By: Cristina N. Hyde, JD

Last week, United States District Judge Gregory Woods partially struck down the Department of Labor’s (DOL) new joint employer rule; holding that portions of it conflict with the Fair Labor Standards Act (FLSA) and are arbitrary and capricious.  State of New York, et al. v. Eugene Scalia, et al., No. 20-1689 (S.D.N.Y).

The new rule took effect in March of 2020.  It addressed both vertical joint employment and horizontal joint employment relationships; establishing a four-part test to determine the former and several factors for consideration with regard to the latter.  According to the DOL the revisions were intended to promote certainty for employers and employees and greater uniformity regarding court decisions related to joint employer relationships.  As such, the DOL believed the new rule to be a necessary update to the original 1958 guidance which contains a broad definition of the employer-employee relationship.  29 C.F.R. 791.

Eighteen States sued the DOL and argued that the new rule arbitrarily narrowed the definition of “joint employer.”  Judge Woods agreed, but only insofar as it related to vertical employment relationships (i.e., relationships where intermediary companies, such as staffing agencies, that provide employees to other companies in need).  Therefore, for the time being, only the standard set forth in the new rule relating to horizontal employment relationships, (where an employment relationship is acknowledged with both employers) remains in place and it is expected that courts will apply their pre-existing joint employer tests to vertical employment relationships.

If you believe your business might be affected by this ruling or you would like assistance determining whether or not you are involved in a joint employer relationship, Contact Us.