Rule2021-15316
Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 30, 2021
Effective
September 28, 2021
Issuing agencies
Labor DepartmentWage and Hour Division
Abstract
This action finalizes the Department's proposal to rescind the final rule titled ``Joint Employer Status Under the Fair Labor Standards Act,'' which published on January 16, 2020, and took effect on March 16, 2020. This rescission removes the regulations established by that rule.
Full Text
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<title>Federal Register, Volume 86 Issue 144 (Friday, July 30, 2021)</title>
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[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Rules and Regulations]
[Pages 40939-40957]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15316]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 791
RIN 1235-AA37
Rescission of Joint Employer Status Under the Fair Labor
Standards Act Rule
AGENCY: Wage and Hour Division (WHD), Department of Labor (DOL).
ACTION: Final rule; rescission.
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SUMMARY: This action finalizes the Department's proposal to rescind the
final rule titled ``Joint Employer Status Under the Fair Labor
Standards Act,'' which published on January 16, 2020, and took effect
on March 16, 2020. This rescission removes the regulations established
by that rule.
DATES: This final rule is effective on September 28, 2021.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this final rule may be obtained in alternative
formats (Large Print, Braille, Audio Tape or Disc), upon request, by
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD
callers may dial toll-free 1-877-889-5627 to obtain information or
request materials in alternative formats.
Questions of interpretation and/or enforcement of the agency's
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling WHD's toll-free help line at (866) 4US-
WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or logging onto WHD's website for a nationwide listing of WHD
district and area offices at <a href="http://www.dol.gov/whd/america2.htm">http://www.dol.gov/whd/america2.htm</a>.
SUPPLEMENTARY INFORMATION:
I. Background
The Fair Labor Standards Act (FLSA or Act) requires all covered
employers to pay nonexempt employees at least the Federal minimum wage
for every hour worked in a non-overtime workweek.\1\ In an overtime
workweek, for all hours worked in excess of 40 in a workweek, covered
employers must pay a nonexempt employee at least one and one-half times
the employee's regular rate.\2\ The FLSA also requires covered
employers to make, keep, and preserve certain records regarding
employees.\3\
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\1\ See 29 U.S.C. 206(a).
\2\ See 29 U.S.C. 207(a).
\3\ See 29 U.S.C. 211(c).
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The FLSA does not define ``joint employer'' or ``joint
employment.'' However, section 3(d) of the Act defines ``employer'' to
``include[ ] any person acting directly or indirectly in the interest
of an employer in relation to an employee.'' \4\ Section 3(e) generally
defines ``employee'' to mean ``any individual employed by an employer''
\5\ and identifies certain specific groups of workers who are not
``employees'' for purposes of the Act.\6\ Section 3(g) defines
``employ'' to ``include[ ] to suffer or permit to work.'' \7\
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\4\ 29 U.S.C. 203(d).
\5\ 29 U.S.C. 203(e)(1).
\6\ See 29 U.S.C. 203(e)(2)-(5).
\7\ 29 U.S.C. 203(g).
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A. Prior Guidance Regarding FLSA Joint Employment
In 1939, a year after the FLSA's enactment, the Department's Wage
and Hour Division (WHD) issued Interpretative Bulletin No. 13,
addressing, among other topics, whether two or more companies may be
jointly and severally liable for a single employee's hours worked under
the FLSA.\8\ WHD recognized in the Bulletin that there is joint
employment liability under the FLSA and provided examples of situations
where two companies would or would not be joint employers of an
employee.\9\ For situations where an employee works hours for one
company and works separate hours for another company in the same
workweek, WHD focused on whether the two companies ``are acting
entirely independently of each other with respect to the employment of
the particular employee'' (in which case they would not be joint
employers) or, ``on the other hand, the employment by [the one company]
is not completely disassociated from the employment by [the other
company]'' (in which case they would be joint employers and the hours
worked for both would be aggregated for purposes of the Act).\10\ WHD
stated in the Bulletin that it ``will scrutinize all cases involving
more than one employment and, at least in the following situations, an
employer will be considered as acting in the interest of another
employer in relation to an employee: If the employers make an
arrangement for the interchange of employees or if one company
controls, is controlled by, or is under common control with, directly
or indirectly, the other company.'' \11\
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\8\ See Interpretative Bulletin No. 13, ``Hours Worked:
Determination of Hours for Which Employees are Entitled to
Compensation Under the Fair Labor Standards Act of 1938,'' ]] 16-17.
In October 1939 and October 1940, WHD revised other portions of the
Bulletin that are not pertinent here.
\9\ See id.
\10\ Id. ] 17.
\11\ Id.
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In 1958, the Department published a rule introducing 29 CFR part
791, titled ``Joint Employment Relationship under Fair Labor Standards
Act of 1938.'' \12\ Section 791.2(a) reiterated that there is joint
employment liability under the Act and stated that the determination
``depends upon all the facts in the particular case.'' \13\ It further
stated that two or more employers that ``are acting entirely
independently of each other and are completely disassociated'' with
respect to the employee's employment are not joint employers, but joint
employment exists if ``employment by one employer is not completely
disassociated from employment by the
[[Page 40940]]
other employer(s).'' \14\ Section 791.2(b) explained that, ``[w]here
the employee performs work which simultaneously benefits two or more
employers, or works for two or more employers at different times during
the workweek, a joint employment relationship generally will be
considered to exist in situations such as:
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\12\ See 23 FR 5905 (Aug. 5, 1958).
\13\ 29 CFR 791.2(a) (1958).
\14\ Id.
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(1) Where there is an arrangement between the employers to share
the employee's services, as, for example, to interchange employees; or
(2) Where one employer is acting directly or indirectly in the
interest of the other employer (or employers) in relation to the
employee; or
(3) Where the employers are not completely disassociated with
respect to the employment of a particular employee and may be deemed to
share control of the employee, directly or indirectly, by reason of the
fact that one employer controls, is controlled by, or is under common
control with the other employer.'' \15\
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\15\ 29 CFR 791.2(b) (1958) (footnotes omitted).
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In 1961, the Department amended a footnote in Sec. 791.2(a) to
clarify that a joint employer is also jointly liable for overtime
pay.\16\ Over the next several decades, WHD issued various guidance
documents including Fact Sheets, opinion letters, as well as legal
briefs reiterating the Department's position concerning joint
employment. See, e.g., WHD Opinion Letter FLSA2005-15, 2005 WL 2086804
(Apr. 11, 2005) (addressing joint employment in a health care system
comprised of hospitals, nursing homes, and parent holding company); WHD
Opinion Letter, 1999 WL 1788146 (Aug. 24, 1999) (advising that private
duty nurses were jointly employed by a hospital and individual
patients); WHD Opinion Letter, 1998 WL 852621 (Jan. 27, 1998)
(addressing the joint employment of grocery vendor employees stocking
grocery shelves); WHD Opinion Letter FLSA-1089, 1989 WL 1632931 (Aug.
9, 1989) (advising that workers participating in an enclave program
would be jointly employed by a participating business and a supervising
workshop).
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\16\ See 26 FR 7730, 7732 (Aug. 18, 1961).
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In 2014, WHD issued an Administrator's Interpretation (Home Care
AI) addressing how joint employment under the FLSA applies to certain
home care workers.\17\ The Home Care AI explained that the FLSA's
definitions of ``employer,'' ``employee,'' and ``employ,'' ``and
therefore the scope of employment relationships the Act covers, are
exceedingly broad.'' \18\ The Home Care AI discussed application of 29
CFR 791.2 and stated that its ``focus . . . is the degree to which the
two possible joint employers share control with respect to the employee
and the degree to which the employee is economically dependent on the
purported joint employers.'' \19\ WHD recognized that, ``when making
joint employment determinations in FLSA cases, the exact factors
applied may vary,'' but also stated that ``a set of factors that
addresses only control is not consistent with the breadth of employment
under the FLSA'' because an analysis based solely on the potential
employer's joint control `` `cannot be reconciled with [FLSA section
3(g)'s ``suffer or permit'' language], which necessarily reaches beyond
traditional agency law.' '' \20\ Accordingly, the Home Care AI applied
a non-exclusive set of ``economic realities factors'' relating to the
potential joint employer's control and other aspects of the
relationship to provide guidance regarding the possibility of joint
employment in numerous hypothetical scenarios specific to the home care
industry.\21\ WHD withdrew the Home Care AI on March 10, 2020.
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\17\ See Administrator's Interpretation No. 2014-2, ``Joint
Employment of Home Care Workers in Consumer-Directed, Medicaid-
Funded Programs by Public Entities under the Fair Labor Standards
Act'' (June 19, 2014), available at 2014 WL 2816951.
\18\ Id. at *2.
\19\ Id. at *2 n.4.
\20\ Id. at *2 n.5 (quoting Zheng v. Liberty Apparel Co., 355
F.3d 61, 69 (2d Cir. 2003)).
\21\ See id. at *7-14; see also id. at *3 (``[A]ny assessment of
whether a public entity is a joint employer necessarily involves a
weighing of all the facts and circumstances, and there is no single
factor that is determinative[.]'') (citing Rutherford Food Corp. v.
McComb, 331 U.S. 722, 730 (1947)).
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In 2016, WHD issued an Administrator's Interpretation (Joint
Employment AI) addressing joint employment generally under the FLSA and
the Migrant and Seasonal Agricultural Worker Protection Act (MSPA),
which uses the same definition of ``employ'' as the FLSA.\22\ Relying
on the text and history of FLSA section 3(g) and case law interpreting
it, the Joint Employment AI explained that joint employment, like
employment generally, is expansive under the FLSA and ``notably broader
than the common law concepts of employment and joint employment.'' \23\
The Joint Employment AI further explained that ``the expansive
definition of `employ' as including `to suffer or permit to work'
rejected the common law control standard and ensures that the scope of
employment relationships and joint employment under the FLSA and MSPA
is as broad as possible.'' \24\ The AI described how ``suffer or
permit'' or ``similar phrasing was commonly used in state laws
regulating child labor and was `designed to reach businesses that used
middlemen to illegally hire and supervise children.' '' \25\ The AI
thus concluded that ``the `suffer or permit to work' standard was
designed to expand child labor laws' coverage beyond those who
controlled the child laborer,'' ``prevent employers from using
`middlemen' to evade the laws' requirements,'' and ensure joint
liability in a type of vertical joint employment situation (explained
below).\26\
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\22\ See Administrator's Interpretation No. 2016-1, ``Joint
Employment Under the Fair Labor Standards Act and Migrant and
Seasonal Agricultural Worker Protection Act'' (Jan. 20, 2016),
available at 2016 WL 284582; see also 29 U.S.C. 1802(5) (``The term
`employ' [under MSPA] has the meaning given such term under section
3(g) of the [FLSA].'').
\23\ Id. at *3 (citing, inter alia, Torres-Lopez v. May, 111
F.3d 633, 639 (9th Cir. 1997); Antenor v. D & S Farms, 88 F.3d 925,
929 (11th Cir. 1996)).
\24\ Id.
\25\ Id. (quoting Antenor, 88 F.3d at 929 n.5).
\26\ Id.
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The Joint Employment AI described and discussed two types of joint
employment. It discussed horizontal joint employment, which exists
where an employee is separately employed by, and works separate hours
in a workweek for, more than one employer, and the employers ``are
sufficiently associated with or related to each other with respect to
the employee'' such that they are joint employers.\27\ The Joint
Employment AI explained that ``the focus of a horizontal joint
employment analysis is the relationship between the two (or more)
employers'' and that 29 CFR 791.2 provided guidance on analyzing that
type of joint employment, and the AI provided some additional guidance
on applying Sec. 791.2.\28\ The Joint Employment AI also discussed
vertical joint employment, which exists where an ``employee has an
employment relationship with one employer (typically a staffing agency,
subcontractor, labor provider, or other intermediary employer),''
another employer is ``receiv[ing] the benefit of the employee's
labor,'' and ``the economic realities show that [the employee] is
economically dependent on, and thus employed by,'' the other
employer.\29\ The Joint Employment AI explained that the vertical joint
employment analysis does not focus on examining the relationship
between the two employers but instead ``examines the economic
realities'' of the relationship between the employee and the other
employer that is benefitting
[[Page 40941]]
from the worker's labor.\30\ The AI noted that ``several Circuit Courts
of Appeals have also adopted an economic realities analysis for
evaluating vertical joint employment under the FLSA,'' and that,
``[r]egardless of the exact factors, the FLSA and MSPA require
application of the broader economic realities analysis, not a common
law control analysis, in determining vertical joint employment.'' \31\
The AI advised that, ``because of the shared definition of employment
and the coextensive scope of joint employment between the FLSA and
MSPA,'' the non-exclusive, multi-factor economic realities analysis set
forth by the Department in its MSPA joint employment regulation should
be applied in FLSA vertical joint employment cases to analyze the
relationship between the employee and the other employer, and that
doing so ``is consistent with both statutes and regulations.'' \32\ The
AI provided additional guidance on applying the analysis.\33\ WHD
withdrew the Joint Employment AI on June 7, 2017.\34\
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\27\ Id. at *4.
\28\ Id. at *4-8.
\29\ Id. at *2.
\30\ Id. at *4.
\31\ Id.
\32\ Id. at *5 (citing WHD's multi-factor economic realities
analysis for joint employment under MSPA set forth at 29 CFR
500.20(h)(5)). The Department issued its current MSPA joint
employment regulation in 1997 via a final rule following notice-and-
comment rulemaking. See 62 FR 11734 (Mar. 12, 1997).
\33\ See 2016 WL 284582, at *8-12.
\34\ See News Release 17-0807-NAT, ``US Secretary of Labor
Withdraws Joint Employment, Independent Contractor Informal
Guidance'' (June 7, 2017), available at <a href="https://www.dol.gov/newsroom/releases/opa/opa20170607">https://www.dol.gov/newsroom/releases/opa/opa20170607</a>.
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B. 2020 Joint Employer Rule
In January 2020, the Department published a final rule titled
``Joint Employer Status Under the Fair Labor Standards Act,'' which
became effective on March 16, 2020 (Joint Employer Rule or Rule).\35\
The Joint Employer Rule revised 29 CFR part 791 so that: Sec. 791.1
contained an introductory statement; Sec. 791.2 contained the
substance of the Rule and addressed both vertical joint employment
(which it referred to as ``the first joint employer scenario'') and
horizontal joint employment (which it referred to as ``the second joint
employer scenario''); and Sec. 791.3 contained a severability
provision.\36\
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\35\ See 85 FR 2820 (Jan. 16, 2020). The Department had
published a notice of proposed rulemaking (NPRM) requesting comments
on a proposed rule. See 84 FR 14043 (Apr. 9, 2019). The final rule
adopted ``the analyses set forth in the NPRM largely as proposed.''
85 FR 2820.
\36\ See 29 CFR 791.1, 791.2, and 791.3 (2020).
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1. Joint Employer Rule's Vertical Joint Employment Standard
For vertical joint employment, Sec. 791.2(a)(1) stated that
``[t]he other person [that is benefitting from the employee's labor] is
the employee's joint employer only if that person is acting directly or
indirectly in the interest of the employer in relation to the
employee,'' and then cited FLSA section 3(d)'s definition of
``employer.'' \37\ The Joint Employer Rule provided that section 3(d)
is the sole statutory provision in the FLSA for determining ``joint
employer status'' under the Act--to the exclusion of sections 3(e) and
3(g).\38\ The Joint Employer Rule further provided that the definitions
of ``employee'' and ``employ'' in sections 3(e) and 3(g) ``determine
whether an individual worker is an employee under the Act.'' \39\
Citing section 3(d)'s definition of ``employer'' as including ``any
person acting directly or indirectly in the interest of an employer in
relation to an employee,'' the Rule stated that ``only this language
from section 3(d) contemplates the possibility of a person in addition
to the employer who is also an employer and therefore jointly liable
for the employee's hours worked.'' \40\ The Rule concluded that this
language from section 3(d), ``by its plain terms, contemplates an
employment relationship between an employer and an employee, as well as
another person who may be an employer too--which exactly fits the
[vertical] joint employer scenario under the Act.'' \41\ The Rule
relied on the Supreme Court's decision in Falk v. Brennan \42\ and the
Court of Appeals for the Ninth Circuit's decision in Bonnette v.
