More Employers May Be on the Hook for FLSA Violations After Ruling

A New York federal judge struck down part of the Department of Labor’s (“DOL”) “Final Rule” regarding so-called “joint employers” under the Fair Labor Standards Act (“FLSA”).  If upheld and applied outside of New York, this ruling will expand the number of employers that have potential liability under the FLSA for minimum wage and overtime violations.

What is a joint employer?  A common example would be a worker that is hired by a staffing company that then assigns the worker to another employer.  If the worker alleges that he had not been properly paid minimum wage and/or overtime, can the worker sue the staffing company, the other employer, or both?  Another scenario could be one in which a corporation hires a contractor, and that contractor has an employee.  If the employee alleges that he was denied minimum wage and/or overtime, can he sue the contractor, the corporation, or both?  The tests used to determine “joint employers” will give us the answer in both scenarios.

So how did we get here? During the Obama Administration, the DOL issued guidance that expanded the number of entities that would be considered “joint employers” via focusing on the “economic realities” of an employer-worker relationship, as opposed to simply the amount of “control” that an employer has over a worker.  This was a major shift in direction for the DOL. Shortly after the start of the Trump Administration, however, the DOL rescinded the Obama-era guidance and replaced it with the Final Rule that emphasized actual control over a worker in determining joint-employer status.  Focusing on “economic realities” tends to expand the number of employers that can be said to employ a given employee, whereas focusing on “control” tends to reduce the number of employers that can be said to employ a given employee.

Also important to the decision is the difference between “vertical joint employers” and “horizontal joint employers.”  The New York District Court only struck down the DOL’s Final Rule as it related to vertical joint employers, not horizontal joint employers.  The foregoing examples are of vertical joint-employment relationships, in which an intermediary (i.e. a staffing agency, a contractor) is involved.  Horizontal joint-employment occurs when two related entities control a single employee, such as when a waiter or waitress works at two different restaurants owned by the same employer.

The reasons for the Court’s ruling come down to technical aspects of the Administrative Procedures Act, but the implications of the ruling (if upheld) are clear: employers need to be aware of whether they could be on the hook for additional FLSA liability.  As of now, the Court has not issued an injunction to give this ruling application outside of the Southern District of New York, but stay tuned for potentially fast-moving developments that could expand the scope of the ruling.

Is your business potentially a joint-employer of one or more employees?  Are you concerned that your business may face increased FLSA liability in light of this decision?  Contact Graydon’s Labor and Employment team to discuss these and other employment law issues.