Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule, 40939-40957 [2021-15316]

Download as PDF Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations available at the addresses specified in paragraphs (k)(3) and (4) of this AD. FOR FURTHER INFORMATION CONTACT: (k) Material Incorporated by Reference (1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51. (2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise. (i) MHI RJ Service Bulletin 670BA–53–060, Revision A, dated September 17, 2020. (ii) [Reserved] (3) For service information identified in this AD, contact MHI RJ Aviation ULC, 12655 Henri-Fabre Blvd., Mirabel, Que´bec J7N 1E1 Canada; Widebody Customer Response Center North America toll-free telephone +1–844–272–2720 or direct-dial telephone +1–514–855–8500; fax +1–514–855–8501; email thd.crj@mhirj.com; internet https:// mhirj.com. (4) You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 2200 South 216th St., Des Moines, WA. For information on the availability of this material at the FAA, call 206–231–3195. (5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, email fedreg.legal@nara.gov, or go to: https:// www.archives.gov/federal-register/cfr/ibrlocations.html. Issued on June 10, 2021. Ross Landes, Deputy Director for Regulatory Operations, Compliance & Airworthiness Division, Aircraft Certification Service. [FR Doc. 2021–16238 Filed 7–29–21; 8:45 am] BILLING CODE 4910–13–P DEPARTMENT OF LABOR Wage and Hour Division 29 CFR Part 791 RIN 1235–AA37 Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule Wage and Hour Division (WHD), Department of Labor (DOL). ACTION: Final rule; rescission. AGENCY: This action finalizes the Department’s proposal to rescind the final rule titled ‘‘Joint Employer Status Under the Fair Labor Standards Act,’’ which published on January 16, 2020, and took effect on March 16, 2020. This rescission removes the regulations established by that rule. DATES: This final rule is effective on September 28, 2021. lotter on DSK11XQN23PROD with RULES1 SUMMARY: VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 Amy DeBisschop, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S– 3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693–0406 (this is not a toll-free number). Copies of this final rule may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693–0675 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1–877–889– 5627 to obtain information or request materials in alternative formats. Questions of interpretation and/or enforcement of the agency’s regulations may be directed to the nearest WHD district office. Locate the nearest office by calling WHD’s toll-free help line at (866) 4US–WAGE ((866) 487–9243) between 8 a.m. and 5 p.m. in your local time zone, or logging onto WHD’s website for a nationwide listing of WHD district and area offices at http:// www.dol.gov/whd/america2.htm. SUPPLEMENTARY INFORMATION: I. Background The Fair Labor Standards Act (FLSA or Act) requires all covered employers to pay nonexempt employees at least the Federal minimum wage for every hour worked in a non-overtime workweek.1 In an overtime workweek, for all hours worked in excess of 40 in a workweek, covered employers must pay a nonexempt employee at least one and one-half times the employee’s regular rate.2 The FLSA also requires covered employers to make, keep, and preserve certain records regarding employees.3 The FLSA does not define ‘‘joint employer’’ or ‘‘joint employment.’’ However, section 3(d) of the Act defines ‘‘employer’’ to ‘‘include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee.’’ 4 Section 3(e) generally defines ‘‘employee’’ to mean ‘‘any individual employed by an employer’’ 5 and identifies certain specific groups of workers who are not ‘‘employees’’ for purposes of the Act.6 Section 3(g) defines ‘‘employ’’ to ‘‘include[ ] to suffer or permit to work.’’ 7 A. Prior Guidance Regarding FLSA Joint Employment In 1939, a year after the FLSA’s enactment, the Department’s Wage and PO 00000 1 See 29 U.S.C. 206(a). 29 U.S.C. 207(a). 3 See 29 U.S.C. 211(c). 4 29 U.S.C. 203(d). 5 29 U.S.C. 203(e)(1). 6 See 29 U.S.C. 203(e)(2)–(5). 7 29 U.S.C. 203(g). 