Wage and Hour Blog
New Joint Employer Rule Overturned

New Joint Employer Rule Overturned

One of the key reforms of federal labor policy under the Trump Administration was struck down in September by District Judge Gregory H. Woods of the U.S. District Court for the Southern District of New York. In a lengthy opinion, Judge Woods concluded the United States Department of Labor’s new “joint employer” rule, which limits instances in which multiple businesses can be held liable for violations pertaining to the wage-and-hour provisions under the Fair Labor Standards Act (FLSA), was “arbitrary and capricious.”

The DOL issued the new “joint employer” rule in January 2020 and it took effect in March. The new rule impacted “vertical joint employment” relationships, ones in which workers for a staffing company, intermediary, or franchise are contracted to another entity. The new rule set forth a four-part test to determine if a person or entity could be held liable as a “joint employer” for FLSA violations. The four-factor test focused on whether the business in question:

  1. hires or fires an employee;
  2. supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. determines the employee’s rate and method of payment; and
  4. maintains the employee’s employment records.

Like the prior test for joint employer status, the new rule clarified that no single factor is dispositive of a joint employer relationship. However, the new rule incorporated several additional provisions that tend to generally limit joint employer status. For example, the new rule states that merely maintaining employment records would not suffice for establishing joint employer status. In general, many people have considered the new rule as more employer-friendly than the traditional joint employer test in that it provided more stringent rules and principles that made it more difficult to establish joint employer liability.

In a 62-page decision, Judge Woods ruled in favor of 17 states and the District of Columbia, finding that the new rule violated the Administrative Procedures Act, the law which governs the rulemaking powers of administrative agencies, including the DOL. Judge Woods further concluded the new rule did not comport with the FLSA and its longstanding policy.

In particular, Judge Woods reasoned the “joint-employer rule” conflicted with the FLSA because it “ignores the statute’s broad definitions” by limiting, for example, the FLSA’s broad definition of “employer” and requiring that a joint employer enforce certain controls over an employee. Judge Woods also emphasized the importance of the legislative history behind the broad definition of employment as “suffering and permitting” someone to work, which the DOL ignored. He noted the origins of the phrase, which was derived from child labor laws enacted to prevent a company from hiring “middlemen” to illegally hire child-workers. Lastly, Judge Woods found that there was no sufficient reason for the DOL to drastically alter the prior joint employer rule.

However, Judge Woods’ ruling did not change “horizontal” employment relationships, in which related entities both employ or share control of a single employee; the new ruling specifically stated that “non-substantive revisions to horizontal joint employer liability… remain in effect.” Still, it is important to note that “vertical” employment relationships are significantly more common than “horizontal” relationships.


This decision has far-reaching consequences for joint employer liability across the country. It is currently unclear whether the decision will be appealed. Stay tuned for further developments.