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What the Labor Department's New Joint Employer Rule Means for Employers in the Carolinas

    Client Alerts
  • January 21, 2020

The U.S. Department of Labor’s new joint employment regulations appear to provide franchisors and some other contractual business arrangements with protections against wage claims from workers not employed by them. However, adoption of the final rules does not automatically mean that U.S. companies will have uniform relief from such allegations.

While a major goal of DOL’s new rulemaking is to “promote greater uniformity in court decisions and predictability for organizations and employees[,]” the guidance also creates considerable uncertainty. DOL appears to concede that its new rulemaking is interpretive guidance, which means that it may not be entitled to significant judicial deference by courts that have adopted a different standard.

In 2017, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) adopted a joint employer standard that differs from the one now endorsed by the DOL. In its Salinas v. Commercial Interiors, Inc. ruling, the Fourth Circuit adopted a six-factor test focusing largely on the relationship between putative joint employers rather than control over the employee. Indeed, DOL specifically cites a comment submitted by the National Employment Lawyers Association asking “[w]hy, for example, would any responsible employer in North Carolina follow the Department’s ... proposed test knowing that the Fourth Circuit endorsed an entirely different test[?].”

DOL’s rulemaking has also received significant political attention, which could render it subject to challenge following the next election cycle. For example, the state attorneys general of 19 states, including North Carolina, Maryland, and Virginia, submitted a comment opposing the DOL’s updated guidance. The state attorneys general argued that the new rule imprudently restricts joint employer liability and encourages “employers to avoid liability under the law by simply asserting that, although they had the ability to exercise control, they did not in fact exercise that control.”

Until courts in the Fourth Circuit and elsewhere determine how they will treat this new guidance, there is no guarantee that it will provide safe harbor for employers seeking to avoid joint employer status. Prudent employers in the Carolinas, the Virginias, and Maryland should therefore continue to keep the Fourth Circuit’s more liberal Salinas standard in mind when calculating legal risk of exposure to joint employment claims.