California Health & Welfare Agency \43\ to ``support focusing on
section 3(d) as determining joint employer status.'' \44\
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\37\ 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d))
(emphasis added).
\38\ See generally 85 FR 2825-28.
\39\ Id. at 2827.
\40\ Id. (citing 29 U.S.C. 203(d)); see also id. (``This
language from section 3(d) makes sense only if there is an employer
and employee with an existing employment relationship and the issue
is whether another person is an employer.'').
\41\ Id.
\42\ 414 U.S. 190 (1973).
\43\ 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds,
Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985).
\44\ 85 FR 2827.
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Section 791.2(a)(1) of the Joint Employer Rule stated that ``four
factors are relevant to the determination'' of whether the other
employer is a joint employer in the vertical joint employment
situation.\45\ Those four factors were whether the other employer: (1)
Hires or fires the employee; (2) supervises and controls the employee's
work schedule or conditions of employment to a substantial degree; (3)
determines the employee's rate and method of payment; and (4) maintains
the employee's employment records.\46\ The Joint Employer Rule stated
that its four-factor test was ``derived from'' Bonnette.\47\ In
Bonnette, the Ninth Circuit affirmed a finding of vertical joint
employment after considering whether the other employer: (1) Had the
power to hire and fire the employees, (2) supervised and controlled
employee work schedules or conditions of employment, (3) determined the
rate and method of payment, and (4) maintained employment records.\48\
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\45\ 29 CFR 791.2(a)(1) (2020).
\46\ See 29 CFR 791.2(a)(1)(i)-(iv) (2020).
\47\ 85 FR 2830.
\48\ See 704 F.2d at 1469-1470.
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The Joint Employer Rule's four-factor analysis deviated from the
analysis in Bonnette in several ways. First, the Rule articulated the
first factor as whether the other employer ``[h]ires or fires the
employee'' as opposed to whether it had ``the power'' to hire and
fire.\49\ Section 791.2(a)(3)(i) stated that the ``potential joint
employer must actually exercise . . . one or more of these indicia of
control to be jointly liable under the Act,'' and that ``[t]he
potential joint employer's ability, power, or reserved right to act in
relation to the employee may be relevant for determining joint employer
status, but such ability, power, or right alone does not demonstrate
joint employer status without some actual exercise of control.'' \50\
Second, the Joint Employer Rule modified the Bonnette factor requiring
consideration of whether the potential joint employer supervises and
controls work schedules or conditions of employment by adding the
phrase ``to a substantial degree.'' This phrase was absent from the
test articulated in Bonnette (although Bonnette found that, on the
factual record before it, the potential joint employers ``exercised
considerable control'' in that area).\51\ Third, Sec. 791.2(a)(2)
stated that ``[s]atisfaction of the maintenance of employment records
factor alone will not lead to a finding of joint employer status,''
however, Bonnette did not include this limitation to a finding of joint
employer status.\52\ Finally, Sec. 791.2(b) stated that ``[a]dditional
factors may be relevant for determining joint employer status in this
scenario, but only if they are indicia of whether
[[Page 40942]]
the potential joint employer exercises significant control over the
terms and conditions of the employee's work.'' \53\ Bonnette, however,
stated that its four factors ``provide a useful framework for analysis
in this case,'' but ``are not etched in stone and will not be blindly
applied,'' and that ``[t]he ultimate determination must be based `upon
the circumstances of the whole activity.' '' \54\
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\49\ Compare 29 CFR 791.2(a)(1)(i) (2020) with Bonnette, 704
F.2d at 1469-1470.
\50\ 29 CFR 791.2(a)(3)(i) (2020) (citing 29 U.S.C. 203(d)).
\51\ Compare 29 CFR 791.2(a)(1)(ii) (2020) with Bonnette, 704
F.2d at 1469-1470.
\52\ Compare 29 CFR 791.2(a)(2) (2020) with Bonnette, 704 F.2d
at 1469-1470.
\53\ 29 CFR 791.2(b) (2020).
\54\ 704 F.2d at 1470 (quoting Rutherford Food, 331 U.S. at
730).
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In addition to generally excluding factors that are not indicative
of the potential joint employer's control over the employee's work, the
Joint Employer Rule specifically excluded any consideration of the
employee's economic dependence on the potential joint employer.\55\ The
Rule asserted that ``[e]conomic dependence is relevant when applying
section 3(g) and determining whether a worker is an employee under the
Act; however, determining whether a worker who is an employee under the
Act has a joint employer for his or her work is a different analysis
that is based on section 3(d).'' \56\ The Rule further asserted that,
``[b]ecause evaluating control of the employment relationship by the
potential joint employer over the employee is the purpose of the
Department's four-factor balancing test, it is sensible to limit the
consideration of additional factors to those that indicate control.''
\57\
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\55\ 29 CFR 791.2(c) (2020) (``[T]o determine joint employer
status, no factors should be used to assess economic dependence.'').
\56\ 85 FR 2821.
\57\ Id. at 2836.
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2. Joint Employer Rule's Horizontal Joint Employment Standard
To determine horizontal joint employment, the Joint Employer Rule
adopted the longstanding standard articulated in the prior version of
29 CFR 791.2 with ``non-substantive revisions.'' \58\ Section
791.2(e)(2) stated that, in this ``second joint employer scenario,''
``if the employers are acting independently of each other and are
disassociated with respect to the employment of the employee,'' they
are not joint employers.\59\ It further stated that, ``if the employers
are sufficiently associated with respect to the employment of the
employee, they are joint employers and must aggregate the hours worked
for each for purposes of determining compliance with the Act.'' \60\ It
identified the same three general examples of horizontal joint
employment provided in the prior version of 29 CFR 791.2.\61\
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\58\ Id. at 2823; see also id. at 2844-45.
\59\ 29 CFR 791.2(e)(1)-(2) (2020).
\60\ 29 CFR 791.2(e)(2) (2020).
\61\ Compare 29 CFR 791.2(e)(2)(i)-(iii) (2020) with 29 CFR
791.2(b)(1)-(3) (1958).
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3. Joint Employer Rule's Additional Provisions
The Joint Employer Rule adopted additional provisions that apply to
both vertical and horizontal joint employment. Section 791.2(f)
addresses the consequences of joint employment and provided that
``[f]or each workweek that a person is a joint employer of an employee,
that joint employer is jointly and severally liable with the employer
and any other joint employers for compliance'' with the Act.\62\
Section 791.2(g) provided 11 ``illustrative examples'' of how the Rule
may apply to specific factual situations implicating both vertical and
horizontal joint employment.\63\
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\62\ 29 CFR 791.2(f) (2020).
\63\ 29 CFR 791.2(g) (2020).
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C. Decision Vacating Most of the Joint Employer Rule
In February 2020, 17 States and the District of Columbia (the
States) filed a lawsuit in the United States District Court for the
Southern District of New York against the Department asserting that the
Joint Employer Rule violated the Administrative Procedure Act
(APA).\64\ The Department moved to dismiss the lawsuit on the grounds
that the States did not have standing. The district court denied that
motion on June 1, 2020.\65\ The district court issued an order on June
29, 2020, permitting the International Franchise Association, the
Chamber of Commerce of the United States of America, the National
Retail Federation, the Associated Builders and Contractors, and the
American Hotel and Lodging Association (Intervenors) to intervene as
defendants in the case.\66\ The parties filed cross-motions for summary
judgment, which the district court decided on September 8, 2020.\67\
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\64\ See New York v. Scalia, No. 1:20-cv-01689 (S.D.N.Y. filed
Feb. 26, 2020). The APA requires courts to hold unlawful and set
aside agency actions that are ``arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.'' 5 U.S.C.
706(2)(A).
\65\ See 464 F. Supp. 3d 528.
\66\ See 2020 WL 3498755.
\67\ See 490 F. Supp. 3d 748.
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The district court vacated the Joint Employer Rule's ``novel
standard for vertical joint employer liability'' because its
``revisions to that scenario are flawed in just about every respect.''
\68\ The district court found that the Rule violated the APA because it
was contrary to the law--specifically, it conflicted with the FLSA.\69\
The district court identified three conflicts: The Rule's reliance on
the FLSA's definition of ``employer'' in section 3(d) as the sole
textual basis for joint employment liability; its adoption of a
control-based test for determining vertical joint employer liability;
and its prohibition against considering additional factors beyond
control, such as economic dependence.\70\ In addition, the district
court found that the Rule was ``arbitrary and capricious'' in violation
of the APA for three reasons: The Rule did not adequately explain why
it departed from the Department's prior interpretations; the Rule did
not consider the conflict between it and the Department's MSPA joint
employment regulations; and the Rule did not adequately consider its
cost to workers.\71\
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\68\ Id. at 795.
\69\ See id. at 774.
\70\ See id. at 774-92.
\71\ See id. at 792-95.
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The district court concluded that the Joint Employer Rule's ``novel
interpretation for vertical joint employer liability'' was unlawful
under the APA and vacated all of Sec. 791.2 except for Sec.
791.2(e).\72\ The court determined that, because the Rule's ``non-
substantive revisions to horizontal joint employer liability are
severable,'' Sec. 791.2(e) ``remains in effect.'' \73\
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\72\ Id. at 795-96.
\73\ Id.
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In November 2020, the Department and the Intervenors appealed the
district court's decision vacating most of the Joint Employer Rule, and
the appeal remains pending before the Court of Appeals for the Second
Circuit, as discussed further below.\74\
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\74\ See New York v. Scalia, 490 F. Supp. 3d 748, appeal
docketed, No. 20-3806 (2d Cir. Nov. 6, 2020).
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D. Proposal To Rescind the Joint Employer Rule
On March 12, 2021, the Department issued a notice of proposed
rulemaking (NPRM) proposing to rescind the Joint Employer Rule.\75\ The
NPRM explained that the Department was considering rescinding the Joint
Employer Rule for several reasons.\76\ The Department decided to
further consider the concerns raised by the district court in New York
v. Scalia that the Rule's reliance on section 3(d) alone among the
FLSA's provisions may be contrary to the FLSA's text and Congressional
intent, particularly as the Department had never previously excluded
FLSA sections 3(e) and (g) from the joint employment analysis and had
instead
[[Page 40943]]
applied an economic realities framework that included the definitions
of ``employ'' or ``employee'' when determining joint employer
liability, consistent with the approach taken by courts.\77\ The
Department was similarly concerned that the Rule's use of section 3(d)
alone as the statutory basis for joint employment might not ``easily
encompass all scenarios in which joint employment may arise; multiple
employers may `suffer or permit' an employee to work and could thus be
joint employers under section 3(g) without one [employer] working `in
the interest of an employer' under section 3(d).'' \78\
---------------------------------------------------------------------------
\75\ See 86 FR 14038.
\76\ See 86 FR 14042-46.
\77\ See 86 FR 14042-43.
\78\ See 86 FR 14043.
---------------------------------------------------------------------------
The Department also believed that it should consider and address
the district court's conclusion that the Joint Employer Rule
``unlawfully limits the factors the Department will consider in the
joint employer inquiry'' by focusing on a control-based test to the
exclusion of economic dependence generally, certain economic dependence
factors, and certain other considerations, as this approach is not
consistent with the totality-of-the-circumstances economic realities
standard that has generally been used by the courts.\79\ The Rule's
approach was also different than the Department's prior guidance on
joint employment, and the Department acknowledged in the NPRM the
district court's concerns that the Rule did not adequately explain the
reasons for the significant departure.\80\ Relatedly, the Department
recognized in the NPRM that courts have generally declined to adopt the
Rule's vertical joint employment analysis as a replacement for their
existing analyses, indicating that the Rule had not provided the
intended clarity and that rescinding the Rule would not be disruptive
to stakeholders.\81\ Finally, the Department was concerned that the
Rule may not have sufficiently considered the negative effect that it
would have on employees by reducing the number of businesses who were
FLSA joint employers from which employees may be able to collect back
wages due to them under the FLSA.\82\ For all of these reasons, the
Department proposed in the NPRM to rescind the entire Joint Employer
Rule.\83\
---------------------------------------------------------------------------
\79\ See 86 FR 14043-44 (quoting Scalia, 490 F. Supp. 3d at
790).
\80\ See 86 FR 14044.
\81\ See 86 FR 14044-45.
\82\ See 86 FR 14045.
\83\ See 86 FR 14045-46.
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E. Status of Pending Appeal of Decision Vacating Most of the Joint
Employer Rule
Although its filing deadline was not until February 19, 2021, the
Department filed an opening brief in support of the Rule on January 15,
2021. The Intervenors filed their opening brief on the same day. On
March 31, 2021, the Department filed a motion seeking to hold the
appeal in abeyance in light of the published NPRM proposing to rescind
the Joint Employer Rule. The Second Circuit denied the motion without
explanation. The States filed their response brief on April 16, 2021.
The Intervenors filed their reply brief on May 7, 2021. On May 28,
2021, the Department filed a reply brief. In its reply brief, the
Department explained that the rulemaking proposing to rescind the Joint
Employer Rule may moot the States' challenge to the Rule, making any
resolution of the appeal unnecessary. The Department took no position
on the merits of the Rule in its reply brief. The Department argued
that if the Second Circuit resolves the appeal, it should reverse the
district court's decision on the grounds that the States had no
standing to challenge the Rule.
II. Comments and Decision
The Department received over 290 comments in response to the NPRM.
State officials, members of Congress, labor unions, social justice
organizations, worker advocacy groups, and individual commenters wrote
in support of the Department's proposal to rescind the Joint Employer
Rule, including a number of commenters who submitted comments with
similar template language. These commenters supported rescission of the
Rule predominantly on the basis that, in their view, the Rule
improperly narrowed the test for joint employer status and conflicted
with decades of Department interpretation, the text of the FLSA, and
Congressional intent. Some suggested that the Rule did not align with
the Supreme Court's observation that the FLSA's conception of
employment is of ``striking breadth.'' \84\ Commenters also noted
detrimental effects of the Rule on vulnerable workers employed by
contractors. Others pointed out that a court had vacated the Rule's
vertical joint employment analysis and asserted that the horizontal
joint employment test was intertwined with the vacated vertical joint
employment provisions. Commenters also raised numerous other legal and
policy criticisms of the Rule, discussed in greater detail below.
---------------------------------------------------------------------------
\84\ Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326
(1992).
---------------------------------------------------------------------------
Various trade associations, business advocacy organizations, law
firms, and individual commenters submitted comments opposing the
Department's proposal to rescind the Joint Employer Rule. These
commenters generally supported the Rule for, in their view, providing a
clearer, common-sense standard for determining joint employer status.
