Trump Labor Rule That Narrows ‘Joint Employer’ Standard Struck Down by Judge

By | September 9, 2020

A federal judge on Tuesday struck down a Trump administration rule that narrowed the definition of “joint employer,” and which the attorneys general of 17 states and Washington, D.C. said would eliminate important labor protections for workers.

U.S. District Judge Gregory Woods in Manhattan said the rule was “arbitrary and capricious” because the Department of Labor failed to justify it or account for its costs to workers, which the states estimated at more than $1 billion annually.

In a 62-page decision, Woods also said the rule conflicted with the broader worker protections under the federal Fair Labor Standards Act, adding that the Labor Department had recognized joint employer liability since 1939.

Some background:

Board Finalizes Rule Scaling Back Joint Employer Liability for Franchisees, Contractors

A U.S. labor finalized a rule that will make it more difficult to hold companies liable for unlawful labor practices by franchisees and contractors, reversing a more worker-friendly Obama-era standard criticized by business groups. The rule by the National Labor Relations Board (NLRB) requires that companies have direct control over the working conditions of franchise and contract workers in order to be considered their “joint employers.”

McDonald’s Wins Battle With Labor, Avoids Joint Employer Liability with Franchises

The Republican majority board’s decision signals that the agency is unlikely to hold franchisers and companies that rely on contracted labor liable for labor law violations at their subsidiaries’ workplaces without strong evidence that the parent company directly controls the workers involved.

“If the Department’s interpretation were ‘clear’ (or even permissible), some court would have probably adopted its rationale,” Woods wrote. “But the Department has found not a one. Over eighty years later, this dog has yet to bark.”

Narrowing the joint employer standard has long been a goal of such companies as McDonald’s, Amazon.com, FedEx and hotel operators that depend heavily on franchises or outsourcing.

Led by New York and Pennsylvania, the mostly Democratic-leaning states said the administration’s rule would make it harder to hold companies liable for violations by franchisees and contractors of minimum wage and overtime laws.

A spokesman for the Labor Department said it is disappointed with the decision and will review its legal options.

The attorneys general of New York and Pennsylvania had no immediate comment.

Under the revised rule, companies would be treated as joint employers of franchise and contract workers if they set their pay, and controlled hiring and firing processes, among other factors.

The rule set aside Obama administration guidance that the employment relationship hinge on “economic realities,” such as the work being performed and companies’ influence over the workplace environment.

Woods was appointed to the bench by former President Barack Obama.

The case is New York et al v Scalia et al, U.S. District Court, Southern District of New York, No. 20-01689.

(Reporting by Jonathan Stempel in New York; Editing by Tom Brown and Lincoln Feast)

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