A New York federal district court judge has struck down significant portions of the U.S. Department of Labor’s (“DOL”) joint employer rule, which went into effect earlier this year. As a result of this ruling, certain companies may be more likely to be deemed joint employers and exposed to liability for wage and hour violations under the Fair Labor Standards Act (“FLSA”).
As we described here, in March 2020, a final rule issued by DOL went into effect implementing a four-factor test for determining whether more than one entity may be considered an individual’s employer under the FLSA. The new test shifted the existing rule’s focus on the “economic realities” of the alleged employer/employee relationship to a narrower inquiry regarding whether the alleged employer actually exercised control over the alleged employment relationship.
The District Court for the Southern District of New York has now held that DOL’s final joint employer rule violated the Administrative Procedures Act for two reasons. First, the court found that the rule contradicted the text of the FLSA because it ignored relevant concepts defined in the statute, such as the definitions of “employ” and “employee,” and that DOL had erroneously applied different standards for “primary” and “joint” employment when no such distinction exists in the FLSA itself. Second, the court found that DOL’s reasoning for the rule change was arbitrary, capricious, and not supported by adequate evidence.