Several expressed the view that the Department was relying too much on
a district court decision which the commenters believe to be erroneous,
and encouraged the Department to stay this rulemaking pending the
outcome of the appeal to the Second Circuit. They raised numerous other
legal and policy arguments in defense of the Rule (or in objection to
the proposed rescission), discussed in greater detail below.\85\
---------------------------------------------------------------------------
\85\ In addition, some commenters provided political or
ideological statements that did not specifically support or oppose
the proposed rescission. For example, some comments were limited to
offering support for working people without suggesting how best to
do so in the context of this rulemaking. A few other commenters
appeared to confuse the proposed rescission of the Joint Employer
Rule with the proposed withdrawal of the Department's rule related
to independent contractors. See 86 FR 14027 (Mar. 12, 2021)
(proposing withdrawal of the final rule, ``Independent Contractor
Status under the Fair Labor Standards Act,'' previously published on
January 7, 2021 at 86 FR 1168). The Department finalized withdrawal
of the Independent Contractor Rule on May 6, 2021. See 86 FR 24303.
---------------------------------------------------------------------------
Having considered the comments submitted in response to the NPRM,
the Department has decided to finalize the rescission of the Joint
Employer Rule. The Rule was inconsistent with the FLSA's text and
purpose. The Rule's vertical joint employment analysis had never before
been applied by WHD, was different from the analyses applied by every
court to have considered the issue prior to the Rule's issuance, and
has generally not been adopted by courts. The Rule's horizontal joint
employment analysis, although consistent with prior guidance, was
intertwined with the vertical joint employment analysis, and thus the
Department is rescinding the entire Rule as explained below. The
Department's response to commenter feedback on specific aspects of the
proposed rescission is also provided below.
A. Statutory Analysis and Control-Based Test for Vertical Joint
Employment
The NPRM observed that the statutory analysis and control-based
test for vertical joint employment set forth in the Joint Employer Rule
was different, to varying degrees, from the analyses and tests applied
by every court to have considered joint employer questions
[[Page 40944]]
prior to the Rule's issuance, as well as WHD's previous enforcement
approach. The NPRM further noted that the Rule may have been
impermissibly narrow due to its exclusive focus on control.
1. The Rule's Reliance on Section 3(d) as the Sole Textual Basis for
Determining Joint Employer Status
In the Rule, the Department stated that section 3(d) of the FLSA,
which contains the definition of employer, is the sole statutory basis
for determining joint employer status under the Act, and asserted that
sections 3(e) and 3(g), which define ``employee'' and ``employ,''
respectively, are not relevant to determining joint employer
status.\86\ In the NPRM, the Department explained its concern that,
upon further consideration, the text of section 3(d) alone may not
easily encompass all scenarios in which joint employment may arise
under the Act.\87\
---------------------------------------------------------------------------
\86\ 85 FR 2825, 2827-28.
\87\ 86 FR 14042.
---------------------------------------------------------------------------
Multiple commenters representing employees agreed that by limiting
the statutory basis of the vertical joint employment analysis to
section 3(d) and ignoring the ``suffer or permit'' language of section
3(g)'s definition of ``employ,'' the Joint Employer Rule's test for
vertical joint employment was unduly narrow and contrary to law and the
Act. See, e.g., National Employment Lawyers Association. The North
Carolina Justice Center, for example, stated that the ``rule's narrow
definition of who is responsible as an employer is contrary to the
plain language of the statute's definition of `employ' contained in
section 203(g) of the Act.'' The International Brotherhood of Teamsters
noted that the Rule impermissibly ignored the statutory definitions of
``employ'' and ``employee,'' which they asserted ``are integral to the
`employer' definition.'' The Northwest Workers' Justice Project
commented on the Rule's ``novel'' interpretation and asserted that
``the Secretary is unable to point to a single authority for its
unusual assertion that this section [3(d)] is the sole source of joint
employment.'' The Project's comment further criticized the Rule's
statutory interpretation, observing that ``[t]he word `joint' does not
appear in Sec. 203(d)'' and opining that ``the word `includes' in 29
U.S.C. 203(d) would suggest that there are other types of employers
under the FLSA than those that meet the statutory definition of Sec.
203(d).'' Texas RioGrande Legal Aid noted that the Rule ``grew from the
belief that section 3(d) of the FLSA `is the touchstone for joint
employer status' '' \88\ but section 3(d) ``is circular and provides
little or no guidance as to the extent of employer-employee
relationships.'' A coalition of State Attorneys General (State AGs)
commented that the Rule's vertical joint employment test ``conflicted
with the statutory text of the FLSA'' because its ``narrow
interpretation of the term `employer' and its assertion that the
definition of `employer' is the sole textual basis to determine joint
employment were not faithful to the Act's definitions and Congress'
intent in enacting them.''
---------------------------------------------------------------------------
\88\ Quoting 85 FR 2857.
---------------------------------------------------------------------------
Employers and trade associations generally commented that the Joint
Employer Rule was consistent with the FLSA and case law and should be
upheld. See, e.g., U.S. Chamber of Commerce, Littler Workplace Policy
Institute (WPI). The Associated Builders and Contractors, for example,
stated that it ``strongly supports the [D]epartment's clarification [in
the Rule] that only the definition of an `employer' in section 3(d) of
the FLSA, 29 U.S.C. 203(d), determines joint employer status, not the
definition of `employee' in section 3(e)(1) or the definition of
`employ' as `to suffer or permit work' in section 3(g) of the FLSA, 29
U.S.C. 203(e)(1), (g).'' This commenter further stated that ``Section
3(d) of the FLSA is the sole section that defines `employer' (as a
person `acting directly or indirectly in the interest of an employer in
relation to an employee'), while Section 3(g)'s separate definition of
`employ' (to `suffer or permit' to work) has been improperly cited by
some courts as a basis for finding joint employer status.'' The Society
for Human Resource Management (SHRM) supported the Rule's statutory
analysis, and commented that ``by distancing itself from prior
pronouncements espousing `economic dependence' as the hallmark for
joint employment (or suggesting that certain business models are
inherently joint employment), the Department appropriately returned the
focus of the joint employment inquiry to the FLSA's statutory
language.'' Similarly, the Center for Workplace Compliance stated that
``[w]hile sections 3(e)(1) and 3(g) would be relevant for determining
whether an individual was an employee or independent contractor, they
do not appear to be relevant to [the] determination of whether a second
employer should be jointly liable under the FLSA.'' The U.S. Chamber of
Commerce supported the focus on section 3(d) and stated that ``[u]nlike
the broad definition of `employ', the definition of `employer' contains
an active requirement that an entity be `acting directly or indirectly
in the interest of an employer in relation to an employee.' ''
Having reviewed the comments and considered the issue further, the
Department has concluded that the Rule's interpretation that section
3(d) is the ``sole'' textual basis for determining joint employer
status in vertical joint employment scenarios \89\ potentially excluded
important aspects of joint employment arrangements.
---------------------------------------------------------------------------
\89\ 85 FR 2825.
---------------------------------------------------------------------------
As an initial matter, the statutory language of section 3(d) itself
raises concerns as to whether relying on that provision as the sole
textual basis encompasses all scenarios in which joint employment may
arise. Section 3(d) uses the word ``includes'' rather than the word
``means.'' \90\ Under the Act, an ``employer'' ``includes any person
acting directly or indirectly in the interest of an employer in
relation to an employee,'' ``includes a public agency,'' but ``does not
include any labor organization (other than when acting as an employer)
or anyone acting in the capacity of officer or agent of such labor
organization.'' \91\ Thus, by its own terms, section 3(d) is not
exhaustive. Throughout section 3--the ``definitions'' section of the
FLSA--Congress chose to vary its language for each definition between
``means'' and ``includes,'' and its use of ``includes'' when defining
``employer'' indicates that the definition that follows ``includes'' is
not an exhaustive definition of ``employer.'' \92\
---------------------------------------------------------------------------
\90\ 29 U.S.C. 203(d).
\91\ Id. (emphases added).
\92\ Compare, for example, sections 203(a), 203(b), and 203(e),
which use the word ``means'' to define ``person,'' ``commerce,'' and
``employee,'' respectively, with sections 203(d) and 203(g), which
use the word ``includes'' to define ``employer'' and ``employ,''
respectively. ``It is a well-established canon of statutory
interpretation that the use of different words or terms within a
statute demonstrates that Congress intended to convey a different
meaning for those words.'' SEC v. McCarthy, 322 F.3d 650, 656 (9th
Cir. 2003); see also Race Tires Am., Inc. v. Hoosier Racing Tire
Corp., 674 F.3d 158, 165 (3d Cir. 2012) (``If possible, we must give
effect to every clause and word of a statute, . . . and be reluctant
to treat statutory terms as surplusage.'') (internal quotation marks
omitted).
---------------------------------------------------------------------------
Furthermore, the Joint Employer Rule limited joint employment in
the vertical context to persons ``acting directly or indirectly in the
interest of the employer in relation to the employee,'' confining joint
employment to persons acting in the interest of a single employer.\93\
In other words, the Rule assumed that an employee had one employer and
that any other person that was liable was a
[[Page 40945]]
joint employer. However, section 3(d) of the Act specifically defines a
person ``acting directly or indirectly in the interest of an employer
in relation to the employee'' as an ``employer'' itself.\94\ Thus,
while the Rule allowed only a single employer--``the employer''--to
``suffer[ ], permit[ ], or otherwise employ[ ] the employee to work''
in the vertical scenario,\95\ section 3(d) itself provides for any
number of other employers that can suffer, permit, or otherwise employ
employees.\96\ In light of this, the Joint Employer Rule did not even
adhere to the statutory text--section 3(d)--which was its cited basis.
---------------------------------------------------------------------------
\93\ 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d))
(emphasis added).
\94\ 29 U.S.C. 203(d) (emphasis added).
\95\ 29 CFR 791.2(a)(1) (2020). The Joint Employer Rule preamble
acknowledged the possibility that ``multiple employers [may] suffer,
permit, or otherwise employ an employee to work,'' but only in the
horizontal scenario involving ``separate sets of hours.'' 85 FR
2823.
\96\ 29 U.S.C. 203(d).
---------------------------------------------------------------------------
Additionally, there is case law indicating that section 3(d) was
intended for the purpose of imposing responsibility upon the agents of
employers, rather than to provide an exhaustive definition of joint
employers under the Act.\97\ The Rule acknowledged commenter arguments
regarding this distinction within the Act's ``definitions'' section, as
well as the import of section 3(d)'s ``includes'' language,\98\ but did
not address these arguments. Confining the analysis to only the Act's
definition of ``employer'' resulted in an incomplete analysis of some
potential joint employment scenarios.
---------------------------------------------------------------------------
\97\ See Greenberg v. Arsenal Bldg. Corp., 144 F.2d 292, 294 (2d
Cir. 1944) (explaining that ``the section would have little meaning
or effect if such were not the case''). The Supreme Court reversed
an unrelated part of the Second Circuit's holding in Greenberg. See
324 U.S. 697, 714-16 (1945). Greenberg is not alone in concluding
that section 3(d)'s ``includes'' language was intended to impose
liability on an employer's agents. See, e.g., Donovan v. Agnew, 712
F.2d 1509, 1513 (1st Cir. 1983) (noting that section 3(d) was
``intended to prevent employers from shielding themselves from
responsibility for the acts of their agents''); Dole v. Elliott
Travel & Tours, Inc., 942 F.2d 962, 965-66 (6th Cir. 1991) (relying
on section 3(d) to hold individually liable the owner/officer who
exercised operational control of the employer); Arias v. Raimondo,
860 F.3d 1185, 1191-92 (9th Cir. 2017) (observing that section 3(d)
``clearly means to extend [the FLSA's] reach beyond actual
employers.), cert. denied, 138 S. Ct. 673 (2018); see also Thompson
v. Real Estate Mortg. Network, 748 F.3d 142, 153-54 (3d Cir. 2014)
(holding that ``a company's owners, officers, or supervisory
personnel may also constitute `joint employers' '' with the company
under 3(d)).
\98\ 85 FR 2826.
---------------------------------------------------------------------------
The Department has also evaluated the Rule's singular focus on
section 3(d) against the backdrop of the history and purpose of the
``suffer or permit'' language in section 3(g). As the Rule
acknowledged, the Act's definition of ``employ'' was a rejection of the
common law standard for determining who is an employee under the Act in
favor of a broader scope of coverage. See Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. 318, 326 (1992) (``[T]he FLSA . . . defines the verb
`employ' expansively to mean `suffer or permit to work.' This . . .
definition, whose striking breadth we have previously noted, stretches
the meaning of `employee' to cover some parties who might not qualify
as such under a strict application of traditional agency law
principles.'') (citations omitted); Walling v. Portland Terminal Co.,
330 U.S. 148, 150-51 (1947) (``But in determining who are `employees'
under the Act, common law employee categories or employer-employee
classifications under other statutes are not of controlling
significance. This Act contains its own definitions, comprehensive
enough to require its application to many persons and working
relationships, which prior to this Act, were not deemed to fall within
an employer-employee category.'') (citations omitted).
Section 3(g)'s ``suffer or permit'' language was intended to
include as employers entities that used intermediaries to shield
themselves from liability.\99\ Rather than being derived from the
common law of agency, the FLSA's definition of ``employ'' and its
``suffer or permit'' language originally came from state laws
regulating child labor.\100\ This language was ``designed to reach
businesses that used middlemen to illegally hire and supervise
children.'' Antenor v. D & S Farms, 88 F.3d 925, 929 n.5 (11th Cir.
1996). This standard was intended to expand coverage beyond employers
who control the means and manner of performance to include entities who
``suffer'' or ``permit'' work.\101\ Accordingly, the Rule's reliance
solely on section 3(d), to the exclusion of section 3(g), was in
tension with Congress' well-understood intent in enacting those
provisions.
---------------------------------------------------------------------------
\99\ See Rutherford Food, 331 U.S. at 728; Salinas v. Commercial
Interiors, Inc., 848 F.3d 125, 136-140 (4th Cir. 2017). When
Congress enacted the Migrant and Seasonal Agricultural Worker
Protection Act, 29 U.S.C. 1801 et. seq., it provided that ``[t]he
term `employ' has the meaning given such term under section 3(g) of
the Fair Labor Standards Act of 1938 (29 U.S.C. 203(g)) for the
purposes of implementing the requirements of that Act.'' 29 U.S.C.
1802(5). The committee report provides that ``the Committee's use of
[section 3(g)] was deliberate and done with the clear intent of
adopting the `joint employer' doctrine as a central foundation of
this new statute.'' H.R. Rep. No. 97-885, at 6 (1982).
\100\ See Rutherford Food, 331 U.S. at 728 & n.7.
\101\ See generally People ex rel. Price v. Sheffield Farms-
Slawson-Decker Co., 225 N.Y. 25, 29-31 (1918).
---------------------------------------------------------------------------
Moreover, the Joint Employer Rule's textual analysis needlessly
bifurcated the statutory terms ``employ'' and ``employer'' in the
vertical context. Specifically, it interpreted section 3(g) as defining
who is an ``employer'' (person A is an employer of person B because
person A suffers, permits, or otherwise employs person B to work), and
section 3(d) as defining someone who is a ``joint employer'' (person C
is a joint employer of employee B because person C acts directly or
indirectly in the interest of employer A in relation to employee B).
The Rule thus applied a different analytical framework to different
employers. This bifurcated approach has not been used by any court nor
is this stratification of employers supported by the text of the Act.
Instead, all employers under the Act--joint employers or otherwise--are
jointly and severally liable for wages owed. If anything, the Rule's
section 3(d) analysis was backwards to the extent that it inquired
whether entities which are higher in the ``vertical'' structure of a
particular industry (such as a general contractor or staffing agency
client) are ``acting . . . in the interests of'' acknowledged employers
which are lower in the structure (such as a subcontractor or staffing
agency). This bifurcation also makes it unclear which standard--
``suffer or permit'' under section 3(g) or the control-based standard
under section 3(d)--should apply to which entity if, for example, both
potential employers deny any employment relationship with a worker.
