Department of Labor Overturns Joint Employer Rule

NACS urges convenience retailers to review and adjust labor contracts as needed prior to formalization.

July 30, 2021

Washington, D.C.

By Jon Taets

WASHINGTON—The U.S. Department of Labor (DOL) released a new rule that rescinds the Trump Administration’s ”joint-employer” rule. With publication in the July 30 issue of the Federal Register, the rescission will become official in 60 days.

In early 2020, the Trump Administration issued a formal rule, supported by NACS and much of the business community, that replaced guidance from the Obama Administration on how the DOL would determine joint-employment relationships. That determination is often used as the basis for liability under employment law. 

The guidance had relied on an “indirect control” standard to establish that two employers were “joint” employers and could be held liable for labor violations relating to an employee. This meant one employer didn’t necessarily need to exert any form of direct authority over another company’s employees to be considered a joint-employer. Two employers needed to only directly benefit from that employee’s work and, in theory, both have the ability to change the terms of that person’s employment. 

The Trump DOL wrote a formal rule requiring that one employer must have and exert direct control of the employment of a worker to be held jointly liable. That rule relied on a four-point test to determine vertical joint-employment scenarios.

They asked if an employer exercised the following powers: 

  1. To hire and fire the employee
  2. To determine said employees schedule or working conditions
  3. To determine their pay
  4. To maintain relevant employment records

In September of 2020, responding to a lawsuit brought by a number of states, a US District Court in NY vacated most of the Trump DOL’s rule on the grounds that it had violated the Administrative Procedures Act. The Court determined that the rule violated the Fair Labor Standards Act (FLSA) by too narrowly defining the Act’s definition of an “employer.” That decision left in place the Trump DOL’s definition of a horizontal joint-employment relationship, however. While those that are franchisors were most impacted by the court’s decision, the horizontal relationship scenario is often also seen in the convenience industry in the form of some supplier or contractor relationships.

In 60 days, the DOL will revert back to following the Obama Administration guidance in making such determinations, a scenario under which it will be much easier for one employer to be found jointly liable for potential labor violations of another employer.

Based on this change, NACS urges convenience retailers to take a close look at their contractual relationships and consult with a labor attorney to determine if they may have exposure to possible labor related lawsuits once this rule if formally rescinded. In particular, relationships including those in which suppliers stock shelves, complete tasks such as cleaning and maintenance and or are part of other similar contracts with other companies may merit closer examination. 

Jon Taets is the NACS director of government relations. He can be reached at jtaets@convenience.org.

Advertisement
Advertisement
Advertisement