Trump Joint Employer Rule Sees Friendlier Environment on Return

The Labor Department is moving to return regulations around joint employment liability to standards set under the first Trump administration, and attorneys say the current legal landscape will make it harder for worker advocates to fight it in court this time around.

The DOL’s Wage and Hour Division recently sent a proposed joint employer rule to the White House for approval, indicating the agency is preparing to soon release their plan for determining when companies share minimum wage, overtime, and other liabilities.

It’ll be the department’s first attempt at changing the standard since the Biden administration rescinded a business-friendly Trump 1.0 rule that required one business to exert “actual” control over another company’s workers to be held liable for them. That test limits how often corporate brands are responsible for labor violations by their business partners and franchisees.

The Trump regulation was largely vacated by a judge in the US District Court for the Southern District of New York after states sued the DOL.

Michael Duff, a labor law professor at Saint Louis University, said the pending rule is expected to largely mimic the earlier Trump administration policy and would likely follow the same path. This time, he said, courts are more limited in how they can broadly halt federal policies.

“The same states are going to challenge the rule, probably in the same place and then we get into the question of what the court does and whether the court can issue a nationwide injunction,” he said.

Brewing Legal Battle

The Trump joint employer rule focused on whether an employer exerted direct control over a worker using a four-part test. It considered whether a company actually exerts its power to hire or fire a worker, set their schedule and control their working conditions to a “substantial” degree, determine the worker’s wage and method of payment, and maintain their employment records.

Worker advocates say a narrowed joint employer rule fails to meet the realities of a labor market where companies are commonly relying on staffing agencies and contractors to escape liability and impedes the government’s efforts to enforce wage-and-hour law.

A group of 17 states and the District of Columbia claimed in court that the rule violated the Administrative Procedure Act by establishing a different standard for vertical joint employer scenarios—when a company contracts another to get workers.

Judge Gregory H. Woods said in his 2020 opinion the DOL regulation was “arbitrary and capricious” and inconsistent with the Fair Labor Standards Act because it strayed from the DOL’s previous stance, which had emphasized the law’s broad definition of “employ” as “to suffer or permit to work.”

Woods, an Obama-appointee, said requiring an employer to actually exercise one of the four factors in order to qualify as a joint employer—rather than merely reserving the right to do so—makes the standard inconsistent with the law.

Mark Goldstein, an attorney with Reed Smith LLP, said the DOL can make minimal changes to the rule in order to address Woods’ criticisms, likely expanding the justifications for the policy shift in more detail.

“Overall, I don’t think that it will conceptually be different,” he said. “The bottom line will still be the same and you’ll still likely see the same focus on actual exercise of control rather than potential or theoretical.”

Also, when a new joint employer rule goes before a court, it could face a district judge with curtailed power to block the policy nationwide. The US Supreme Court’s ruling in Trump v. Casa held that district judges have limited power to issue broad nationwide injunctions.

While the high court continues to allow orders vacating policies under the APA, some conservative justices have cast doubts on the use of vacatur in other cases.

“We’re more likely in the future to see injunctions that are granted with regards to the specific parties or just within the scope of the district or the circuit from which the decision emanates, rather than broader nationwide injunctions,” Goldstein said. “You could potentially get a circuit split which, for employers operating in multiple states, could be difficult.”

Enforcement Measures

The fights over a joint employer stem from the fact that it determines how the DOL can investigate and process claims of wage and hour violations, including child labor laws.

Laura Padin, director of worker structures at the National Employment Law Project, said a narrower joint employer standard allows employers to “plead ignorance,” and avoid liability.

The Biden administration attempted to ramp up its enforcement of child labor laws after reporting by the New York Times found children as young as 13 working for companies like General Mills, JBS, and Amazon.com Inc. The DOL pursued investigations into companies including Mar-Jac Poultry, Hyundai Motor Co., and Perdue Farms.

“Companies need to be auditing their operations, they need to have some level of understanding of what their staffing agencies are doing so they can’t just plead ignorance to what we found were some really egregious violations,” Padin said.

Congressional Push

Employers say they want to lock the Trump standard into place via legislation to avoid changing rules between administrations.

The International Franchise Association is pushing for bills that codify the “direct control” threshold.

The “The American Franchise Act,” introduced both in the House and in the Senate, would add language to the FLSA and the National Labor Relations Act stating that a franchiser must possess and exercise “substantial direct and immediate control” over the working conditions of a franchisee’s employees.

“Legislation is the only way to provide permanent clarity so that will always be our priority.” said Michael Layman, IFA’s chief advocacy officer of a potential DOL rule.

A separate House bill, which is titled the “Save Local Business Act” and would’ve altered the laws in similar ways, stalled after several Republicans joined Democrats in opposing the legislation. The franchise-specific bill was referred to the House Committee on Education and Workforce but hasn’t come up for a hearing yet.