Court voids Trump rule on joint employer liability for overtime

| Sep 16, 2020 | Firm News |

Many employers resist their legal liability to pay their workers for overtime hours. One of their techniques is to use a subcontractor to perform all or part of the work and then claim that the subcontractor is liable for all overtime payments owed under the federal Fair Labor Standards Act.

Conflicting rules

The Obama administration adopted a rule that broadened the definition of “joint employer” under the FLSA to reflect the economic realities of the relationship between the subcontractor and the primary contractor that retained the subcontractor. The Obama rule said that the definition of joint employer must depend upon the work being performed and the respective influence of each company’s influence over the workplace requirem,ent. The rule had the effect of broadening corporations’ joint liability for mandatory overtime, meaning both were liable to employees for mandatory overtime payments.

The Trump administration adopted a rule that became effective in early 2020. The Trump rule narrowed the definition of “joint employer” and thereby allowed many companies who were primary contractors to escape their liability for mandatory overtime. A worker seeking to demonstrate the existence of a jointly employer relationship must show that both companies set employee pay and controlled the hiring and firing process. Proving these factors would be unusually difficult and would limit the reach of the joint employer rule.

The latest word

Gregory H. Woods, a federal judge in Manhattan, handed down a decision last week that voids the Trump administration’s rule. The judge found that the Labor Department violated the Administrative Procedure Act by failing to provide legal justification for the new rule and by failing to identify or justify any costs to workers, a number that the judge estimated to be more than $1 billion annually. The Administrative Procedure Act requires every federal agency that wishes to promulgate a new and legally binding rule to answer these two questions. The failure to do so, as in this case, means that the rule is invalid. The court surmised that if a valid rationale for the new rule existed, some court in the 80 years since the statute’s passage would have adopted it. No court has done so, and Judge Woods therefore concluded that such a rationale does not exist.

Now where?

The upcoming election is likely to have a profound effect on the future of this rule (and many other rules that the Trump administration adopted), and the short term effect is difficult to predict. Nevertheless, Judge Woods’ ruling in the short term will make workers’ lives easier. Anyone concerned about the immediate effect of Judge Woods’ decision may wish to consult an experienced employment lawyer for an evaluation of the ruling and its likely effect.