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Employers welcome Labor’s move on joint employment, independent contractors

Employers welcome Labor’s move on joint employment, independent contractors

The U.S. Department of Labor’s withdrawal of the Obama administration’s joint employment and independent contractors guidances that expanded the definition of employees is a welcome relief to employers, experts say.

They point out, however, that potentially expansive judicial rulings and federal regulations remain in place.

Possibly even more significant than the withdrawal, furthermore, may be an upcoming ruling by the U.S. Court of Appeals for the District of Columbia Circuit on the joint employer relationship.

The brief statement issued by Secretary of Labor Alexander Acosta last week 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 the department will “continue to fully and fairly enforce all laws within its jurisdiction.”

The Acosta statement refers to guidance issued in 2016 and 2015.

In guidance issued Jan. 20, 2016, the DOL said that 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 the Labor Department’s then- 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.”

The withdrawal is “certainly being cheered by many people in the business community who felt that the existing guidance that was issued by the Obama administration as overly restrictive and bad for business,” said Sage Knauft, a partner in Orange County, California, with WFBM L.L.P., which does business as Walsworth.

Experts warn, though, that this will not necessarily dramatically change things for employers.

“Employers still need to be mindful that these relationships are still subject to current federal case law and regulations. Those have not gone away,” said Lynne Anne Anderson, a partner with Drinker Biddle & Reath L.L.P. in Florham Park, New Jersey.

 The agency is “going to continue to enforce the rights of workers” through regulation and case law, she said.

She said also many employers are subject to their states’ case law and regulations, which “essentially do much the same as these administrative interpretations.”

“They went out of their way to say there is nothing in the decision to withdraw the guidance that should be interpreted as a lessening of labor standards, and that employers are still bound by state and federal law,” Mr. Knauft said.

Alexander J. Passantino, a partner with Seyfarth Shaw L.L.P. in Washington, said its impact is hard to evaluate at this point because while “they’ve taken their thumb off the scale, they have not, as of yet, taken a position that is different.”

In addition, while the department disagrees with the Obama administration’s expansive interpretation of the employment relationship, the courts can still rule whichever way they would have otherwise, but just not refer to Department of Labor documents, Mr. Passantino said.

Mr. Passantino said the mostly likely impact of the Acosta announcement is on “investigations and efforts to push (the Department of Labor’s) investigations into those other areas where they hadn’t been before.”

Experts say the D.C. Court of Appeals’ impending ruling in Browning-Ferris International v. NLRB may be even more significant than the guidances’ withdrawal. The court heard oral arguments in the case in March.

In its 2015 3-2 decision, the National Labor Relations Board had overturned the standard in place since 1984 that firms must have “immediate and direct” control over a worker to be considered a joint employer. 

“Everybody’s going to be watching how that gets decided,” said John W. Hargrove, a partner with Bradley Arant Boult Cummings L.L.P. in Birmingham, Alabama. That “may have a greater impact than these administration interpretations.”

In a separate development, Mr. Acosta said at a congressional hearing last week that he would be amenable to changing the federal overtime rule, though not to the extent proposed by the Obama administration.






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