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State Attorneys General Challenge Joint Employer Rule

    Client Alerts
  • March 13, 2020

Last week’s EmployNews discussed the National Labor Relations Board’s issuance of final regulations on joint employer status. These regulations followed a similar rulemaking by the Department of Labor that we covered in January. On January 16, DOL’s Wage and Hour Division published its final rule under which companies will only be considered joint employers under the Fair Labor Standards Act when they meet a four-factor test. The rule is set to take effect on March 16.

On February 26, a coalition of 18 state attorneys general filed a complaint in the Southern District of New York challenging the final rule under the Administrative Procedure Act as contrary to law and arbitrary and capricious. The state AGs argue that the final rule unlawfully narrows the definition of joint employers in a way that is inconsistent with the Fair Labor Standard Act’s broad remedial purpose. The state AGs also accuse DOL of creating “a de facto exemption from joint employment liability for businesses that outsource certain employment responsibilities to third parties.”

We will be closely following the progress of this lawsuit and its impact on DOL’s joint employer rules. In the meantime, employers in the Carolinas would be wise to continue to consider the Fourth Circuit’s more liberal Salinas standard when calculating the risk of exposure to joint employment claims. Indeed, on February 18, the Middle District of North Carolina issued an order addressing whether a franchisor could be considered a joint employer. The court noted that it was aware of the DOL’s pending final rule that specifically “criticizes Salinas for adopting a ‘broad[]’ rather than a ‘fair’ reading of the FLSA.” Nevertheless, the court continued to apply the Salinas standard because the new rule had yet to go into effect and the court did not receive any guidance from the parties regarding how the rule would impact its analysis.