Understanding Recent Changes to the DOL Joint Employer Test

This article was written by Mitchell Boyarsky and Jessica Jeffrey

The guidelines, issued by the United States Department of Labor (DOL) to assist employers including restaurants owned jointly with or managed by other companies, recently have been thrown into question by a New York federal district court. Joint employer liability is a doctrine used to hold one entity liable for the employment and labor obligations of another entity under common control or managed as a nominally separate operation.

As part of its authority, the DOL issues rules and guidance to interpret laws including the federal wage and hour law called the Fair Labor Standards Act (FLSA). The DOL does not have authority to make law, and although its rules are not binding upon the courts, DOL rules can be influential and used by courts to interpret statutes. This latest court decision may leave employers guessing how to assess their legal status under the joint employer rules.

On September 8, a Southern District of New York judge struck down part of the DOL’s joint employer rule issued in 2020 after the DOL overhauled its prior interpretation of the joint employer rule. The DOL revamped its earlier position to narrow the rule after another federal agency—the National Labor Relation Board (NLRB)—also took on the joint employer test to expand it ultimately to be reversed in the courts. Consequently, the portion of the DOL’s joint employer that the New York court just invalidated may be the subject of an appeal by the DOL or further review and refinement by the DOL to comport with the New York court’s declaration. 

In January 2020, the DOL diminished the potential for joint employer status by issuing a final rule (2020 DOL Rule) that created a four-factor balancing test—which essentially required an indirect employer to exercise significant control over the alleged employee’s employment, including hiring and firing, supervision, setting pay, maintaining records and setting schedules—to trigger joint employer liability.

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