Back to the Future – DOL Rescinds FLSA Joint Employer Rule

On July 29, the Biden Administration announced a final rule rescinding the prior administration’s “Joint Employer” rule that took effect in March of this year.  President Biden now has erased two Trump-era Department of Labor rules that addressed issues fundamental to the application of the federal Fair Labor Standards Act.

One of the Trump Administration’s signature regulatory goals was to provide clarity to an area of law that has long plagued courts and businesses: who is an “employer” and who an “employee” under the Fair Labor Standards Act?  The question has taken on particular significance in recent years as a “gig” economy has emerged where the traditional lines between employer and employee have blurred considerably.  More than merely an academic exercise, an FLSA “employee” is entitled to the federal minimum wage and an overtime premium for hours worked over 40 hours in a workweek.  Further, a worker’s status under the FLSA frequently impacts the laws of states that incorporate the definitions and interpretations of the FLSA into their state wage and hour laws.

Getting the answer wrong could lead to liability for back-pay for large numbers of employees, liquidated (double) damages, and significant attorneys’ fee awards.  The Department of Labor – which administers the FLSA – had never issued specific rules answering this threshold question, which led courts addressing the issue to create a multi-factor analysis known as the “economic realities” test.  Though most federal courts ostensibly adopted the “economic realities” test in theory, its practical application was often fact-specific and involved weighing certain factors against others.  Further complicating matters, not all courts considered the same factors, or even gave the same factors the same weight.  The result was uncertainty for businesses and frequent litigation over whether certain workers were “employees.”

The confusion is most prominent in two situations.  First, a business and a worker may wish to form a relationship where the business has only minimal control over how the worker performs a particular task, and the worker is free to set their own hours and work for other similar businesses.  The relationship the parties are attempting to form is an “independent contractor” relationship – not an “employment” relationship.  The easy example is a business hiring a plumber or electrician for a plumbing or electrical issue: the business does not need a full-time person to deal with these periodic issues, and the worker does not want to be limited to working only for one business who may not have steady work.

The more difficult example is the Uber or Lyft driver.  Uber, Lyft, and similar ride-hailing applications offer rides in specific areas for sporadic application-user needs.  Drivers who sign-up to drive can choose their hours and work for competitors if they choose; or they may have regular jobs and serve as drivers occasionally for extra money.  The business models for such applications rely on an “independent contractor” style model to be viable, and many drivers would not be interested in driving if they were assigned a fixed schedule and prohibited from working for other companies.  But any casual reader of the news knows that numerous lawsuits – particularly in California – have insisted that the relationship between Uber and Lyft and their drivers is that of employer-employee, not business and independent contractor.

The other situation involves joint employment.  For instance, a hotel’s staffing needs may vary widely from week to week depending on occupancy.  It is impractical to have a fixed number of hotel staff because the hotel frequently would be employing either too many or too few workers for its needs.  The “solution” of either calling numerous employees in on particular days, or sending them home without pay on others for lack of work, also is undesirable for the employee who cannot count on a steady income.  To address this issue, some businesses and workers turn to a staffing agency.  The business can obtain workers on relatively short notice and the workers can obtain relatively steady work for a variety of different businesses.  But in this situation, who is the employer?  Is it the staffing agency who assigns the worker, or the hotel who oversees the performance of their work?  Or is it both – are both the hotel and the staffing agency “joint employers”?

In the waning days of the Trump administration, the DOL issued rules addressing both “independent contractors” and “joint employment” under the FLSA.  Those rules did not abandon the multi-factor “economic realities” test, but codified them and specified the factors which should be given controlling weight.  However, the “independent contractor” rule never went into effect because the Biden administration repealed it before its effective date.  The “joint employer” rule – which took effect in March – will now officially be rescinded September 28 of this year.  The Biden administration has signaled it may move to an approach which considers more workers “employees” and more businesses “employers” through rulemaking.  For now, with the repeal of the Trump administration rules, businesses now will be required to look again at the varying “economic realities” test(s) applicable in their particular jurisdiction(s) and attempt to divine which factors a court may weigh, and how.  For businesses whose operations involve potential “independent contractors” or a “joint employment” relationship, it’s back to the future.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.