The Joint Employer Rule discussed the Supreme Court's decision in
Falk v. Brennan \102\ at length, relying on it to buttress its
statutory interpretation argument. Upon further consideration, while
the Court did address a joint employment situation in Falk v. Brennan,
the Department now believes that the case's utility is limited. In its
four-sentence discussion of joint employment, the Court explicitly
noted the Act's definitions in both section 3(d) (``employer'') and
section 3(e) (``employee''), and based its conclusion that a management
company was a joint employer ``[i]n view of the expansiveness of the
Act's definition of `employer' and the extent of the [purported joint
employer's] managerial
[[Page 40946]]
responsibilities at each of the buildings, which gave it substantial
control of the terms and conditions of the work of these employees.''
\103\ Moreover, Falk was an affirmance of a Fourth Circuit case, which
noted that the Act's definitions (both 3(d) and 3(g)) were ``very
broadly cast'' and that ``courts have accordingly found an employment
relationship for purposes of the Act far more readily than would be
dictated by common law doctrines.'' \104\ The Court commented favorably
on the Fourth Circuit's holding, stating that ``the Court of Appeals
was unquestionably correct in holding that [the management company] is
also an employer . . . . '' \105\ The Department's brief before the
Supreme Court in Falk v. Brennan also argued that the petitioner
building management company was a joint employer of the building's
maintenance workers based on both section 3(d) and section 3(g).\106\
The brief further stated that ``[s]ince petitioners do the hiring and
firing, they `employ' the workers within the plain meaning of this
statutory definition.'' \107\ The Department's brief thus concluded
that it is preferable to read the relevant statutory provisions of
section 3(d) and section 3(g) together because, among other reasons,
section 3(g) defined ``employ'' as it did with the intent of including
as an employer entities that used intermediaries that employed workers
but disclaimed that they themselves were employers of the workers.\108\
---------------------------------------------------------------------------
\102\ Notably, the district court in New York v. Scalia
concluded that ``Falk cuts against the Department's argument that
section 3(d) is the sole textual basis for joint employer
liability'' because Falk cited to the statutory definition of
``employee'' as well as ``employer'' and observed that the FLSA's
definition of employer is expansive. See 490 F. Supp. 3d at 783-84.
\103\ 414 U.S. at 195.
\104\ Shultz v. Falk, 439 F.2d 340, 344 (4th Cir. 1971).
\105\ 414 U.S. at 195.
\106\ Brief for Respondent Secretary of Labor, Falk v. Brennan,
414 U.S. 190 (1973) (No. 72-844), 1973 WL 173856, at *10 (``The Act
clearly defines an `employer' to include `any person acting directly
or indirectly in the interest of an employer in relation to an
employee * * *' (Section 3(d)), a description plainly applicable to
petitioners in their relation to the building personnel. The
definition of the term `employ' in Section 3(g) as including `to
suffer or permit to work' confirms this conclusion, since it is
petitioners, not the building owners, who have control over the
hiring, job assignments, and discharge of the building workers.'').
\107\ Id. at *26.
\108\ Id.; see Rutherford Food, 331 U.S. at 728; Salinas, 848
F.3d at 136-140.
---------------------------------------------------------------------------
Similarly, all of the circuit courts of appeals to have considered
joint employment under the FLSA have looked to the economic realities
test as the proper framework, and none have explicitly identified
section 3(d) as the sole textual basis for joint employment. In
particular, the case law heavily relied upon in the Joint Employer Rule
from the First, Third, and Fifth Circuits, as well as the Bonnette
decision itself, all apply an economic realities analysis when
determining joint employment under the FLSA.\109\ The Rule's approach
also represented a significant shift from WHD's longstanding analysis;
WHD had never excluded sections 3(e) and (g) from the joint employment
analysis and had instead consistently applied an economic realities
framework that did not exclude the definitions of ``employ'' or
``employee'' when determining joint employer liability, as discussed
above.
---------------------------------------------------------------------------
\109\ See, e.g., Baystate Alternative Staffing, Inc. v. Herman,
163 F.3d 668, 675 (1st Cir. 1998); In re Enterprise Rent-A-Car Wage
& Hour Emp't Practices Litig., 683 F.3d 462, 469-470 (3d Cir. 2012);
Gray v. Powers, 673 F.3d 352, 357 (5th Cir. 2012); Bonnette, 704
F.2d at 1469.
---------------------------------------------------------------------------
In view of the foregoing, limiting the statutory basis for joint
employment analyses solely to section 3(d), to the exclusion of the
other highly relevant definitions of ``employee'' in section 3(e) and
``employ'' in section 3(g), was problematic and inhibited compliance
with the Act.
2. The Vertical Joint Employment Test's Singular Emphasis on Control
For vertical joint employment scenarios, the Joint Employer Rule
adopted a four-factor test focused on the actual exercise of control.
Generally, it excluded factors that were not indicative of a potential
joint employer's control, directed that additional factors may be
considered ``only if they are indicia of whether the potential joint
employer exercises significant control over the terms and conditions of
the employee's work,'' and specifically excluded any consideration of
the employee's economic dependence on the potential joint
employer.\110\ The NPRM questioned whether the four-factor test's
emphasis on control was unduly narrow.\111\ While recognizing that the
tests for vertical joint employment differ among the circuit courts of
appeals, the NPRM observed that ``all courts consistently use a
totality-of-the-circumstances economic realities approach to determine
the scope of joint employment under the FLSA, rather than limiting the
focus exclusively to control.'' \112\
---------------------------------------------------------------------------
\110\ 29 CFR 791.2(b) and (c) (2020).
\111\ 86 FR 14043.
\112\ Id.
---------------------------------------------------------------------------
Organizations representing employee interests generally opposed the
four-factor test's emphasis on control and, in particular, criticized
the Joint Employer Rule's requirement that actual control be exercised.
The Shriver Center, for example, commented that ``[e]ven under the more
restrictive common-law employment test, the [Department]'s rule is too
narrow: it fails to consider the right to control, a cornerstone of
common-law employment determinations under long-standing Supreme Court
and FLSA law.'' See also Workplace Justice Project. The Construction
Employers of America stated that the Rule's analysis ``replaced the
historic focus on economic dependence for determining joint employment
with a four-factor test for assessing the level of control the
potential joint employer has over the workers at issue.'' The Northwest
Workers' Justice Project noted that there is case law that presents a
broader analysis than solely control, stating, ``[o]f course, both Real
[v. Driscoll Strawberry Assocs., 603 F.2d 748 (9th Cir. 1979)] and
Rutherford [Food Corp. v. McComb, 331 U.S. 722 (1947)] articulate
broader factors beyond control to be considered in determining
employment under the FLSA.'' The State AGs also commented that the
control-based test for vertical joint employment set forth by the Rule
was ``contrary to the FLSA's text and case law'' and that requiring the
exercise of actual control was ``inconsistent with the `suffer or
permit' language of the statute.''
Organizations representing employers generally supported the Joint
Employer Rule's four-factor test, and specifically commented that the
requirement for an actual exercise of control would provide much-needed
clarity for employers. The National Association of Home Builders, for
instance, stated that the Rule ``provides a clearer methodology for
determining joint employer status with the focus on the actual exercise
of power.'' The U.S. Chamber of Commerce also supported the test's
emphasis on the exercise of control, explaining that ``contractual
reservations of control are not probative of the relationship between
the employer and the putative employee--the touchstone of the joint
employer analysis--if the putative employer never exercises such
control.'' The National Restaurant Association and Restaurant Law
Center also praised the test for similar reasons, commenting that the
Rule ``created a more appropriate and reliable standard using a
multifactor balancing test that focuses on the economic realities of
the potential joint employer's exercise of control over the employee's
terms and conditions of employment. Because this test focuses on the
actual and direct control over the employee's terms and conditions of
employment, there is greater predictability and uniformity in the joint
employment analysis.'' See also Associated Builders and Contractors
(``ABC therefore supports the
[[Page 40947]]
[D]epartment's rule codifying the Bonnette test, with an additional
emphasis on `actual,' as opposed to reserved but unexercised control by
one employer over another's employees, as the test that is most
consistent with the statutory definition of `employer.' ''); SHRM
(``Ultimately, by ensuring that the inquiry is directed [at] a putative
joint employer's actual control over critical terms of employment, the
[Joint Employer Rule] stands on solid ground statutorily, and is
consistent with the relevant Supreme Court authority.'').
Upon consideration of the comments received, the Department has
concluded that the four-factor test's exclusive focus on control--and
specifically, its mandate for an actual exercise of control--was not
the most appropriate standard for vertical joint employment scenarios
in view of the Act and case law. It is well-settled that in enacting
the FLSA, Congress rejected the common law control standard for
employment. In Darden, the Supreme Court stated that the FLSA defines
``employ'' ``expansively'' and with ``striking breadth'' and
``stretches the meaning of `employee' to cover some parties who might
not qualify as such under a strict application of traditional agency
law principles.'' \113\
---------------------------------------------------------------------------
\113\ 503 U.S. at 326.
---------------------------------------------------------------------------
Although the specific factors may vary, all courts consistently use
a totality-of-the-circumstances economic realities approach to
determine the scope of joint employment under the FLSA. In addition to
Bonnette, upon which the Rule heavily relied, multiple other circuit
court decisions relied upon by the Rule also ground their joint
employment analyses in the overarching totality-of-the-circumstances
economic realities standard.\114\ Court decisions that have not applied
the Bonnette factors generally ground their joint employment analyses
in the totality-of-the-circumstances economic realities standard as
well.\115\ Although some courts have applied an analysis that addresses
only, or primarily, the potential joint employer's control,\116\ these
cases have nonetheless recognized that the control factors considered
``do not constitute an exhaustive list of all potentially relevant
facts'' and ``should not be `blindly applied' ''; rather, a joint
employment determination must consider the employment situation in
totality, including the economic realities of the working
relationship.\117\ In contrast, the Rule provided that ``[a]dditional
factors may be relevant for determining joint employer status in this
scenario, but only if they are indicia of whether the potential joint
employer exercises significant control over the terms and conditions of
the employee's work.'' \118\ While the exercise of ``significant
control'' may certainly establish joint employment under the Act, no
court has set this standard as the requirement for a finding of joint
employment.
---------------------------------------------------------------------------
\114\ See, e.g., Baystate, 163 F.3d at 675; Enterprise, 683 F.3d
at 469; Gray, 673 F.3d at 354-55.
\115\ See, e.g., Zheng, 355 F.3d at 69-75; Salinas, 848 F.3d at
142-43; Torres-Lopez, 111 F.3d at 639-644 (noting that an economic
realities analysis applies when determining joint employment and
that the concept of joint employment, like employment generally,
``should be defined expansively'' under the FLSA).
\116\ See Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at
468-69.
\117\ Enterprise, 683 F.3d at 469 (emphasis in original)
(quoting Bonnette, 704 F.2d at 1469-1470).
\118\ 29 CFR 791.2(b) (emphasis added).
---------------------------------------------------------------------------
Especially problematic was the Rule's requirement for the actual
exercise of control, a standard adopted by no court. The Rule stated
that it was ``not the Department's intent'' to promulgate a rule
narrower than the common law.\119\ However, the Rule also plainly
required an actual exercise of control, stating that ``the regulation
now makes clear that an actual exercise of control, directly or
indirectly, is required for at least one of the factors and is the
clearer indication of joint employer status.'' \120\ Under the common
law standard, the mere right to control indicates a common law
employment relationship; in contrast, the Rule required an actual
exercise of control for at least one factor.\121\ For this reason too,
the Rule's test for vertical joint employment was in tension with the
economic realities analysis used by courts across the country, which
was intended to be more comprehensive than the common law
standard.\122\
---------------------------------------------------------------------------
\119\ 85 FR 2834.
\120\ Id.
\121\ See, e.g., Zheng, 355 F.3d at 69 (``Measured against the
expansive language of the FLSA, the four-part test [based on
Bonnette] employed by the District Court is unduly narrow, as it
focuses solely on the formal right to control the physical
performance of another's work. That right is central to the common-
law employment relationship, see Restatement of Agency section
220(1) (1933) (`A servant is a person employed to perform service
for another in his affairs and who, with respect to his physical
conduct in the performance of the service, is subject to the other's
control or right to control.')'').
\122\ See Falk, 439 F.2d at 344 (observing that courts find
employment under the FLSA ``far more readily than would be dictated
by common law doctrines''); Portland Terminal Co., 330 U.S. at 150-
51 (noting that the FLSA's definitions are ``comprehensive enough to
require its application'' to many working relationships which, under
the common law control standard, may not be employer-employee
relationships); Darden, 503 U.S. at 326 (stating that the FLSA's
``suffer or permit'' standard for employment ``stretches the meaning
of `employee' to cover some parties who might not qualify as such
under a strict application of traditional agency law principles'').
---------------------------------------------------------------------------
The Department appreciates employers' desire for clarity and
certainty regarding compliance under the Act. The Rule's narrowing of
the analysis of control, however, was contrary to the Act and
longstanding case law and thus did not guarantee enhanced clarity.
Because the Rule's test (including the requirement for the actual
exercise of control) conflicted with the tests used from every circuit,
there likely was more uncertainty under this new interpretation.
B. Taking Into Account Prior WHD Guidance
The Department's NPRM noted that the Joint Employer Rule's vertical
joint employment analysis, in addition to having never before been
applied by a court, had never before been applied by WHD.\123\ The
Department indicated that it tentatively shared the concern that the
Rule did not sufficiently take into account and explain departures from
WHD's prior joint employment guidance, including its MSPA joint
employment regulation and the withdrawn Home Care AI and Joint
Employment AI.\124\ The Department further indicated that this concern
provided additional support for rescinding the Rule.\125\
---------------------------------------------------------------------------
\123\ See 86 FR 14044.
\124\ See id.
\125\ See id.
---------------------------------------------------------------------------
Texas RioGrande Legal Aid commented that the Joint Employer Rule
conflicted with the MSPA joint employment regulation and that, ``under
the Rule, many agricultural employers could have been deemed joint
employers under the MSPA but not under the FLSA,'' causing ``immense
confusion'' in its view ``among the regulated community in the
agricultural sector.'' The State AGs stated that the Joint Employer
Rule ``departed from decades of agency interpretation of and guidance
on [the] joint employer analysis,'' including the Department 's
vertical joint employment standard in its MSPA regulation, its Home
Care AI, and its Joint Employment AI. According to the AGs, WHD's prior
guidance had ``rejected a `control-based test' like the one adopted by
the Rule,'' and the Rule did not adequately explain its departure from
WHD's prior interpretations. The National Women's Law Center added that
the Rule ``set forth a new joint employment standard'' that was
different from WHD's previous enforcement approach and ``departed from
longstanding . . . [WHD] interpretations of covered employment and
employer under the FLSA.''
[[Page 40948]]
Other commenters disputed the concerns raised by the Department in
the NPRM. The Texas Public Policy Foundation, for example, asserted
that it was ``arbitrary for WHD to point to `inconsistencies' between
the old agency guidance and the new agency guidance and assert that
those inconsistencies, by themselves, justify rescission'' because
``[o]therwise, an agency would never be able to offer new or updated
regulatory guidance.'' Noting that the Department had described its
concern as tentative in the NPRM, this commenter added that ``[i]t is
impermissible for WHD to withdraw the Joint Employer Rule based on
WHD's `tentative' concern.''