2 See Frm 00023 Fmt 4700 Sfmt 4700 40939 Hour Division (WHD) issued Interpretative Bulletin No. 13, addressing, among other topics, whether two or more companies may be jointly and severally liable for a single employee’s hours worked under the FLSA.8 WHD recognized in the Bulletin that there is joint employment liability under the FLSA and provided examples of situations where two companies would or would not be joint employers of an employee.9 For situations where an employee works hours for one company and works separate hours for another company in the same workweek, WHD focused on whether the two companies ‘‘are acting entirely independently of each other with respect to the employment of the particular employee’’ (in which case they would not be joint employers) or, ‘‘on the other hand, the employment by [the one company] is not completely disassociated from the employment by [the other company]’’ (in which case they would be joint employers and the hours worked for both would be aggregated for purposes of the Act).10 WHD stated in the Bulletin that it ‘‘will scrutinize all cases involving more than one employment and, at least in the following situations, an employer will be considered as acting in the interest of another employer in relation to an employee: If the employers make an arrangement for the interchange of employees or if one company controls, is controlled by, or is under common control with, directly or indirectly, the other company.’’ 11 In 1958, the Department published a rule introducing 29 CFR part 791, titled ‘‘Joint Employment Relationship under Fair Labor Standards Act of 1938.’’ 12 Section 791.2(a) reiterated that there is joint employment liability under the Act and stated that the determination ‘‘depends upon all the facts in the particular case.’’ 13 It further stated that two or more employers that ‘‘are acting entirely independently of each other and are completely disassociated’’ with respect to the employee’s employment are not joint employers, but joint employment exists if ‘‘employment by one employer is not completely disassociated from employment by the 8 See Interpretative Bulletin No. 13, ‘‘Hours Worked: Determination of Hours for Which Employees are Entitled to Compensation Under the Fair Labor Standards Act of 1938,’’ ¶¶ 16–17. In October 1939 and October 1940, WHD revised other portions of the Bulletin that are not pertinent here. 9 See id. 10 Id. ¶ 17. 11 Id. 12 See 23 FR 5905 (Aug. 5, 1958). 13 29 CFR 791.2(a) (1958). E:\FR\FM\30JYR1.SGM 30JYR1 40940 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 other employer(s).’’ 14 Section 791.2(b) explained that, ‘‘[w]here the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as: (1) Where there is an arrangement between the employers to share the employee’s services, as, for example, to interchange employees; or (2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or (3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.’’ 15 In 1961, the Department amended a footnote in § 791.2(a) to clarify that a joint employer is also jointly liable for overtime pay.16 Over the next several decades, WHD issued various guidance documents including Fact Sheets, opinion letters, as well as legal briefs reiterating the Department’s position concerning joint employment. See, e.g., WHD Opinion Letter FLSA2005–15, 2005 WL 2086804 (Apr. 11, 2005) (addressing joint employment in a health care system comprised of hospitals, nursing homes, and parent holding company); WHD Opinion Letter, 1999 WL 1788146 (Aug. 24, 1999) (advising that private duty nurses were jointly employed by a hospital and individual patients); WHD Opinion Letter, 1998 WL 852621 (Jan. 27, 1998) (addressing the joint employment of grocery vendor employees stocking grocery shelves); WHD Opinion Letter FLSA–1089, 1989 WL 1632931 (Aug. 9, 1989) (advising that workers participating in an enclave program would be jointly employed by a participating business and a supervising workshop). In 2014, WHD issued an Administrator’s Interpretation (Home Care AI) addressing how joint employment under the FLSA applies to certain home care workers.17 The Home Care AI explained that the FLSA’s 14 Id. 15 29 CFR 791.2(b) (1958) (footnotes omitted). 26 FR 7730, 7732 (Aug. 18, 1961). 17 See Administrator’s Interpretation No. 2014–2, ‘‘Joint Employment of Home Care Workers in Consumer-Directed, Medicaid-Funded Programs by Public Entities under the Fair Labor Standards Act’’ (June 19, 2014), available at 2014 WL 2816951. 16 See VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 definitions of ‘‘employer,’’ ‘‘employee,’’ and ‘‘employ,’’ ‘‘and therefore the scope of employment relationships the Act covers, are exceedingly broad.’’ 18 The Home Care AI discussed application of 29 CFR 791.2 and stated that its ‘‘focus . . . is the degree to which the two possible joint employers share control with respect to the employee and the degree to which the employee is economically dependent on the purported joint employers.’’ 19 WHD recognized that, ‘‘when making joint employment determinations in FLSA cases, the exact factors applied may vary,’’ but also stated that ‘‘a set of factors that addresses only control is not consistent with the breadth of employment under the FLSA’’ because an analysis based solely on the potential employer’s joint control ‘‘ ‘cannot be reconciled with [FLSA section 3(g)’s ‘‘suffer or permit’’ language], which necessarily reaches beyond traditional agency law.’ ’’ 20 Accordingly, the Home Care AI applied a non-exclusive set of ‘‘economic realities factors’’ relating to the potential joint employer’s control and other aspects of the relationship to provide guidance regarding the possibility of joint employment in numerous hypothetical scenarios specific to the home care industry.21 WHD withdrew the Home Care AI on March 10, 2020. In 2016, WHD issued an Administrator’s Interpretation (Joint Employment AI) addressing joint employment generally under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), which uses the same definition of ‘‘employ’’ as the FLSA.22 Relying on the text and history of FLSA section 3(g) and case law interpreting it, the Joint Employment AI explained that joint employment, like employment generally, is expansive under the FLSA and ‘‘notably broader than the common law concepts of employment and joint employment.’’ 23 The Joint Employment at *2. at *2 n.4. 20 Id. at *2 n.5 (quoting Zheng v. Liberty Apparel Co., 355 F.3d 61, 69 (2d Cir. 2003)). 21 See id. at *7–14; see also id. at *3 (‘‘[A]ny assessment of whether a public entity is a joint employer necessarily involves a weighing of all the facts and circumstances, and there is no single factor that is determinative[.]’’) (citing Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947)). 22 See Administrator’s Interpretation No. 2016–1, ‘‘Joint Employment Under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act’’ (Jan. 20, 2016), available at 2016 WL 284582; see also 29 U.S.C. 1802(5) (‘‘The term ‘employ’ [under MSPA] has the meaning given such term under section 3(g) of the [FLSA].’’). 23 Id. at *3 (citing, inter alia, Torres-Lopez v. May, 111 F.3d 633, 639 (9th Cir. 1997); Antenor v. D & S Farms, 88 F.3d 925, 929 (11th Cir. 1996)). PO 00000 18 Id. 19 Id. Frm 00024 Fmt 4700 Sfmt 4700 AI further explained that ‘‘the expansive definition of ‘employ’ as including ‘to suffer or permit to work’ rejected the common law control standard and ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.’’ 24 The AI described how ‘‘suffer or permit’’ or ‘‘similar phrasing was commonly used in state laws regulating child labor and was ‘designed to reach businesses that used middlemen to illegally hire and supervise children.’ ’’ 25 The AI thus concluded that ‘‘the ‘suffer or permit to work’ standard was designed to expand child labor laws’ coverage beyond those who controlled the child laborer,’’ ‘‘prevent employers from using ‘middlemen’ to evade the laws’ requirements,’’ and ensure joint liability in a type of vertical joint employment situation (explained below).26 The Joint Employment AI described and discussed two types of joint employment. It discussed horizontal joint employment, which exists where an employee is separately employed by, and works separate hours in a workweek for, more than one employer, and the employers ‘‘are sufficiently associated with or related to each other with respect to the employee’’ such that they are joint employers.27 The Joint Employment AI explained that ‘‘the focus of a horizontal joint employment analysis is the relationship between the two (or more) employers’’ and that 29 CFR 791.2 provided guidance on analyzing that type of joint employment, and the AI provided some additional guidance on applying § 791.2.28 The Joint Employment AI also discussed vertical joint employment, which exists where an ‘‘employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer),’’ another employer is ‘‘receiv[ing] the benefit of the employee’s labor,’’ and ‘‘the economic realities show that [the employee] is economically dependent on, and thus employed by,’’ the other employer.29 The Joint Employment AI explained that the vertical joint employment analysis does not focus on examining the relationship between the two employers but instead ‘‘examines the economic realities’’ of the relationship between the employee and the other employer that is benefitting 24 Id. 25 Id. (quoting Antenor, 88 F.3d at 929 n.5). 26 Id. 27 Id. at *4. at *4–8. 29 Id. at *2. 28 Id. E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations from the worker’s labor.30 The AI noted that ‘‘several Circuit Courts of Appeals have also adopted an economic realities analysis for evaluating vertical joint employment under the FLSA,’’ and that, ‘‘[r]egardless of the exact factors, the FLSA and MSPA require application of the broader economic realities analysis, not a common law control analysis, in determining vertical joint employment.’’ 31 The AI advised that, ‘‘because of the shared definition of employment and the coextensive scope of joint employment between the FLSA and MSPA,’’ the non-exclusive, multifactor economic realities analysis set forth by the Department in its MSPA joint employment regulation should be applied in FLSA vertical joint employment cases to analyze the relationship between the employee and the other employer, and that doing so ‘‘is consistent with both statutes and regulations.’’ 