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Changes to the “Joint Employer” Rule

There are a number of laws at both the state and federal level that are in place to guard employees against adverse employment actions wrongfully taken by employers. Such protections include prohibitions on discrimination and retaliation, as well as helping to ensure employees’ proper wages, including overtime pay

The Fair Labor Standards Act (FLSA) is a critical piece of federal legislation in protecting the rights of workers across the nation. It establishes the national minimum wage as well as the rules for overtime compensation. In order for the protections of the FLSA and other relevant statutes to apply, there must first be an employment relationship between a worker and business. In some cases, there may be more than one business responsible under the FLSA pursuant to an employment relationship with a worker. This is where the “joint employer” rule can come into play.

Changes to the “Joint Employer” Rule

A joint employer situation is said to exist when more than one employer exercises, or can exercise, control over the terms of an employee’s job. Terms of a job may include job responsibilities as well as hours of work and rate of pay. Under the joint employer rule pursuant to the FLSA, each joint employer can be held liable for wage and hour claims as well as other employment law violations by the employee.

Pursuant to the FLSA, the DOL established a rule that established joint employment when:

  • Employers have agreed to share the employee’s services
  • An employer is acting in the interest, either directly or indirectly, of another employer in regard to an employee
  • An employer controls or is under common control with another employer and both employers share control of the employee, either directly or indirectly

While these three relationships are referred to as “horizontal joint employment,” because the relationship between the employers is the key, there is also “vertical joint employment.” The DOL established vertical joint employment as a relationship where more than one employer is receiving the benefit of an employee’s labor and where the employee depends economically on both employers.

In 2020, the U.S. Department of Labor (DOL) made changes to the joint employer rule by issuing the rule entitled “Joint Employer Status under the Fair Labor Standards Act.” By rescinding this rule, vertical joint employment relationships were limited to where both employers have notable authority over an employee. This authority is likely to include the ability to hire or fire the employee as well as being in control of the employee’s employment records. The rule was challenged by a number of states and actually ended up being struck down in federal court.

In 2021, the DOL published a rule that rescinded the changes made under the 2020 rule. This change went into effect on September 28th. The rescinding of the 2020 rule will help ensure that more workers receive the minimum wage and overtime protections intended under the FLSA.

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