Some commenters contrasted the Department's brief before the Second
Circuit with the NPRM. The National Association of Home Builders
commented that the Department's ``rationale [in the NPRM] is contrary
to the arguments'' that the Department made in its opening brief to the
Second Circuit in the appeal of the district court's decision vacating
most of the Rule. Associated Builders and Contractors stated that the
NPRM's reliance on the district court's decision ``is arbitrary in
light of the fact that, less than three months ago, the [D]epartment
filed a brief to the court of appeals declaring that each of the same
aspects of the district court decision was wrong and should be
reversed.'' It added that, ``[i]n light of the pending nature of the
appeal from the district court decision, at a minimum the NPRM should
be held in abeyance pending the outcome of the appeal.'' The
International Franchise Association agreed, stating that
``[n]otwithstanding the [Department's] own pending appeal from the
district court's decision, the [Department] has proposed to rescind its
[Joint Employer] Rule by relying on the same district court's opinion
that it seeks to challenge on appeal at the Second Circuit.'' It added
that the Department's proposal to withdraw the Rule ``should be
withdrawn, or at the very least, held in abeyance until a final ruling
in the pending Second Circuit appeal.'' WPI also agreed, stating that
``[e]ach aspect of the district court decision on which [the
Department] now relies in proposing to rescind the [R]ule is refuted by
[the Department]'s own brief to the Second Circuit.'' It asserted that
it was ``arbitrary and capricious for [the Department] to rely on a
court decision which it has only recently declared to be wrong, while
that decision remains pending on appeal'' and suggested that the
Department ``hold its NPRM in abeyance pending the appeal's outcome.''
\126\
---------------------------------------------------------------------------
\126\ The International Franchise Association described the
``30-day window for public comment'' on the NPRM proposing to
withdraw the Joint Employer Rule as ``insufficient.'' WPI agreed,
stating that ``30 days is insufficient time to comment on the
proposal.'' The comment period was 31 days and was, in any event, a
similar duration as the comment periods for some other recent
Department rulemakings. See, e.g., 85 FR 60600 (Sept. 25, 2020); 86
FR 14027. Additionally, because the NPRM was published only a little
over one year after the Rule was published, interested stakeholders
should have been familiar with the Rule that was proposed for
rescission as well as the implications of any rescission.
---------------------------------------------------------------------------
In response, the Department agrees that ``[a]gencies are free to
change their existing policies as long as they provide a reasoned
explanation for the change.'' \127\ When an agency changes its
position, ``it need not demonstrate . . . that the reasons for the new
policy are better than the reasons for the old one.'' \128\ ``But the
agency must at least `display awareness that it is changing position.'
'' \129\ The agency's explanation is sufficient if ``the new policy is
permissible under the statute, . . . there are good reasons for it, and
. . . the agency believes it to be better, which the conscious change
of course adequately indicates.'' \130\ When explaining a changed
position, ``an agency must also be cognizant that longstanding policies
may have `engendered serious reliance interests that must be taken into
account.' '' \131\ In such cases, the policy change itself does not
need ``further justification,'' but ``a reasoned explanation is needed
for disregarding facts and circumstances that underlay or were
engendered by the prior policy.'' \132\ For these reasons, `` `an
unexplained inconsistency' in agency policy is `a reason for holding an
interpretation to be an arbitrary and capricious change from agency
practice.' '' \133\
---------------------------------------------------------------------------
\127\ Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125
(2016) (citing Nat'l Cable & Telecomm. Ass'n v. Brand X internet
Servs., 545 U.S. 967, 981-82 (2005); Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 863-64
(1984)).
\128\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009).
\129\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556
U.S. at 515, and removing emphasis).
\130\ Fox Television, 556 U.S. at 515.
\131\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556
U.S. at 515).
\132\ Fox Television, 556 U.S. at 515-16.
\133\ Encino, 136 S. Ct. at 2126 (quoting Brand X, 545 U.S. at
981).
---------------------------------------------------------------------------
Having considered the comments and reviewed the issue further, the
Department believes that the Joint Employer Rule did not provide a
reasoned explanation for the new FLSA vertical joint employment
standard that it adopted. As explained above in Section II.A.1., there
was not a reasonable basis for relying exclusively on section 3(d) and
completely excluding sections 3(e) and (g) when interpreting who is a
joint employer under the FLSA. As further explained in Section II.A.2.,
there was not a reasonable basis for adopting a narrow standard limited
to control for determining who is a joint employer under the FLSA. The
Rule's stated desire to provide a uniform vertical joint employment
standard may have been valid,\134\ and the Department recognizes that
there may be more than one permissible interpretive vertical joint
employment standard under the FLSA; however, the standard that the Rule
adopted was not permissible under the FLSA.
---------------------------------------------------------------------------
\134\ See Scalia, 490 F. Supp. 3d at 795 (making clear that its
decision to vacate most of the Rule did ``not imply that the
Department cannot engage in rulemaking to try to harmonize joint
employer standards'').
---------------------------------------------------------------------------
The Department also believes that the Joint Employer Rule did not
sufficiently take into account prior WHD guidance. The Department's
MSPA joint employment regulation \135\ and its 1997 final rule \136\
implementing it have been in effect for about 24 years. In keeping with
MSPA and its legislative history,\137\ the MSPA regulation expressly
ties its joint employment analysis to the FLSA. The MSPA regulation
provides that ``[j]oint employment under the Fair Labor Standards Act
is joint employment under the MSPA'' \138\ and sets forth a multi-
factor analysis for determining vertical joint employment that is
different than the Rule's analysis.\139\ The Joint Employer Rule,
however, did not address or account for any differences between its new
regulatory standard and MSPA's existing regulatory standard or any
effects that it may have on joint employment under MSPA. In addition,
the Department's interpretive guidance in the Home Care AI and the
Joint Employment AI rejected a joint employment analysis that was
limited to control, and those AIs relied on FLSA sections 3(e) and (g)
in addition to section 3(d).\140\ Although the Home Care AI and the
Joint Employment AI were withdrawn before the effective date of the
Joint Employer Rule, the Department did not address or sufficiently
account for its departures
[[Page 40949]]
from their analyses in the Rule. In summary, the Department was and is
allowed to change its interpretation of joint employment under the
FLSA; however, the Rule failed to account for and address
inconsistences with WHD's prior and existing guidance, which is an
additional reason to rescind the Rule.
---------------------------------------------------------------------------
\135\ See 29 CFR 500.20(h)(5).
\136\ See 62 FR 11745-46.
\137\ See note 99, supra.
\138\ See 29 CFR 500.20(h)(5)(i).
\139\ See 29 CFR 500.20(h)(5)(iv).
\140\ See 2016 WL 284582, at *2-4 & 9; 2014 WL 2816951, at *2 &
n.5.
---------------------------------------------------------------------------
In response to comments asserting an inconsistency between the
Department's opening brief to the Second Circuit in the appeal of the
district court's decision vacating most of the Joint Employer Rule and
its NPRM proposing to rescind the Rule, the Department's filings with
the Second Circuit have been consistent with the status of this
rescission rulemaking. The Department filed its opening brief with the
Second Circuit on January 15, 2021--prior to any reconsideration of the
Rule and well before the deadline for filing the brief. Following the
Department's NPRM in March proposing to rescind the Rule, the
Department requested that the Second Circuit hold the appeal in
abeyance while this rulemaking progressed. Although the Second Circuit
denied the request, asking it to hold the appeal in abeyance was
consistent with this rulemaking.
In addition, the Department filed a reply brief with the Second
Circuit on May 28, 2021, in which it took ``no position'' regarding
``the merits of the Joint Employer Rule'' in light of this pending
rulemaking. In the reply brief, the Department noted that completion of
this rulemaking may moot the States' challenge to the Rule and
requested that the Second Circuit, if it resolves the appeal at all,
reverse the district court's decision solely on the grounds that the
States lacked standing to challenge the Rule. Accordingly, the
Department's position in the pending Second Circuit appeal has been
consistent with the status of this rescission rulemaking; the
Department stopped defending the merits of the Rule before the Second
Circuit consistent with its concerns with the Rule as set forth in the
NPRM proposing to rescind the Rule. Finally, issuing this final rule
now rather than waiting for the Second Circuit to resolve the appeal is
consistent with the Department's position in its reply brief. Although
the district court's decision vacating the Rule's vertical joint
employment analysis was a primary consideration for proposing
rescission as noted in the NPRM, the Department's decision to rescind
the Rule as set forth herein is independent from the district court's
decision and represents its reasoned interpretation of the FLSA as
supported by case law, regardless of the Second Circuit's ultimate
resolution of the appeal.
C. The Joint Employer Rule's Vertical Joint Employment Analysis Did Not
Significantly Impact Judicial Analysis of FLSA Cases
The NPRM stated that courts have generally declined to adopt the
Joint Employer Rule's vertical joint employment analysis since its
promulgation.\141\ The NPRM further stated that, in light of this
judicial landscape, rescinding the Joint Employer Rule would not be
disruptive.\142\ The NPRM added that WHD does not believe that it would
be difficult or burdensome to educate and reorient its enforcement
staff if the Rule is rescinded.\143\
---------------------------------------------------------------------------
\141\ See 86 FR 14044-45 (citing cases, including two
exceptions).
\142\ See 86 FR 14045.
\143\ See id.
---------------------------------------------------------------------------
The State AGs agreed in their comment that, ``based on the judicial
landscape,'' rescinding the Joint Employer Rule ``would not be
disruptive.'' They added that it was ``not surprising'' that only two
district court decisions had adopted the Rule's vertical joint
employment analysis given that, in their view, the Rule's analysis
``runs counter to Supreme Court precedent'' and ``conflicts with
numerous court of appeals decisions interpreting joint employment.''
Texas RioGrande Legal Aid added that, ``aware of the Rule's mismatch
with the FLSA's text and purpose, courts would have been likely to
continue to eschew the Rule's framing in favor of their established
formulations of the multi-factor analysis.''
Having considered the comments and reviewed the issue further, the
Department believes that courts' general non-adoption of the Joint
Employer Rule's vertical joint employment analysis provides additional
support for rescinding the Rule. As a general matter, courts have
declined to adopt the Joint Employer Rule's analysis. In addition to
the Southern District of New York's decision to vacate the Rule's
vertical joint employment analysis, other courts have declined to adopt
the Rule's analysis for similar reasons.\144\ The Department is aware
of two FLSA cases in which a court has adopted and applied the Rule's
vertical joint employment analysis.\145\ Both cases were district court
decisions from the Tenth Circuit, which has not issued a definitive
decision regarding the analysis to apply in FLSA vertical joint
employment cases. Neither case applied the rule in a uniform manner,
relying on additional factors or stating them differently.
---------------------------------------------------------------------------
\144\ See Reyes-Trujillo v. Four Star Greenhouse, Inc., No. 20-
11692, -- F. Supp. 3d --, 2021 WL 103636, at *6-9 (E.D. Mich. Jan.
12, 2021) (agreeing that the Joint Employer Rule's exclusive focus
on the potential joint employer's control runs counter to the FLSA's
expansive definition of ``employer'' and thus declining to adopt the
Rule's analysis); Elsayed v. Family Fare LLC, No. 1:18-cv-1045, 2020
WL 4586788, at *4 (M.D.N.C. Aug. 10, 2020) (finding ``it unnecessary
to wade into whether the DOL's [Joint Employer] Rule is entitled to
Brand X deference or whether the [Rule] is lawful under the APA''
and instead ``rely[ing] on established Fourth Circuit precedent''
regarding joint employment).
\145\ See Clyde v. My Buddy The Plumber Heating & Air, LLC, No.
2:19-cv-00756-JNP-CMR, 2021 WL 778532 (D. Utah Mar. 1, 2021);
Sanders v. Glendale Rest. Concepts, LP, No. 19-cv-01850-NYW, 2020 WL
5569786 (D. Colo. Sept. 17, 2020). In Clyde, the district court
found it ``appropriate to rely upon the factors listed in the
federal regulations interpreting the FLSA for guidance.'' 2021 WL
778532, at *2 (citing Skidmore v. Swift & Co., 323 U.S. 134, 139-40
(1944)). It also relied on additional joint employment factors from
the Fourth Circuit's decision in Salinas. See id. at *3. In Sanders,
the district court actually articulated the four factors as Bonnette
did but applied them as a result of the Joint Employer Rule and the
parties' agreement that those four factors applied instead of the
factors from the Fourth Circuit's decision in Salinas, which some of
the courts in that district ``favored.'' 2020 WL 5569786, at *3-4.
In addition to these two district court decisions, there is the
Sixth Circuit's decision in Rhea v. West Tennessee Violent Crime &
Drug Task Force, 825 F. App'x 272 (6th Cir. 2020). In that case, the
Sixth Circuit, after applying the Bonnette factors to determine that
one defendant was not the employee's employer under the FLSA, listed
the Rule's vertical joint employment factors in a footnote, asserted
that the Rule's factors ``focus[] on the same factors as that of
determining employer status,'' and stated that ``[n]either would
[the defendant] be a `joint employer' under the FLSA.'' Id. at 275-
77 & n.4. However, the Sixth Circuit did not engage in any
substantial analysis of the Rule's factors or meaningfully apply
them. See id. at 277 n.4.
---------------------------------------------------------------------------
Moreover, as the Joint Employer Rule acknowledged, a number of
circuit courts of appeals had previously established analytical
frameworks for vertical joint employment cases, and all of these
analyses are different from the analysis in the Joint Employer
Rule.\146\ Notwithstanding the Rule, district courts in those circuits
have generally continued to apply binding precedent from their circuit
courts of appeals when deciding FLSA vertical joint employment issues--
often with little, if any, meaningful discussion of the Rule's
analysis.\147\ In sum, despite the Joint
[[Page 40950]]
Employer Rule's stated purpose of ``promot[ing] greater uniformity in
court decisions,'' \148\ there has been no widespread adoption of the
Rule's vertical joint employment analysis, and the Rule has not
significantly affected judicial analysis of FLSA joint employment
cases.
---------------------------------------------------------------------------
\146\ See 85 FR 2831 (comparing the Rule's four-factor analysis
to the various analyses adopted by circuit courts of appeals).
\147\ See, e.g., Hamm v. Acadia Healthcare Co., No. 20-1515,
2021 WL 1212539, at *5-6 (E.D. La. Mar. 31, 2021) (reciting Fifth
Circuit's vertical joint employment analysis); Zhao v. Ke Zhang
Inc., No. 18-CV-6452 (EK) (VMS), 2021 WL 1210369, at *4-6 (E.D.N.Y.
Mar. 31, 2021) (applying Second Circuit's vertical joint employment
analysis); Gil v. Pizzarotti LLC, No. 1:19-cv-03497-MKV, 2021 WL
1178027, at *4-13 & n.2 (S.D.N.Y. Mar. 29, 2021) (applying Second
Circuit's vertical joint employment analysis although noting in
footnote in response to employer's argument that it would have
reached the same result had it applied the Rule's analysis); Blan v.
Classic Limousine Transp., LLC, No. 19-807, 2021 WL 1176063, at *8
(W.D. Pa. Mar. 29, 2021) (applying Third Circuit's vertical joint
employment analysis); Yela v. Trending Media Grp., Inc., No. 19-
21712-CIV, 2020 WL 6271047, at *5-7 (S.D. Fla. Sept. 18, 2020)
(applying Eleventh Circuit's vertical joint employment analysis);
Tombros v. Cycloware, LLC, No. 8:19-cv-03548-PX, 2020 WL 4748458, at
*2-3 (D. Md. Aug. 17, 2020); Williams v. Bob Evans Restaurants, LLC,
No. 2:18-cv-01353, 2020 WL 4692504, at *4-6 (W.D. Pa. Aug. 13, 2020)
(applying Third Circuit's vertical joint employment analysis);
Elsayed, 2020 WL 4586788, at *4-8 (applying Fourth Circuit's
vertical joint employment analysis). Cf. Pontones v. Los Tres
Magueyes, Inc., No. 5:18-CV-87-FL, 2021 WL 1430793, at *3-10
(E.D.N.C. Apr. 15, 2021) (applying Fourth Circuit's vertical joint
employment analysis and then the Rule's analysis in the
alternative); id. at *8 n.18 (noting that because both analyses
reached the same result and the Department had issued a proposal to
rescind the Rule, ``the court does not definitively resolve here the
level of deference merited for the interpretative guidance in the
[Joint Employer Rule]'').
