The U.S. Department of Labor’s Wage and Hour Division on Wednesday proposed a new joint employer rule that would return, in part, to a rule issued in 2020 by the first Trump administration and set “more stringent criteria for when [a company] can be considered a joint employer,” Mark Clark, counsel in Barnes & Thornburg’s labor and employment department, told HR Dive.
A federal district court vacated large portions of the 2020 rule within months, finding that the “vertical” relationship portion, involving staffing companies or subcontractors, was inconsistent with the Fair Labor Standards Act. The Biden administration ultimately rescinded the rule.
But the new proposed rule looks to sidestep the criticisms of the first rule, attorneys told HR Dive. The question is: Does it do enough?
Like its predecessor, the proposed rule would use a four-factor analysis for vertical joint employment. The test would consider whether the company hires or fires the employee; supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; determines the employee’s rate and method of payment; and maintains the employee’s employment records.
However, this time, while additional factors may be relevant to determining vertical joint employment, “a unanimous finding on the four factors in either direction would establish a ‘substantial likelihood’ regarding whether an individual or entity is a joint employer with another,” DOL said in its notice of the rule.
“The first time they said that you had to show that at least one of those factors was proven and that the joint employer had to show direct control. They just softened that a little bit, saying there could be other factors that are relevant, but they made the point that those are not as probative as those four criteria they really care about the most,” Clark said.
On that front, the proposed rule likely has a better chance of surviving legal scrutiny, Clark said. But there are “some other wrinkles,” he added.
In play also is the U.S. Supreme Court’s 2024 landmark decision in Loper Bright Enterprises v. Raimondo that overturned the court’s Chevron deference standard, Clark said. That ruling meant that federal courts no longer had to defer to agency regulations for interpretation of ambiguous statutes.
“In theory, while the new administration has benefited from the learning from 2020, they have this other wrinkle where courts may not need to give as much deference to the DOL’s interpretation to begin with,” Clark said. “It really remains a bit uncertain how this will play out over the next year.”
Stakeholders can submit comments on the proposed rule until 11:59 p.m. EDT on June 22, the department said, after which time a final rule likely will be issued.
In the meantime, “it’s never a bad time to take a look at your relationships with other parties that you are interacting with, whether it’s through a staffing agency, through a subsidiary entity. It’s never a bad time to just be thinking about what would cause us to be considered a joint employer,” Clark said.
There is a bit of “wait and see” until the final rule is used, Rob Boonin, a labor and employment attorney at Dykema, told HR Dive.
While the 2020 rule was “gold,” the proposed rule is “silver” when it comes to lessening the liability of a vertical employer, Boonin said.
However, employers, especially those that are higher in the vertical employer relationship, always should reevaluate if they are holding the reins too tightly on those at lower levels, such as franchisees, and whether they can remove parts of their contract that involve some levels of oversight, Boonin said.
“Aren’t there other ways that you can manage a relationship without starting to get involved in the details of the employment relationship?” Boonin said.
