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News | Feb 02, 2020

Trump Administration’s New FLSA “Joint Employment” Regulation Contradicts Binding Court Decisions and Leaves Us All Very Confused

The federal Department of Labor (“DOL”) is empowered to publish regulations that interpret different provisions of the Fair Labor Standards Act (“FLSA”).  These types of interpretive regulations are published in the Code of Federal Regulations (“the CFR”).  A long time ago, in Skidmore v. Swift & Co., 323 U.S. 134 (1944), the Supreme Court explained that whether or not an interpretive regulation is entitled to judicial deference “will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”

In recent years, some legal thinkers have questioned the continued viability of “Skidmore deference.”  But that topic is far too heavy for the Wage and Overtime Quarterly.

Anyway, on January 16, 2020, the DOL published an interpretive regulation that becomes effective on March 16, 2020 and is entitled “Joint Employer Status Under the Fair Labor Standards Act.”  See 85 FR 2820-2862 (Jan. 16, 2020).  As discussed below, this new joint employment regulation is misguided.

Why Is “Joint Employment” Important in FLSA Lawsuits?

The American workplace is becoming increasingly “fissured.”  Millions of workers who used to be paid directly by big companies now find themselves working for contractors, subcontractors, and even sub-subcontractors.  For example, the janitors who clean your local big-box store probably are not directly paid by the store.  Instead, they may be paid by a janitorial services company that contracts with the store.  Or they might work for a very small business (e.g. “Little Frankie’s Cleaning LLC”) that contracts with a janitorial services company that, in turn, contracts with the store’s owner.

Let’s say the janitors in the above example are cheated out of overtime pay.  Under the FLSA, they certainly can sue the business that directly pays them.  But such a lawsuit is pointless if such business is small, undercapitalized, and unable to satisfy a judgment.  So, as a practical matter, the janitors must sue “up the chain” and prove that the small business and the store’s owner are jointly liable under the FLSA for the unpaid overtime.

So “joint employment” principles are pretty important.  When it becomes too difficult for workers to prove joint employment, it becomes too easy for big companies to cheat workers by hiding behind contractors and subcontractors.

The FLSA’s Expansive View of “Employment.”

Historically, the FLSA has been understood to define “employment” very broadly.  For example, in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the Supreme Court observed that the FLSA is “comprehensive enough to require its application to many persons and working relationships which, prior to this Act, were not deemed to fall within an employer-employee category.”   Id. at 150-51.  Likewise, in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992), the Court explained that the FLSA “stretches the meaning of ‘employee’ to cover some parties who might not qualify as such under a strict application of traditional agency law principles.”  Id. at 326.

Here in the Third Circuit, our Court of Appeals has observed:  “the FLSA defines employer “expansively,” and with “striking breadth.”  The Supreme Court has even gone so far as to acknowledge that the FLSA’s definition of an employer is “the broadest definition  that has ever been included in any one act.”  In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litig., 683 F.3d 462, 467-68 (3d Cir. 2012) (internal citations omitted).

Bonnette and Other Conflicting “Joint Employment” Tests.

The Supreme Court has never established a specific test for deciding whether two companies can be liable as joint employers under the FLSA.  However, federal Courts of Appeals have issued opinions establishing various multi-factor tests.  These tests differ from circuit to circuit.  However, as any first-year law student knows, a circuit court decision is binding precedent within the circuit.

In Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), the Ninth Circuit Court of Appeals – which covers the federal courts in California and other western states – weighed the following four factors in determining whether a purported joint employer could be liable under the FLSA:  “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”  Id. at 1470.  We will refer to these factors as the “Bonnette Factors.”

Crucially, other circuit courts disagree with the Ninth Circuit’s Bonnette Factors.  For example, in Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), the Fourth Circuit Court of Appeals – which covers the federal courts in the Carolinas, Maryland, Virginia, and West Virginia – endorsed a six-factor test, see id. at 141-42, and specifically instructed: “district courts should not follow Bonnette and its progeny in determining whether two or more persons or entities constitute joint employers for purposes of the FLSA,” id. at 139 (emphasis supplied).