\148\ 85 FR 2823.
---------------------------------------------------------------------------
Additionally, rescinding the Joint Employer Rule would not be
disruptive for WHD. WHD has not issued subregulatory guidance that
would need to be withdrawn or modified as a result of the rescission.
For all of these reasons, rescission of the Rule will have little
effect on courts' and WHD's analyses in FLSA vertical joint employment
cases.
D. Effects on Employees of the Vertical Joint Employment Analysis
The Joint Employer Rule acknowledged that, although it would not
change the wages due an employee under the FLSA in the vertical joint
employment scenario, ``it may reduce the number of businesses currently
found to be joint employers from which employees may be able to collect
back wages due to them under the Act.'' \149\ The Rule further
acknowledged that, ``[t]his, in turn, may reduce the amount of back
wages that employees are able to collect when their employer does not
comply with the Act and, for example, their employer is or becomes
insolvent.'' \150\ One commenter, the Economic Policy Institute (EPI),
submitted a quantitative analysis of the monetary amount that it
estimated would transfer from employees to employers as a result of the
Rule.\151\ In response, the Rule stated that, although it ``appreciates
EPI's quantitative analysis,'' it ``does not believe there are data to
accurately quantify the impact of this [R]ule.'' \152\ The Rule added
that it ``lacks data on the current number of businesses that are in a
joint employment relationship, or to estimate the financial
capabilities (or lack thereof) of these businesses and therefore is
unable to estimate the magnitude of a decrease in the number of
employers liable as joint employers.'' \153\ The Rule discussed in a
qualitative manner some potential benefits to employees, such as
``promot[ing] innovation and certainty in business relationships'' and
encouraging businesses to engage in certain practices with an employer
that ``could benefit the employer's employees.'' \154\ The Rule did not
otherwise consider any potential costs to workers.
---------------------------------------------------------------------------
\149\ 85 FR 2853.
\150\ Id.
\151\ See id.
\152\ Id.
\153\ Id.
\154\ Id.
---------------------------------------------------------------------------
Many commenters expressed concerns that the Joint Employer Rule
would incentivize companies to expand their use of temporary staffing
agencies, contractors, and subcontractors rather than employing workers
directly, which is a concern that the Department shares. Congressman
Bobby Scott and 78 other Members of Congress wrote that the Rule
``promotes business models that rely on subcontracting with businesses
that pay lower wages to cut costs or with thinly capitalized lower
level businesses that cut corners on FLSA compliance.'' As several
commenters stated in comments that used template language, the number
of workers employed through temporary staffing agencies ``has increased
dramatically in recent years,'' especially in ``low-wage, `blue-collar'
occupations.'' The National Employment Law Project (NELP) stated that
``[t]emporary and staffing agency work hours have grown 3.9 times
faster than overall work hours, and temporary and staffing agency jobs
have grown 4.3 times faster than jobs overall.'' Several commenters
identified particular industries that have experienced especially high
growth in outsourcing and subcontracting, including janitorial
services, construction, agriculture, manufacturing, warehousing and
logistics, hospitality, and waste management. In particular, NELP noted
that outsourcing of janitorial services ``has grown dramatically over
the past two decades, resulting in an estimated 37 percent of
janitorial workers hired through labor contractors rather than directly
by the company at which they work.'' NELP also reported that 58 percent
of security guard positions are outsourced.
Several commenters asserted that the increase in temporary,
staffing agency, and subcontracting jobs is detrimental to workers,
because on average, ``temporary help agency workers earn 41 percent
less'' than workers in ``standard work arrangements,'' they
``experience large benefit penalties relative to their counterparts in
standard work arrangements,'' and although their jobs tend to be more
hazardous than those of ``permanent, direct hires,'' ``they often
receive insufficient safety training and are more vulnerable to
retaliation for reporting injuries than workers in traditional
employment relationships.'' Some commenters, including the Public
Justice Center and NELP, noted that temporary staffing agencies must
compete with each other ``on the one major cost they can control--labor
costs,'' and this ``competitive pressure drives down wages and
incentivizes cutting corners through violating labor standards like
minimum wage and health and safety laws.'' NELP also stated that
``[t]emporary staffing agencies consistently rank among the worst large
industries for the rate of wage and hour violations.'' The Public
Justice Center described the industry's frequent use of a ``triangular
employment relationship through which the staffing agency acts as temp
workers' employer even though the worksite company determines the
assignments and working conditions,'' thus allowing the worksite
company to gain the benefits of employing workers while avoiding many
of the legal responsibilities. In addition, several commenters,
including the Communications Workers of America, the Kentucky Equal
Justice Center, and the Workplace Justice Project, stated that
individuals who work for staffing agencies or subcontractors often have
trouble identifying their actual employer when a dispute over payment
or working conditions arises. Other commenters, such as the National
Employment Lawyers Association, wrote that holding a company
responsible as a joint employer incentivizes that company to ``provide
better oversight of working conditions, to ensure that child labor,
minimum wage and overtime rules are followed.''
Many commenters also stated that the increased use of temporary
staffing agencies disproportionately impacts people of color and women.
NELP, the Public Justice Center, and the State AGs reported that Black
workers comprise 12.1 percent of the overall workforce, but 25.9
percent of temporary help agency workers, while Latino workers make up
16.6 percent of the total
[[Page 40951]]
workforce, but 25.4 percent of temporary help agency workers. NELP and
the Public Justice Center explained that, because temporary workers
``are especially vulnerable to illegal conduct such as wage theft,
unsafe working conditions, and discrimination,'' an increase in
temporary work can ``exacerbate occupational segregation, income
inequality, and the wealth gap for people of color.'' In addition, the
National Women's Law Center commented that women are ``broadly
overrepresented in low-paid jobs,'' and noted that women working for
``contract firms in full-time jobs typically earn 17 percent less than
women in traditional employment arrangements and 42 percent less than
full-time male workers provided by contract firms.'' In addition,
Congressman Bobby Scott and 78 other members of Congress noted that
``because the Equal Pay Act of 1963 shares the FLSA's definitions of
employment, the [Joint Employer Rule] would make it harder for women to
hold all responsible employers accountable when bringing equal pay
claims.'' The National Women's Law Center also pointed out that the
FLSA requires employers to provide breastfeeding workers with adequate
time and safe space to pump at work, but in the case of temporary or
subcontracted workers, the worksite is often controlled by a
contracting entity, thus creating a potential barrier to the worker's
ability to pump.
Numerous organizations that provide legal representation to workers
shared accounts of particular cases where, in their view, their clients
would not have been able to recover back wages owed but for the fact
that courts applied broader joint employer liability principles than
those set forth in the Joint Employer Rule. For example, the Equal
Justice Center represented approximately 30 individuals who worked for
a small cleaning company to provide janitorial services at outlets of a
big-box store in the Austin area. The workers sued for unpaid wages and
overtime premiums, but the cleaning company went out of business.
However, the workers succeeded in establishing that the big-box store
was a joint employer based on the economic realities test derived from
Rutherford and defined by the Fifth Circuit in Wirtz v. Dr. Pepper
Bottling Co.\155\ According to the commenter, the workers successfully
asserted that because they ``consistently and exclusively cleaned the
[big box] company's stores, at hours dictated by the stores' schedules
and according to standards set by the company's management, the [big
box] company could be a joint employer under the FLSA.'' In contrast,
the commenter believed that the big box store likely would not have
been a joint employer under the Joint Employer Rule. In another case,
the North Carolina Justice Center represented ``hundreds of janitorial
workers'' who cleaned public school buildings through a subcontractor
that went bankrupt, failing to pay several weeks of wages. According to
the Center, the workers were able to recover back wages from the school
district and the contractor as joint employers. The Center asserted
that under the Joint Employer Rule, however, ``it is highly unlikely
either the contractor or the district would be liable for the failure
to pay minimum wage and overtime.'' In addition, NELP discussed a case
involving warehouses owned by Wal-Mart, which contracted with Schneider
Logistics to operate the warehouses, which in turn contracted with two
staffing companies to provide labor. After the warehouse workers sued
for violations of the FLSA, Wal-Mart moved for summary judgment that it
was not a joint employer. The district court, applying the Bonnette and
Torres-Lopez factors, determined that several factors in addition to
Wal-Mart's control over the plaintiffs' working conditions suggested
that Wal-Mart could be found to be a joint employer, including that the
plaintiffs performed piecework that did not require initiative,
judgment, or foresight; there was permanence in the plaintiffs' work
for Wal-Mart; and the service performed by the plaintiffs was an
integral part of Wal-Mart's business.\156\ Thus, the court denied Wal-
Mart's motion.\157\ According to NELP, the case eventually settled, but
the staffing companies could afford to pay only 7.5 percent of the
settlement amount. However, ``because the court took into account the
realities of the workers' relationship with Schneider and Wal-Mart, the
workers were able to obtain damages from these parties.''
---------------------------------------------------------------------------
\155\ See Rutherford, 331 U.S. at 726; Wirtz v. Dr. Pepper
Bottling Co., 374 F.2d 5, 8 (5th Cir. 1967).
\156\ Carrillo v. Schneider Logistics Trans-Loading & Distrib.,
Inc., No. 2:11-CV-8557-CAS, 2014 WL 183956, at *6-15 (C.D. Cal. Jan.
14, 2014) (applying Bonnette, 704 F.2d at 1470 and Torres-Lopez, 111
F.3d at 639-40). The court rejected Wal-Mart's attempt to analogize
the case to decisions applying only the Bonnette factors, explaining
that ``the Torres-Lopez factors form an important component of the
joint employer analysis.'' Id. at *10.
\157\ Id. at *6, 16.
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Other commenters also emphasized the importance that joint
employment liability plays in the recovery of back wages. For example,
the Northwest Workers' Justice Project described a case in which
workers who were employed by a contractor to cut, bag, and stock fruit
at H-E-B grocery stores in Texas and who sued for minimum wage and
overtime violations. According to the Project, the workers, mostly
immigrants and women, worked on location only at H-E-B stores, often
for 50 hours or more per week, and were paid per bag of produce sold,
which never amounted to minimum wage. The case was apparently brought
in the U.S. District Court for the District of Texas, which applies the
Fifth Circuit's ``economic realities'' test requiring the consideration
of several factors to determine joint employer liability.\158\ H-E-B
initially denied responsibility as a joint employer, but ultimately
settled, which the Project reported would not have been possible
``[w]ithout joint employment.'' In addition, Justice at Work
(Massachusetts), the Legal Aid Society, the Public Justice Center, the
United Brotherhood of Carpenters and Joiners, and the Worker Justice
Center of New York reported that they have brought or observed numerous
cases in the construction industry where a subcontractor labor broker
disappears or refuses to pay, and the next tier contractor denies
responsibility, leaving workers without pay.
---------------------------------------------------------------------------
\158\ The case appears to be Silva v. Pastranas Produce Inc.,
No. 4:12-CV-00470 (S.D. Tex. filed Feb. 16, 2012); see also Gray,
673 F.3d at 354-55; Wirtz v. Lone Star Steel Co., 405 F.2d 668, 669-
70 (5th Cir. 1968).
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Some organizations that provide legal assistance to agricultural
workers commented that joint employment is particularly important in
the agricultural industry. Texas RioGrande Legal Aid reported that
``[j]oint employer issues arise frequently in the agricultural sector
because the sector is riddled with middlemen: Undercapitalized farm
labor contractors who pay the workers while furnishing their labor to
fixed-site farm operators.'' The organization has found that
``farmworkers' attempts to seek unpaid wages from farm labor
contractors, as opposed to fixed-site agricultural employers, are
frequently futile,'' in part because ``[f]arm labor contractors are
often undercapitalized and unable to meet their wage obligations
because of disadvantageous deals made with growers.'' NELP pointed to a
study conducted by EPI that found that from 2005 to 2019, farm labor
contractors accounted for 14 percent of agricultural jobs, but 24
percent of all employment law violations in agriculture. Texas
RioGrande Legal Aid noted that DOL's H-2A regulations require farm
labor contractors petitioning for temporary labor certification to post
bonds as a
[[Page 40952]]
`` ` necessary compliance mechanism' to ensure that the labor
contractor pays the H-2A workers their wages,'' because many of these
contractors are unreliable. In addition, the Centro de los Derechos del
Migrante explained that, while MSPA ``protects many farmworkers above
and beyond the FLSA floor, nearly half a million migrant agricultural
workers in the H-2A program are excluded from'' the protections of
MSPA, ``and rely instead on the FLSA.'' The organization asserted,
however, that ``[b]y opening loopholes in the FLSA not found in [MSPA],
the 2020 Rule would incentivize employers to sidestep . . . [MSPA]'s
protections by hiring workers to whom only the FLSA applies, driving
down standards across the entire agricultural industry.'' It further
noted the history of diminished legal protections for agricultural
workers, which was ``born of a dark history of racial discrimination,''
and argued that reducing protections for these workers would perpetuate
that legacy, as 92 percent of H-2A workers are Mexican.
In contrast, several commenters who oppose rescinding the Joint
Employer Rule asserted that the Rule promotes job growth. WPI stated
that, ``[d]uring the `period in which [the Department] consistently
applied the `right of control' factors identified with the Bonnette
test of the Ninth Circuit, significant job growth took place in the
industries represented by WPI,'' including temporary staffing,
construction, retail, and hospitality. It is not clear what period of
time WPI is referring to, as all of the statistics cited by WPI predate
the effective date of the Joint Employer Rule. Moreover, the Joint
Employer Rule was in effect for only a brief period of time, and WPI
did not present any direct evidence that job growth during that short
window of time was driven, in whole or in part, by the adoption of the
Rule. Given data limitations, it would not be possible to determine
whether job growth in these industries was related to the Joint
Employer Rule. Further, as the comments discussed above indicate, to
the extent that jobs with temporary staffing agencies or thinly
capitalized subcontractors have replaced standard employment
arrangements, such a trend is disadvantageous to workers in many
respects, and could have a particularly negative effect on people of
color and women. The Washington Legal Foundation also generally
asserted that the Joint Employer Rule fosters job growth, and contended
that logically, allowing the Rule to remain in place would result in
increased job creation, higher salaries, and no wage theft. However,
the Department does not believe that allowing the Rule to remain in
effect would have clearly lead to the creation of more, higher-paying
jobs free of wage theft, for the reasons discussed by the commenters
above. Instead, the Department agrees with the commenters who stated
that the Rule would have further incentivized companies to source labor
through temporary staffing firms or subcontractors, rather than hiring
employees directly, which tends to result in lower pay and fewer
benefits, and can leave employees without recourse for unpaid wages
when the staffing firm or subcontractor is unable or unwilling to pay.
Upon consideration of the comments, the Department concludes that
the Joint Employer Rule did not satisfactorily consider the costs to
employees. This conclusion is premised in part on WHD's role as the
agency responsible for enforcing the FLSA and for collecting back wages
due to employees when it finds violations, as well as a recent
Presidential Memorandum instructing the Director of the Office of
Management and Budget to recommend new procedures for regulatory review
that better ``take into account the distributional consequences of
regulations.'' \159\ As noted in the economic analysis, rescinding the
Joint Employer Rule could help protect the well-being and economic
security of workers in low-wage industries, many of whom are
immigrants, people of color, and women, because FLSA violations are
more severe and widespread in low-wage labor markets.\160\ The
Department believes that the Joint Employer Rule would have made it
more difficult for workers to collect back wages owed and incentivized
workplace fissuring,\161\ which are serious concerns that may have a
disproportionate impact on low-wage and vulnerable workers. The Rule's
failure to weigh these concerns is an additional reason for its
rescission.
