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The U.S. Department of Labor on Wednesday withdrew Obama administration guidance on joint employment and independent contractors that expanded the definition of employees.
The move will be a major relief to employers, who can now rely on the law rather than administrative interpretations, says an expert.
The brief statement issued by U.S. Secretary of Labor Alexander Acosta said: “Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.”
The statement says also the department will “continue to fully and fairly enforce all laws within its jurisdiction.”
In guidance issued Jan. 20, 2016, the DOL said under the FLSA and the Migrant Act, joint employment can be considered either “horizontal” or “vertical.”
It said horizontal employment should be considered when an employee is employed by two or more “technically separate but related or overlapping employers,” such as separate restaurants that share economic ties.
It said vertical joint employment happens in cases such as with staffing agencies when the “employee of the intermediary employer is also employed by another employer.”
The 2015 guidance on independent contractors issued by then-DOL wage and hour administrator David Weil said some employees were being intentionally misclassified as a means to cut costs, and avoid compliance with labor laws.
The guidance said employers should use the FLSA’s definition of employee “as to suffer and permit to work” in applying an “economic realities test” in determining whether workers are employees.
Commenting on the announcement, Allan Bloom, a partner with Proskauer Rose L.L.P. in New York, said, “The DOL wanted businesses and the public to take a more and more expansive view of what it means to be an employee.”
The guidances’ withdrawal means “they don’t exist anymore; they can’t be relied on in litigation as an indicator of the DOL’s interpretation of the law.”
Mr. Bloom said, “The big takeaway for me is, it’s really the first step of the Trump DOL starting to undo some of the activism of the Obama era,” with the DOL as well as the U.S. Equal Employment Opportunity Commission and the National Labor Relations Board issuing “subregulatory” guidance which were not laws passed by Congress, “or even rules or regulations.”
These guidances were referred to in litigation and employers were taking them into consideration in analyzing pay practices, said Mr. Bloom. Their withdrawal “will be a welcome development for a lot of businesses, especially businesses that rely heavily in independent contractors and other service providers.”
Rather than having to rely on administrative interpretations, they will now “go back to what judges and Congress have said,” as well as the rules and regulations that are on the books, “so I think that’ll be a very helpful thing going forward for those types of businesses.”
A proposed change in the National Labor Relations Board's definition of “joint employer” with respect to franchisors and franchisees could significantly expand franchisors’ wage-and-hour and other employment practices liabilities, warns a report issued by Marsh L.L.C. Thursday.