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Biden Preps Joint Employer Rule Amid Appeal of Trump Version (1)

Feb. 24, 2021, 2:49 PM; Updated: Feb. 24, 2021, 8:28 PM

The U.S. Labor Department is developing a new regulation on joint employment, signaling a potential move to undo the Trump administration’s business-friendly approach to the hot-button issue of shared liability among multiple companies.

DOL’s Wage and Hour Division sent a proposed rule, “Joint employer status under the Fair Labor Standards Act,” to the White House regulatory office for review; it appeared on the office’s website Wednesday.

The action was the Biden administration’s first public notice of plans to issue a new regulation covering the contentious matter of when more than one employer can be held jointly responsible for failing to pay minimum wages and overtime to workers.

Although the substance of the new regulation remains unclear, DOL’s move shows the agency wants to re-open the rulemaking process, potentially leading to a rescission of the Trump-era standard. The new regulation may also tee up a return to the Obama DOL’s broader view that corporations often are accountable for the labor standards at their franchisees, subcontractors, staffing firms, and other affiliated companies.

The Trump administration’s rule, which took effect last year, narrowed the circumstances in which businesses can be deemed joint employers. After a coalition of Democratic state attorneys general filed a legal challenge, that new standard was shot down by a federal judge in September.

But the Trump Justice Department appealed that decision to the Second Circuit, and, several days before President Joe Biden was sworn in, DOJ filed a detailed brief backing the rule’s legality. That made it more difficult for Biden’s team to abandon defense of the regulation via the litigation, but still left open a path for repeal through new rulemaking.

The Biden DOL’s proposed rule is awaiting sign-off from the White House Office of Information and Regulatory Affairs before it can be released. DOL media representatives didn’t comment when questioned about the new rule’s contents.

Trump’s Test

The DOL under President Donald Trump 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. That led a district court judge in New York to find the test “impermissibly narrow.”

Worker advocates have called on the department to restore the Obama administration’s emphasis that the FLSA should be construed as broadly as possible. Doing so would make it tougher for companies such as McDonald’s Corp. and Amazon.com Inc. to escape liability when workers directly employed by franchisees or contractors file lawsuits claiming the businesses are jointly responsible for resolving unpaid wages.

Republicans and business leaders have pushed back against that view, arguing that the Trump rule delivered long-needed clarity necessary for employers to create jobs. A coalition of industry associations intervened in the litigation, and is ready to defend the Trump rule if the Biden administration abandons it.

(Updated with additional reporting, starting in the eighth paragraph.)

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

To contact the editor responsible for this story: John Lauinger at jlauinger@bloomberglaw.com

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