---------------------------------------------------------------------------
\159\ Modernizing Regulatory Review: Memorandum for the Heads of
Executive Departments and Agencies (Jan. 20, 2021), published at 86
FR 7223 (Jan. 26, 2021).
\160\ Annette Bernhardt et al., Broken Laws, Unprotected
Workers: Violations of Employment and Labor Laws in America's Cities
(2009), available at <a href="https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf">https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf</a>.
\161\ The Joint Employer Rule described workplace fissuring as
the ``increased reliance by employers on subcontractors, temporary
help agencies, and labor brokers rather than hiring employees
directly.'' 85 FR 2853 n.100.
---------------------------------------------------------------------------
E. Effects on Other Stakeholders of the Vertical Joint Employment
Analysis
In addition to discussing the issues identified in the NPRM,
commenters also noted other ways in which rescission of the Joint
Employer Rule would affect various stakeholders. In particular, most
commenters opposed to rescission of the Rule emphasized the importance
of clarity and predictability to the business community. However, the
Department generally believes that the impact of rescission on the
business community and other stakeholders will not be substantial
because the Rule has not been widely adopted by the courts.
Furthermore, for the reasons set forth above, the Department believes
that the Rule should be rescinded because it was inconsistent with the
text and purpose of the FLSA.
Many commenters asserted that the Joint Employer Rule provided
clarity and predictability to the regulated community, and argued that
rescinding the Rule would lead to confusion and uncertainty. The U.S.
Chamber of Commerce stated that the Rule ``brought needed clarity and
consistency to a key issue that had long vexed employers and the WHD.''
The FreedomWorks Foundation wrote that a ``lack of clarity surrounding
issues of joint employment [is] especially harmful to small businesses,
which employ almost half of Americans and often do not have the
resources to secure top-notch legal advice,'' a concern echoed by the
National Federation of Independent Businesses (NFIB). However, the
Department does not agree that leaving the Joint Employer Rule in place
would have provided increased clarity and certainty to the regulated
community. As discussed above, the Rule conflicted with the text and
purposes of the FLSA and was not widely adopted by the courts.\162\
Thus, even if the Second Circuit Court of Appeals were to reverse the
district court decision vacating the Rule on standing grounds, it is
likely that many courts would still reject the Rule and continue to
rely on prior precedent. As such, leaving the Joint Employer Rule in
place would not have established a uniform standard consistently
applied by all courts across the country. Because it conflicted with
[[Page 40953]]
established precedent in the circuits, the Rule presented employers
with the difficult choice of conducting their business in a manner
consistent with circuit precedent or with the Rule. Furthermore,
because employers had to consider circuit precedent as no circuit had
adopted the Rule, the Rule likely provided little clarity. Accordingly,
the Department does not agree that rescinding the Rule will result in
significantly less clarity and uncertainty for the regulated community.
More fundamentally, because the regulation conflicted with the text and
purpose of the FLSA, it should be rescinded.
---------------------------------------------------------------------------
\162\ See, e.g., Reyes-Trujillo, 2021 WL 103636, at *6-9
(agreeing that the Joint Employer Rule's exclusive focus on the
potential joint employer's control runs counter to the FLSA's
expansive definition of ``employer'' and thus declining to adopt the
Rule's analysis); Elsayed, 2020 WL 4586788, at *4 (finding ``it
unnecessary to wade into whether the DOL's [Joint Employer] Rule is
entitled to Brand X deference or whether the [Rule] is lawful under
the APA'' and instead ``rely[ing] on established Fourth Circuit
precedent'' regarding joint employment).
---------------------------------------------------------------------------
Other commenters expressed concerns that rescinding the Joint
Employer Rule could impose additional costs on businesses. The Texas
Public Policy Foundation asserted generally that rescission would
``result in more employers being deemed to be joint employers, raising
operating expenses for those employers.'' Again, because the Rule was
not widely adopted by courts, the Department does not expect that the
Rule's rescission will substantially increase prospective joint
employers' costs. In addition, the Department believes that the Rule's
rescission will continue to incentivize businesses at the top of a
vertical industry structure to ensure that labor suppliers and other
potential joint employers comply with the FLSA; as long as they do so,
businesses at the top will not incur the additional cost of paying the
joint employer's employees. Other commenters, such as the National
Retail Federation, expressed concern that rescinding the Rule would
discourage businesses ``from entering into beneficial contractual
relationships with third-party business parties, inhibiting business-
to-business collaboration.'' Commenters like the National Restaurant
Association and Restaurant Law Center stated that rescinding the Rule
could negatively impact businesses that use a franchising model. But
the vast majority of these businesses operate in jurisdictions that
have not adopted the Joint Employer Rule, so their calculation of
potential liability will not change. Furthermore, the current law
governing joint employment allows businesses to enter into beneficial
relationships without creating joint employment liability. In fact, as
commenters both supporting and opposing rescission noted, the growth of
temporary staffing, independent contractors, and franchise
relationships outpaced standard employment in many respects in the
years before the Joint Employer Rule was introduced. See, e.g.,
International Franchise Association (asserting that after the financial
crisis, from 2009-12, ``employment in the franchise sector grew 7.4%,
versus 1.8% growth in total U.S. employment''); NELP (asserting that
since 2009, ``[t]emporary and staffing agency work hours have grown 3.9
times faster than overall work hours, and temporary and staffing agency
jobs have grown 4.3 times faster than jobs overall;'' and noting that
``staffing and temporary help services provided 11.3 percent of all
manufacturing employment in 2015, up from just 2.3 percent in 1989'').
This indicates that the prior legal landscape did not pose a
significant hindrance to the formation of these types of
relationships.\163\
---------------------------------------------------------------------------
\163\ Other commenters expressed concerns about the imposition
of additional costs on particular industries in the wake of the
COVID-19 pandemic. For example, the American Hotel and Lodging
Association stated that ``[l]eisure and hospitality account for 37%
of all jobs lost since the onset of the pandemic,'' and ``hotels are
not projected to return to pre-pandemic levels until 2024 at the
earliest,'' and asserted that rescinding the Rule would impose new
costs that are particularly unwelcome now. However, for the reasons
discussed in this paragraph, the Department does not believe that
rescission of the Rule will impose substantial new costs on
businesses. Moreover, workers in industries experiencing financial
stress (as a result of the pandemic or otherwise) are particularly
at risk of losing the wages they are owed to the extent that
liability is confined to smaller businesses at the bottom of the
industry.
---------------------------------------------------------------------------
Commenters who support the Rule also asserted that rescinding the
Rule would make companies less likely to offer assistance to related
companies, such as a franchisor offering sexual harassment training
materials to a franchisee, for fear of becoming a joint employer. These
commenters pointed out that this type of assistance can benefit workers
by, for example, reducing sexual harassment in the workplace or
improving workplace safety.\164\ However, the commenters did not cite
any court decision finding that a company is a joint employer primarily
on this basis, while at least some courts have not regarded the
provision of training assistance as strong evidence of a joint employer
relationship.\165\ Furthermore, to the extent that a court might
consider this type of assistance as part of the joint employer
analysis, it would be merely one aspect of one factor among many that
the courts use to assess whether a joint employer relationship exists,
and no one factor is dispositive. Moreover, as the comments discussed
above noted, the prospect of joint employer liability can incentivize a
company to ``provide better oversight of working conditions, to ensure
that child labor, minimum wage and overtime rules are followed.'' See,
e.g., National Employment Lawyers Association. The Department agrees
with this assessment.
---------------------------------------------------------------------------
\164\ Commenters provided various examples of the types of
assistance that a company might offer a related company. The U.S.
Chamber of Commerce discussed model handbooks, apprenticeship
programs, and association health plans. The Washington Legal
Foundation and the American Hotel and Lodging Association cited
training employees to detect human trafficking. SHRM mentioned the
provision of face coverings and protective personal equipment during
the COVID-19 pandemic. The discussion of whether companies will be
more or less likely to assist other companies after the Rule is
rescinded applies equally to the various types of assistance noted
by the commenters.
\165\ See, e.g., Moreau v. Air France, 356 F.3d 942, 950-53 (9th
Cir. 2004) (holding that Air France was not joint employer with
ground service operations companies, even though it provided some
training to those companies' employees, in an FMLA case applying
FLSA case law); Martin v. Sprint United Mgmt. Co., 273 F. Supp. 3d
404, 427, 434 (S.D.N.Y. 2017) (finding that Sprint was not joint
employer with subcontractor despite the fact that it trained
subcontractor's employees).
---------------------------------------------------------------------------
Some commenters expressed particular concern as to how rescinding
the Joint Employer Rule would affect the construction industry. The
Associated Builders and Contractors wrote that the construction
industry consists ``primarily of specialized, separate employers who
come together [to work] on specific construction projects,'' and
``standard construction methods require project owners and/or prime
contractors to exercise routine control over the [work] site in ways
that indirectly affect many employees' terms and conditions of
employment,'' thus potentially leading to joint employer liability. The
National Association of Home Builders asserted that the uncertainty
faced by home builders due to their reliance on subcontractors could
make costs less predictable, which could increase the cost of new
homes. However, as noted previously, because the Joint Employer Rule
was not adopted in most jurisdictions, the Department does not expect
that the Rule's rescission will significantly increase uncertainty or
impose substantial new costs, including in the construction industry.
In addition, current court precedent requires consideration of a
variety of factors before a company can be held liable as a joint
employer; a single factor standing alone, like supervision of a work
site, would likely not be enough to establish joint employer liability.
Furthermore, as discussed above, many commenters have noted that
subcontractors' failure to pay wages owed is a particular problem in
the construction industry; rescinding the Joint Employer Rule will
further incentivize project managers to select and monitor
subcontractors with an emphasis on ensuring compliance with the FLSA.
Such a result is
[[Page 40954]]
beneficial to workers and promotes compliance with the FLSA, helping to
ensure a level playing field for responsible employers.
F. Horizontal Joint Employment Analysis
As described in the NPRM, horizontal joint employment may be
present where one employer employs an employee for one set of hours in
a workweek, and one or more other employers employs the same employee
for separate hours in the same workweek. If the two (or more) employers
jointly employ the employee, the hours worked by that employee for all
of the employers must be aggregated for the workweek and all of the
employers are jointly and severally liable.\166\
---------------------------------------------------------------------------
\166\ See 86 FR 14045.
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For horizontal joint employment, the Joint Employer Rule adopted
the standard in the prior version of 29 CFR 791.2 with non-substantive
revisions and set forth that standard in 29 CFR 791.2(e).\167\ The
Joint Employer Rule's horizontal joint employment standard focused on
the degree of the employers' association with respect to the employment
of the employee, reflected the Department's historical approach to the
issue, and was consistent with the relevant case law. The NPRM stated
that the Department was not considering revising its longstanding
horizontal joint employment standard but proposed to rescind the entire
Joint Employer Rule (including 29 CFR 791.2(e)) because the structure
of the Joint Employer Rule made it impractical for the horizontal joint
employment provisions to stand on their own.\168\
---------------------------------------------------------------------------
\167\ See 85 FR 2844-45.
\168\ See 86 FR 14045-46.
---------------------------------------------------------------------------
Few commenters addressed horizontal joint employment. The U.S.
Chamber of Commerce noted that horizontal joint employment
``relationships do not create the same level of uncertainty, or present
the same level of exposure, as vertical joint employment relationships,
and the provisions in the [Joint Employer Rule] addressing horizontal
joint employment relationships have not been questioned.'' The
Washington Legal Foundation stated that, although the Joint Employer
Rule made only non-substantive revisions to the horizontal joint
employment standard, ``it was still important to issue the Final Rule
about horizontal joint employment'' because, in its view, the
Department ``provided regulatory certainty by codifying long-standing
practices.'' It further stated that if the Department rescinds the
Joint Employer Rule, the Department ``will inject uncertainty,'' and
``[i]n these trying times the regulated community needs certainty,''
which ``[e]xperts say . . . is important to economic growth.'' The
State AGs commented that the Joint Employer Rule's ``provisions
relating to the horizontal joint employment test should be rescinded
because they are inextricably intertwined with the now-vacated vertical
joint employment provisions.'' They further commented that
``[r]escinding the provisions relating to horizontal joint employment
makes practical sense,'' ``the horizontal joint employment standard has
long been established,'' and thus ``stakeholders can easily refer to
DOL's earlier interpretations and relevant case law to understand their
obligations.''
Having considered the comments and the issue further, the
Department is rescinding the Joint Employer Rule in its entirety (i.e.,
all of 29 CFR part 791, including the horizontal joint employment
standard in Sec. 791.2(e)). The Joint Employer Rule intertwined the
horizontal joint employment provisions with the vertical joint
employment provisions in 29 CFR 791.2. For example, Sec. 791.2(f)
addressed the consequences of joint employment for both the vertical
and horizontal scenarios, and Sec. 791.2(g) provided 11 ``illustrative
examples'' of how the Rule may apply to specific factual situations
implicating both vertical and horizontal joint employment.\169\
Accordingly, it would be difficult and impractical for Sec. 791.2(e)
to remain alone. In addition, Sec. 791.2(e) would lack context alone
and potentially be confusing as its references to the ``second'' joint
employment scenario would not make sense without the rest of Sec.
791.2 and the discussion of the ``first'' joint employment scenario
therein.
---------------------------------------------------------------------------
\169\ See 85 FR 2860-62 (29 CFR 791.2(f), (g)) (2020)).
---------------------------------------------------------------------------
Although the Department is rescinding the Joint Employer Rule in
its entirety, it did not reconsider the substance of its longstanding
horizontal joint employment analysis. The focus of a horizontal joint
employment analysis will continue to be the degree of association
between the potential joint employers, as it was in the Joint Employer
Rule and the prior version of part 791.\170\ As has been the
Department's position for decades, the association will be sufficient
to demonstrate joint employment in the following situations, among
others: (1) There is an arrangement between the employers to share the
employee's services; (2) one employer is acting directly or indirectly
in the interest of the other employer in relation to the employee; or
(3) the employers share control of the employee, directly or
indirectly, because one employer controls, is controlled by, or is
under common control with the other employer.\171\
---------------------------------------------------------------------------
\170\ See 85 FR 2859-60 (29 CFR 791.2(e) (2020)); 23 FR 5906 (29
CFR 791.2) (1958).
\171\ 23 FR 5906 (29 CFR 791.2) (1958).
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G. Effect of Rescission
The NPRM stated that, if the Joint Employer Rule is rescinded as
proposed, part 791 of title 29 of the Code of Federal Regulations would
be removed in its entirety and reserved.\172\ The NPRM also noted that
the Department was not proposing regulatory guidance to replace the
guidance located in part 791.\173\ Because this final rule adopts and
finalizes the rescission of the Joint Employer Rule, part 791 is
removed in its entirety and reserved. As stated in the NPRM, the
Department will continue to consider legal and policy issues relating
to FLSA joint employment before determining whether alternative
regulatory or subregulatory guidance is appropriate. \174\
---------------------------------------------------------------------------
\172\ See 86 FR 14046.
\173\ See id.
\174\ See id.
---------------------------------------------------------------------------
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, as well as the impact of paperwork and other
information collection burdens imposed on the public, and how to
minimize those burdens. This final rule does not contain a collection
of information subject to Office of Management and Budget (OMB)
approval under the Paperwork Reduction Act.
