify ambiguous parts of the Fair Labor Standards Act. “DOL has authority to issue regulations on joint employment to better define very ambiguous definitions in the FLSA,” she said.

Marquee Issue

Joint employment has become a prominent labor issue, with the potential to affect a broad swath of businesses and workers in staffing, franchise, and other contractual relationships.

Liability questions have nagged major corporations like McDonald’s Corp. and Microsoft. Those companies have faced claims that they’re on the hook for labor violations against franchisee and staffing firm workers.

The business community and legislators have been banging on the DOL’s door in recent months to urge Secretary Alexander Acosta to move on the policy. But if the department has its hands tied in terms of creating a rule, the new policy’s impact could be limited in court.

Acosta shortly after he was confirmed scrapped an Obama-era “administrator’s interpretation” in which the DOL said joint employment should be applied broadly when deciding who’s responsible for wage and hour violations. Acosta has said publicly that agencies shouldn’t use interpretive guidance documents to avoid the formal rulemaking process or to work around Congress.

No Language, No Authority?

The FLSA specifically gives the Labor Department authority to draft regulations on certain things like overtime exemptions and child labor issues. Nothing in the act specifically gives the department power to define joint employment or who is an employer or employee, some attorneys told Bloomberg Law.

In the absence of that language, anything the department puts out is not legally binding, Smith said.

That’s why the Obama DOL went with the nonbinding “administrator’s interpretation,” she said.

“In effect, administrative interpretation is the same as an interpretive rule,” she said. “It’s just a different process to develop it.”

The DOL joint employment regulation currently on the books was published in a 1958 regulation defining joint employer. The department called that rule an “interpretation” of joint employment under the FLSA.

A DOL spokeswoman, declined to comment but referred Bloomberg Law to the narrative included in a recent notice on the upcoming joint employer rule.

“The Department’s regulatory plan will make employers’ obligations under current law clear, while respecting the rule of law,” the department said in the narrative. “Where Congress is silent, the Department does not have the authority to write the law.”

What’s the Power in Court?

Under federal law, an agency’s rule can be categorized as interpretive or legislative. Judges usually defer to legislative regulations, those enacted as part of authority Congress gives an agency when it is writing laws. Interpretive regulations may not have the same weight in the courtroom.

“The dominant opinion is that interpretive rules are a species of guidance,” Aaron Saiger, an administrative law professor at Fordham University, told Bloomberg Law. “These are things the agency says that are not binding on the public. But a well-considered interpretive rule is going to carry some weight.”

It’s possible the proposal could be subject to a legal challenge early on to try to stop DOL from issuing the rule as a legislative regulation, said Paul DeCamp, co-chair of Epstein Becker Green’s national Wage and Hour group. DeCamp was also an administrator for the DOL’s Wage and Hour Division under the Bush administration.

DeCamp said a challenge of the regulation will more likely arise in a specific dispute over minimum wages and overtime. That’s when courts may be asked to apply the regulation.

“The real test of the rule” will depend on the level of deference a court decides to give the rule, he said.

McCutchen said she expects the court to side with the department’s take on joint employer liability after the new rule takes effect.

Clarifying joint employment “will provide better and uniform guidance to the regulated community, and as long as it is reasonable,” she said “courts will be compelled to defer to those regulations. Such regulations will bind the regulated community and courts will defer to such regulations whether they are ‘interpretive’ or ‘legislative,’” she said.

The DOL intends to go through the public notice and comment process generally required for legislative rules. “Each individual regulation will have its own public comment period,” a DOL spokeswoman said of a slate of proposed rules included in the Oct. 17 regulatory agenda.

That increases the chance a judge will defer to the regulation, McCutchen said.

But Smith said that at the end of the day, a judge still wouldn’t be required to follow the department’s interpretation of joint employer and can decide not to use the agency’s definition.

“My thought right now is if they’re going to contradict current court interpretations of joint employer” with an updated regulation, “they should get little to no deference at all,” Smith said.

Its Internal Usefulness

No matter how courts view the new joint employment regulation, the rule will make a difference for the Labor Department’s own enforcement of minimum wage and overtime requirements, Alfred Robinson, a management-side attorney with Ogletree Deakins in Washington, said.

“Wage and Hour enforcement officers will use the policy for their own work and that will ultimately give much needed clarity internally and for the business community,” Robinson, an acting administrator of the Bush WHD, said.

The bottom line is that the big question of joint employer doesn’t have any easy answers, DeCamp said.

“The department is doing as much as it can do. The rest is up to Congress. It would be more definitive if Congress passed statutory language on the issue, but unless they do, the department’s best action is to issue regulation,” he said.