32 The AI provided additional guidance on applying the analysis.33 WHD withdrew the Joint Employment AI on June 7, 2017.34 B. 2020 Joint Employer Rule In January 2020, the Department published a final rule titled ‘‘Joint Employer Status Under the Fair Labor Standards Act,’’ which became effective on March 16, 2020 (Joint Employer Rule or Rule).35 The Joint Employer Rule revised 29 CFR part 791 so that: § 791.1 contained an introductory statement; § 791.2 contained the substance of the Rule and addressed both vertical joint employment (which it referred to as ‘‘the first joint employer scenario’’) and horizontal joint employment (which it referred to as ‘‘the second joint employer scenario’’); and § 791.3 contained a severability provision.36 1. Joint Employer Rule’s Vertical Joint Employment Standard For vertical joint employment, § 791.2(a)(1) stated that ‘‘[t]he other 30 Id. at *4. 31 Id. lotter on DSK11XQN23PROD with RULES1 32 Id. at *5 (citing WHD’s multi-factor economic realities analysis for joint employment under MSPA set forth at 29 CFR 500.20(h)(5)). The Department issued its current MSPA joint employment regulation in 1997 via a final rule following noticeand-comment rulemaking. See 62 FR 11734 (Mar. 12, 1997). 33 See 2016 WL 284582, at *8–12. 34 See News Release 17–0807–NAT, ‘‘US Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance’’ (June 7, 2017), available at https://www.dol.gov/ newsroom/releases/opa/opa20170607. 35 See 85 FR 2820 (Jan. 16, 2020). The Department had published a notice of proposed rulemaking (NPRM) requesting comments on a proposed rule. See 84 FR 14043 (Apr. 9, 2019). The final rule adopted ‘‘the analyses set forth in the NPRM largely as proposed.’’ 85 FR 2820. 36 See 29 CFR 791.1, 791.2, and 791.3 (2020). VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 person [that is benefitting from the employee’s labor] is the employee’s joint employer only if that person is acting directly or indirectly in the interest of the employer in relation to the employee,’’ and then cited FLSA section 3(d)’s definition of ‘‘employer.’’ 37 The Joint Employer Rule provided that section 3(d) is the sole statutory provision in the FLSA for determining ‘‘joint employer status’’ under the Act—to the exclusion of sections 3(e) and 3(g).38 The Joint Employer Rule further provided that the definitions of ‘‘employee’’ and ‘‘employ’’ in sections 3(e) and 3(g) ‘‘determine whether an individual worker is an employee under the Act.’’ 39 Citing section 3(d)’s definition of ‘‘employer’’ as including ‘‘any person acting directly or indirectly in the interest of an employer in relation to an employee,’’ the Rule stated that ‘‘only this language from section 3(d) contemplates the possibility of a person in addition to the employer who is also an employer and therefore jointly liable for the employee’s hours worked.’’ 40 The Rule concluded that this language from section 3(d), ‘‘by its plain terms, contemplates an employment relationship between an employer and an employee, as well as another person who may be an employer too—which exactly fits the [vertical] joint employer scenario under the Act.’’ 41 The Rule relied on the Supreme Court’s decision in Falk v. Brennan 42 and the Court of Appeals for the Ninth Circuit’s decision in Bonnette v. California Health & Welfare Agency 43 to ‘‘support focusing on section 3(d) as determining joint employer status.’’ 44 Section 791.2(a)(1) of the Joint Employer Rule stated that ‘‘four factors are relevant to the determination’’ of whether the other employer is a joint employer in the vertical joint employment situation.45 Those four factors were whether the other employer: (1) Hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a 37 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) (emphasis added). 38 See generally 85 FR 2825–28. 39 Id. at 2827. 40 Id. (citing 29 U.S.C. 203(d)); see also id. (‘‘This language from section 3(d) makes sense only if there is an employer and employee with an existing employment relationship and the issue is whether another person is an employer.’’). 41 Id. 42 414 U.S. 190 (1973). 43 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds, Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985). 44 85 FR 2827. 