IV. Executive Order 12866, Regulatory Planning and Review; and
Executive Order 13563, Improved Regulation and Regulatory Review
A. Introduction
Under Executive Order 12866, OMB's Office of Information and
Regulatory Affairs (OIRA) determines whether a regulatory action is
significant and, therefore, subject to the requirements of the
Executive Order and OMB review.\175\ Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as a regulatory
action that is likely to result in a rule that may: (1) Have an annual
effect on the
[[Page 40955]]
economy of $100 million or more, or adversely affect in a material way
a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local or tribal
governments or communities (also referred to as economically
significant); (2) create serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
order. OIRA has determined that this rescission is economically
significant under section 3(f) of Executive Order 12866. Pursuant to
the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA has also
designated this rule as a major rule, as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------
\175\ See 58 FR 51735, 51741 (Oct. 4, 1993).
---------------------------------------------------------------------------
Executive Order 13563 directs agencies to, among other things,
propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs; that it is tailored to impose the least
burden on society, consistent with obtaining the regulatory objectives;
and that, in choosing among alternative regulatory approaches, the
agency has selected those approaches that maximize net benefits.
Executive Order 13563 recognizes that some costs and benefits are
difficult to quantify and provides that, when appropriate and permitted
by law, agencies may consider and discuss qualitatively values that are
difficult or impossible to quantify, including equity, human dignity,
fairness, and distributive impacts. The analysis below outlines the
impacts that the Department anticipates may result from this rescission
and was prepared pursuant to the above-mentioned Executive orders.
B. Costs
1. Rule Familiarization Costs
Rescinding the Joint Employer Rule will impose direct costs on
businesses that will need to review the rescission. To estimate these
regulatory familiarization costs, the Department determined: (1) The
number of potentially affected entities, (2) the average hourly wage
rate of the employees reviewing the rescission, and (3) the amount of
time required to review the rescission. It is uncertain whether these
entities would incur regulatory familiarization costs at the firm or
the establishment level. For example, in smaller businesses there might
be just one specialist reviewing the rescission, while larger
businesses might review it at corporate headquarters and determine
policy for all establishments owned by the business. To avoid
underestimating the costs of this rescission, the Department uses both
the number of establishments and the number of firms to estimate a
potential range for regulatory familiarization costs. The lower bound
of the range is calculated assuming that one specialist per firm will
review the rescission, and the upper bound of the range assumes one
specialist per establishment.
The most recent data on private sector entities at the time this
final rule was drafted are from the 2017 Statistics of U.S. Businesses
(SUSB), which reports 5,996,900 private firms and 7,860,674 private
establishments with paid employees.\176\ Because the Department is
unable to determine how many of these businesses have workers with one
or more joint employers, this analysis assumes all businesses will
undertake review.
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\176\ Census Bureau, Statistics of U.S. Businesses (2017),
<a href="https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html">https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html</a>, 2016 SUSB Annual Data Tables by Establishment Industry.
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The Department believes ten minutes per entity, on average, to be
an appropriate review time here. This rulemaking is a rescission and
will not set forth any new regulations or guidance regarding joint
employment. Additionally, as it believed when it issued the Joint
Employer Rule, the Department believes that many entities are not joint
employers and thus would not spend any time reviewing the rescission.
Therefore, the ten-minute review time represents an average of no time
for the majority of entities that are not joint employers, and
potentially more than ten minutes for review by some entities that
might be joint employers.
The Department's analysis assumes that the rescission would be
reviewed by Compensation, Benefits, and Job Analysis Specialists (SOC
13-1141) or employees of similar status and comparable pay. The median
hourly wage for these workers was $32.30 per hour in 2020, the most
recent year of data available.\177\ The Department also assumes that
benefits are paid at a rate of 46 percent \178\ and overhead costs are
paid at a rate of 17 percent of the base wage, resulting in a fully
loaded hourly rate of $52.65.
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\177\ Bureau of Labor Statistics, Occupational Employment and
Wages (May 2020), <a href="https://www.bls.gov/oes/current/oes131141.htm">https://www.bls.gov/oes/current/oes131141.htm</a>.
\178\ The benefits-earnings ratio is derived from the Bureau of
Labor Statistics' Employer Costs for Employee Compensation data
using variables CMU1020000000000D and CMU1030000000000D.
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The Department estimates that the lower bound of regulatory
familiarization cost range would be $52,728,043 (5,996,900 firms x
$52.65 x 0.167 hours), and the upper bound, $69,115,369 (7,860,674
establishments x $52.65 x 0.167 hours). The Department estimates that
all regulatory familiarization costs would occur in Year 1.
Additionally, the Department estimated average annualized costs of
regulatory familiarization with this rescission over 10 years. Over 10
years, it would have an average annual cost of $7.0 million to $9.2
million, calculated at a 7 percent discount rate ($5.8 million to $7.6
million calculated at a 3 percent discount rate). All costs are in 2020
dollars.
2. Other Costs
As discussed above, some commenters asserted that there may be
other potential costs to the regulated community, such as reduced
clarity from the lack of the Rule's regulatory guidance. Because it
lacks data on the number of businesses that are in a joint employment
relationship or those that changed their policies as a result of the
Joint Employer Rule, the Department has not quantified these potential
costs, which are expected to be de minimis. Although the rescission
removes the regulations at 29 CFR part 791, the Department believes
that this will not result in substantial costs or decreased clarity for
the regulated community because, as discussed above, most courts apply
a vertical joint employment analysis different from the analysis in the
Joint Employer Rule and have not adopted the Rule's analysis. The State
AGs agree with this assertion in their comment. Texas RioGrande Legal
Aid asserts that the Joint Employer Rule would not have created clarity
for the agricultural sector, because employers would face conflicting
obligations under the different regulatory regimes of FLSA and MSPA.
WPI asserted that using an ``expanded'' joint employment standard
instead of the standard put forth in the Joint Employer Rule would
result in a loss of output of $17.2 billion to $33.3 billion annually
for the franchise business sector. WPI cites a comment provided by the
International Franchise Association to the 2019 Joint Employer NPRM. In
this comment, the International Franchise Association discusses a study
by Dr. Ron Bird, looking at the effects of the National Labor Relations
Board's re-articulation of its joint employer standard in the Browning-
Ferris case. The National Labor Relations Board is responsible for
[[Page 40956]]
enforcing the National Labor Relations Act (NLRA), which differs from
the FLSA. The commenters, however, do not provide any data or
information connecting this output loss to rescission of the Joint
Employer Rule.
C. Transfers
In the Joint Employer Rule's regulatory impact analysis, the
Department acknowledged that the Rule could limit the ability of
workers to collect wages due to them under the FLSA because when there
is only one employer liable, there are fewer employers from which to
collect those wages and no other options if that sole employer lacks
sufficient assets to pay.\179\ Because the Joint Employer Rule provided
new criteria for determining joint employer status under the FLSA and
given the specifics of those criteria, it potentially reduced the
number of businesses found to be joint employers from which employees
may be able to collect back wages due to them under the Act. This, in
turn, potentially reduced the amount of back wages that employees were
able to collect when an employer did not comply with the Act and, for
example, was or became insolvent.
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\179\ See 85 FR 2853.
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Like the Joint Employer Rule, this rescission will not change the
amount of wages due any employee under the FLSA. However, rescinding
the Joint Employer Rule could result in a transfer from employers to
employees in the form of back wages owed that employees would
thereafter be able to collect. The Department lacks data on the current
number of businesses that are in a joint employment relationship, or to
estimate the financial capabilities (or lack thereof) of these
businesses and therefore is unable to estimate the magnitude of an
increase in the number of employers liable as joint employers.
Although the Rule would not have changed the amount of wages due to
an employee, the narrower standard for joint employment in the Rule
could have incentivized ``workplace fissuring.'' Research has shown
that this type of domestic outsourcing can suppress workers' wages,
especially for low-wage occupations.\180\ The State AGs asserted,
``[f]issured workplaces result in lower wages, greater wage theft, and
less job security, especially for immigrants or people of color who
make up a disproportionate share of low-wage workers in nonstandard
work arrangements.''
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\180\ Arindrajit Dube & Ethan Kaplan, Does Outsourcing Reduce
Wages in the Low-Wage Service Occupations? Evidence from Janitors
and Guards, ILR Review 63, no. 2, 287-306 (2010).
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In 2019, the Economic Policy Institute (EPI) submitted a comment in
response to the Joint Employer NPRM in which they calculated that the
Rule would result in transfers from employees to employers of over $1
billion.\181\ They again referenced this analysis in their comment on
the proposed rescission. EPI explained that these transfers would
result from both an increase in workplace ``fissuring'' as well as from
an increase in wage theft by employers. Rescinding this standard could
help mitigate any increased workplace fissuring and wage theft that
would have resulted. The Department is unable to determine to what
extent these transfers occurred while the Joint Employer Rule was in
effect, and therefore has not provided a quantitative estimate of
transfers from employers to employees because of this rescission. The
Department is also unable to estimate the increase in back wages that
employees will be able to collect because of this change.
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\181\ Celine McNicholas & Heidi Shierholz, EPI comments
regarding the Department of Labor's proposed joint-employer
standard, June 25, 2019, available at <a href="https://www.epi.org/publication/epi-comments-regarding-the-department-of-labors-proposed-joint-employer-standard/">https://www.epi.org/publication/epi-comments-regarding-the-department-of-labors-proposed-joint-employer-standard/</a>.
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This rescission could also benefit some small businesses, because
the Joint Employer Rule's narrowing of the joint employment standard
could have made them solely liable and responsible for complying with
the FLSA without relying on the resources of a larger business in
certain situations.
The Texas Public Policy Foundation commented on the Department's
economic analysis, saying that the Department did not make any specific
findings of the Rule's effect on workers. The Department still believes
that due to lack of data on the number of joint employment
relationships, as well as how these relationships would have changed
under the Joint Employer Rule, it is not possible to quantify the
magnitude of transfers associated with the Rule or with its rescission.
Likewise, the commenter does not provide any data or information about
the impact of this rescission on workers.
D. Benefits
The Department believes that rescinding the Joint Employer Rule
will result in benefits to workers and will strengthen wage and hour
protections for vulnerable workers. Removing a standard for joint
employment that is narrower than the standard applied by courts and
WHD's prior standards may enable more workers to collect back wages to
which they would already be entitled under the FLSA. This could
particularly improve the well-being and economic security of workers in
low-wage industries, many of whom are immigrants and people of color,
because FLSA violations are more severe and widespread in low-wage
labor markets.\182\
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\182\ Annette Bernhardt et al., Broken Laws, Unprotected
Workers: Violations of Employment and Labor Laws in America's Cities
(2009), available at <a href="https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf">https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf</a>.
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V. Regulatory Flexibility Act (RFA) Analysis
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act of
1996, Public Law 104-121 (1996), requires Federal agencies engaged in
rulemaking to consider the impact of their proposals on small entities,
consider alternatives to minimize that impact, and solicit public
comment on their analyses. The RFA requires the assessment of the
impact of a regulation on a wide range of small entities, including
small businesses, not-for-profit organizations, and small governmental
jurisdictions. Accordingly, the Department examined this rescission to
determine whether it would have a significant economic impact on a
substantial number of small entities. The most recent data on private
sector entities at the time this final rule was drafted are from the
2017 Statistics of U.S. Businesses (SUSB), which reports 5,996,900
private firms and 7,860,674 private establishments with paid
employees.\183\ Of these, 5,976,761 firms and 6,512,802 establishments
have fewer than 500 employees. Because the Department is unable to
determine how many of these businesses have workers with one or more
joint employers, this analysis assumes all businesses will undertake
review.
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\183\ Census Bureau, Statistics of U.S. Businesses (2017),
<a href="https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html">https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html</a>, 2016 SUSB Annual Data Tables by Establishment Industry.
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The per-entity cost for small business employers is the regulatory
familiarization cost of $8.79, or the fully loaded mean hourly wage of
a Compensation, Benefits, and Job Analysis Specialist ($52.65)
multiplied by \1/6\ hour (ten minutes). Because this cost is minimal
for small business entities, and well below one percent of their gross
annual revenues, which is typically at least $100,000 per year for the
smallest businesses, the Department certifies that this rescission will
not have a significant economic impact on a substantial number of small
entities.
[[Page 40957]]
VI. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (UMRA) \184\ requires
agencies to prepare a written statement for rules with a Federal
mandate that may result in increased expenditures by state, local, and
tribal governments, in the aggregate, or by the private sector, of $165
million ($100 million in 1995 dollars adjusted for inflation) or more
in at least one year.\185\ This statement must: (1) Identify the
authorizing legislation; (2) present the estimated costs and benefits
of the rule and, to the extent that such estimates are feasible and
relevant, its estimated effects on the national economy; (3) summarize
and evaluate state, local, and tribal government input; and (4)
identify reasonable alternatives and select, or explain the non-
selection, of the least costly, most cost-effective, or least
burdensome alternative.
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\184\ See 2 U.S.C. 1501.
\185\ Calculated using growth in the Gross Domestic Product
deflator from 1995 to 2019. Bureau of Economic Analysis. Table
1.1.9. Implicit Price Deflators for Gross Domestic Product.
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Authorizing Legislation
This final rule is issued pursuant to the Fair Labor Standards Act
of 1938, 29 U.S.C. 201-219.
Assessment of Costs and Benefits
For purposes of UMRA, this rescission is not expected to result in
increased expenditures by the private sector or by state, local, and
tribal governments of $165 million or more in at least one year. As
discussed earlier, the Department believes that the rescission will not
result in substantial costs for the regulated community because most
courts apply a vertical joint employment analysis different from the
analysis in the Joint Employer Rule and have not adopted the Rule's
analysis. More detailed analysis of impacts appears above.
UMRA requires agencies to estimate the effect of a regulation on
the national economy if such estimates are reasonably feasible and the
effect is relevant and material.\186\ However, OMB guidance on this
requirement notes that such macroeconomic effects tend to be measurable
in nationwide econometric models only if the economic effect of the
regulation reaches 0.25 percent to 0.5 percent of Gross Domestic
Product (GDP), or in the range of $52.3 billion to $104.7 billion
(using 2020 GDP).\187\ A regulation with a smaller aggregate effect is
not likely to have a measurable effect in macroeconomic terms, unless
it is highly focused on a particular geographic region or economic
sector, which is not the case with this rule. Given OMB's guidance, the
Department has determined that a full macroeconomic analysis is not
likely to show that these costs would have any measurable effect.
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\186\ See 2 U.S.C. 1532(a)(4).
\187\ According to the Bureau of Economic Analysis, 2020 GDP was
$20.9 trillion. <a href="https://www.bea.gov/sites/default/files/2021-04/gdp1q21_adv.pdf">https://www.bea.gov/sites/default/files/2021-04/gdp1q21_adv.pdf</a>.
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VII. Executive Order 13132, Federalism
The Department has (1) reviewed this rescission in accordance with
Executive Order 13132 regarding federalism and (2) determined that it
does not have federalism implications. The rescission would not have
substantial direct effects on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various levels of government.
VIII. Executive Order 13175, Indian Tribal Governments
This rescission would not have substantial direct effects on one or
more Indian tribes, on the relationship between the Federal Government
and Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
List of Subjects in 29 CFR Part 791
Wages.
PART 791--[REMOVED AND RESERVED]
0
For the reasons set forth in the preamble, and under the authority of
the FLSA, 29 U.S.C. 201-219, the Department removes and reserves 29 CFR
part 791.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-15316 Filed 7-29-21; 8:45 am]
BILLING CODE 4510-27-P
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</html>Indexed from Federal Register on July 30, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.