Likewise, in Zheng v. Liberty Apparel Co., 355 F.3d 61 (2d Cir. 2003), the Second Circuit Court of Appeals – which covers the federal courts in New York, Connecticut, and Vermont – endorsed its own six-factor test that differs significantly from the Bonnette Factors.  See id. at 72.  And, here in the Third Circuit – which covers Pennsylvania, New Jersey, and Delaware – our Court of Appeals has endorsed a four-factor test that is much less stringent than the Bonnette Factors.  See Enterprise, 683 F.3d at 469.

The New Joint Employment Regulation:  Bonnette with a Twist.

This brings us to the DOL’s new joint employment regulation.  In the Executive Summary accompanying the regulation, the DOL asserts that it is “adopting a four-factor balancing test derived from Bonnette [].”  85 FR 2820.  Then, in the regulation, DOL describes the four factors as whether the alleged employer “(1) Hires or fires the employee; (2) Supervises and controls the employee’s work schedule or conditions of employment; (3) Determines the employee’s rate and method of payment; and (4) Maintains the employee’s employment records.”  Id. at 2859 (to be codified at 29 C.F.R. §791.2(a)(1)).

We’ll get to DOL’s decision to select Bonnette over other circuit court authority in a moment.  In the meantime, however, we pause to briefly note that DOL has watered down the first Bonnette Factor to benefit business.  Specifically, while the Ninth Circuit’s first Bonnette Factor asks whether the purported employer “had the power to hire and fire the employees,” Bonnette, 704 F.2d at 1470, the DOL’s first factor omits the phrase “had the power to.”  85 FR 2859.

 What Gives DOL the Right to Select Bonnette Over Other Judicially Endorsed Tests?

All of this brings us to the fundamental problem with the new joint employment regulation.  The DOL is not interpreting anything.  Rather, it is selecting a variation of the Ninth Circuit’s Bonnette test over the joint employment tests endorsed by other Courts of Appeals.  This practice – attempting to “nationalize” one circuit’s decisional law at the expense of other circuits’ decisional law – is very troubling to me.  But the practice should be even more troubling to “conservatives” who purport to oppose such administrative overreach.

We all should be concerned.  The Secretary of Labor is not some jurisprudential “Grand Wizard” empowered to rummage through conflicting circuit court authority and then enshrine – through “interpretive regulations” – the court decision that he likes best.

Under our judicial system, “circuit splits” are resolved by the Supreme Court, not the DOL.  So, if the Trump Administration wants to nationalize the Bonnette joint employment test, it should either (i) pass legislation codifying the test or (ii) advocate for the test in the litigation arena.  Writing a new “interpretive regulation” is a cheap end-run around these proper legislative and judicial channels.  It is destined to fail.

So Now We’re All Confused.

DOL asserts that the new joint employment regulation is intended “to offer guidance explaining how to determine joint employer status.”  85 FR 2823.  But, in reality, DOL has just spawned confusion.

Imagine being an employer in North Carolina.  The Fourth Circuit Court of Appeals has held that “district courts should not follow Bonnette and its progeny in determining whether two or more persons or entities constitute joint employers for purposes of the FLSA.”  Salinas, 848 F.3d at 139.  Yet, DOL says Bonnette is just fine.

Imagine being a corporate employment lawyer in Virginia.  Are you really going to advise your client to follow the Bonnette test over the Salinas teat?

And what about the worker in Maryland who is relying on DOL to investigate her complaint against a putative joint employer.  Is the DOL investigator really going to follow Bonnette instead of Salinas?  Can the investigator even do that?

Well, that’s all for now.  It looks like DOL’s “guidance” will keep us all busy for years to come. –PW

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