Labor Secretary Asked to Rewrite Joint Employment Rule

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By Ben Penn

Employers are expanding their crusade to rein in joint employment liability by pitching a new regulation to Labor Secretary Alexander Acosta.

Acosta, in private meetings with trade organizations and attorneys this year, has been asked to consider issuing a new regulation that would update the Fair Labor Standards Act’s determination of when an employer is jointly liable for wage violations with affiliated businesses, sources involved in those talks told Bloomberg Law. The conversations come amid an overlapping legislative push that currently lacks the Democratic support needed to move in the Senate.

The National Labor Relations Board and at least one appeals court in recent years have widened their view of business liability for labor and employment violations by affiliated entities, such as franchisees and staffing firms. Worker advocates and many Democrats support this view as a way to ensure all employers who benefit from workers’ labor are responsible for compliance with workplace laws. Critics from mostly management and Republican circles argue that expanding liability unfairly holds companies accountable for workers that they don’t control, while stifling business growth.

Some business advocates see the DOL regulatory route as an imperfect solution because it’s more limited than the bill that recently advanced in the House. But absent the eight Democratic senators needed to support that legislation, a rule revising the FLSA may be a more realistic plan to fend off plaintiffs’ lawsuits and Wage and Hour Division probes that attempt to place corporations on the hook for overtime and minimum wage violations committed by businesses lower down the chain.

“I don’t know if I would use the word ‘backup plan,’ but it is certainly an additional strategy,” Roger King, labor counsel for the HR Policy Association, told Bloomberg Law of a joint employment rule. HR Policy Association, which represents the nation’s largest employers, met with Acosta to discuss a joint employment regulation, among other topics, earlier this year, King said.

Another source, who spoke on condition of anonymity, described the secretary as being engaged in more recent talks about the joint employer rule and other proposals to modernize federal wage and hour law.

Moving Target

The controversial subject of joint employment evolved in the wage-and-hour landscape from two developments this year, both of which precipitated the outreach to Acosta.

First, a federal appeals court labeled a major satellite provider as a joint employer that shares responsibility with a contractor for allegations of wages owed to workers. Second, Acosta withdrew the Obama DOL’s guidance on joint employment, but without replacing the memo with new instructions.

President Donald Trump has joined the chorus of criticism over excessive federal regulations. It’s not clear, however, whether he favors using new regulations to revise federal wage and hour law. Trump issued an executive order requiring agencies to eliminate two rules for every new one issued, but other agencies have gotten around the order by taking advantage of various exemptions.

A spokeswoman for Acosta did not respond to requests for comment.

It’s unclear how seriously Acosta is taking the employer community’s advice. Any regulatory strategies would likely take years to manifest and would require the input from a WHD administrator and labor solicitor. Trump administration nominees for both of those positions are pending before the Senate.

‘Refined, Redrafted, and Re-Examined’

The FLSA’s limited language on joint employment, written in the 1950s, has fallen below the radar during some of the recent debates. An employer can only avoid responsibility for an employee’s work conditions at a separate workplace if the employers “are acting entirely independently of each other and are completely disassociated,” according to the rule.

Those provisions under the New Deal-era FLSA gained new relevance in January when they were cited in an appellate ruling that provided a win for workers in their pursuit of expanded joint employment liability. The U.S. Court of Appeals for the Fourth Circuit said DirecTV is liable as a joint employer of technicians who were hired by an intermediary and claim they weren’t paid overtime. DirecTV has asked the Supreme Court to overturn that ruling. In the meantime, business representatives are telling Acosta that the flawed Fourth Circuit decision makes it necessary for the DOL to intervene.

“If the Supreme Court doesn’t take DirecTV, I think there would be more of a need to address this area, because we’ve got a very bad decision out of the Fourth Circuit,” King said. The FLSA language on joint employment “certainly would need to be refined, redrafted, and re-examined.”

Other courts have adopted a variety of stances on how to determine when a company can be classified as a joint employer.

Advocates of a new rule from the DOL haven’t settled on a precise recommendation. They generally are suggesting, however, that Acosta consider a proposal that focuses on the business’s relationship with the employee, rather than with a purported joint employer.

For instance, the language in a measure that advanced out of the House workforce committee Oct. 4 would establish that a business is only a joint employer under the FLSA if it “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.”

One option that’s been considered is to write into law a test for joint employment written in the Ninth Circuit decision in Bonnette v. California Health and Welfare Agency. The Bonnette test, which the Fourth Circuit negated in this year’s DirecTV ruling, uses four factors to determine FLSA joint employment liability: “whether the alleged 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.”

Weil Memo Scrapped

Acosta hasn’t expressed his views on whether employers should share liability for affiliated companies’ payroll practices. But he did demonstrate his disagreement with the Obama administration’s approach to this matter by withdrawing a 2016 interpretive guidance memo.

The administrator’s interpretation, issued under then-WHD chief David Weil, sought to clarify a broad set of circumstances in which businesses are jointly accountable for employees’ wages.

Acosta later explained that he rescinded the guidance because it sidestepped public notice and comment that is necessary as part of the regulatory process.

Seth Harris, a deputy and acting labor secretary for most of the Obama administration, said Acosta would be wise not to roll back the progress made under Weil. Business’s increasing reliance on temporary and staffing arrangements for an independently contracted labor force has suppressed workers’ wages and other protections, Harris told Bloomberg Law.

“There was a clear statement from the Wage and Hour Division but Secretary Acosta withdrew it,” said Harris, who now practices law in Washington and teaches at Cornell University. “Going through a process of changing the law, presumably to deprive a large number of workers of their protections and benefits under employment law would be a serious mistake because those workers need the protections of the workplace social compact as much as employees do.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editor responsible for this story: Chris Opfer at copfer@bna.com

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