45 29 CFR 791.2(a)(1) (2020). PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 40941 substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.46 The Joint Employer Rule stated that its four-factor test was ‘‘derived from’’ Bonnette.47 In Bonnette, the Ninth Circuit affirmed a finding of vertical joint employment after considering whether the other 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.48 The Joint Employer Rule’s four-factor analysis deviated from the analysis in Bonnette in several ways. First, the Rule articulated the first factor as whether the other employer ‘‘[h]ires or fires the employee’’ as opposed to whether it had ‘‘the power’’ to hire and fire.49 Section 791.2(a)(3)(i) stated that the ‘‘potential joint employer must actually exercise . . . one or more of these indicia of control to be jointly liable under the Act,’’ and that ‘‘[t]he potential joint employer’s ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control.’’ 50 Second, the Joint Employer Rule modified the Bonnette factor requiring consideration of whether the potential joint employer supervises and controls work schedules or conditions of employment by adding the phrase ‘‘to a substantial degree.’’ This phrase was absent from the test articulated in Bonnette (although Bonnette found that, on the factual record before it, the potential joint employers ‘‘exercised considerable control’’ in that area).51 Third, § 791.2(a)(2) stated that ‘‘[s]atisfaction of the maintenance of employment records factor alone will not lead to a finding of joint employer status,’’ however, Bonnette did not include this limitation to a finding of joint employer status.52 Finally, § 791.2(b) stated that ‘‘[a]dditional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether 46 See 29 CFR 791.2(a)(1)(i)–(iv) (2020). FR 2830. 48 See 704 F.2d at 1469–1470. 49 Compare 29 CFR 791.2(a)(1)(i) (2020) with Bonnette, 704 F.2d at 1469–1470. 50 29 CFR 791.2(a)(3)(i) (2020) (citing 29 U.S.C. 203(d)). 51 Compare 29 CFR 791.2(a)(1)(ii) (2020) with Bonnette, 704 F.2d at 1469–1470. 52 Compare 29 CFR 791.2(a)(2) (2020) with Bonnette, 704 F.2d at 1469–1470. 47 85 E:\FR\FM\30JYR1.SGM 30JYR1 40942 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations the potential joint employer exercises significant control over the terms and conditions of the employee’s work.’’ 53 Bonnette, however, stated that its four factors ‘‘provide a useful framework for analysis in this case,’’ but ‘‘are not etched in stone and will not be blindly applied,’’ and that ‘‘[t]he ultimate determination must be based ‘upon the circumstances of the whole activity.’ ’’ 54 In addition to generally excluding factors that are not indicative of the potential joint employer’s control over the employee’s work, the Joint Employer Rule specifically excluded any consideration of the employee’s economic dependence on the potential joint employer.55 The Rule asserted that ‘‘[e]conomic dependence is relevant when applying section 3(g) and determining whether a worker is an employee under the Act; however, determining whether a worker who is an employee under the Act has a joint employer for his or her work is a different analysis that is based on section 3(d).’’ 56 The Rule further asserted that, ‘‘[b]ecause evaluating control of the employment relationship by the potential joint employer over the employee is the purpose of the Department’s four-factor balancing test, it is sensible to limit the consideration of additional factors to those that indicate control.’’ 57 2. Joint Employer Rule’s Horizontal Joint Employment Standard To determine horizontal joint employment, the Joint Employer Rule adopted the longstanding standard articulated in the prior version of 29 CFR 791.2 with ‘‘non-substantive revisions.’’ 58 Section 791.2(e)(2) stated that, in this ‘‘second joint employer scenario,’’ ‘‘if the employers are acting independently of each other and are disassociated with respect to the employment of the employee,’’ they are not joint employers.59 It further stated that, ‘‘if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the Act.’’ 60 It identified the same three 53 29 CFR 791.2(b) (2020). F.2d at 1470 (quoting Rutherford Food, 331 U.S. at 730). 55 29 CFR 791.2(c) (2020) (‘‘[T]o determine joint employer status, no factors should be used to assess economic dependence.’’). 56 85 FR 2821. 57 Id. at 2836. 58 Id. at 2823; see also id. at 2844–45. 59 29 CFR 791.2(e)(1)–(2) (2020). 60 29 CFR 791.2(e)(2) (2020). lotter on DSK11XQN23PROD with RULES1 54 704 VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 general examples of horizontal joint employment provided in the prior version of 29 CFR 791.2.61 3. Joint Employer Rule’s Additional Provisions The Joint Employer Rule adopted additional provisions that apply to both vertical and horizontal joint employment. Section 791.2(f) addresses the consequences of joint employment and provided that ‘‘[f]or each workweek that a person is a joint employer of an employee, that joint employer is jointly and severally liable with the employer and any other joint employers for compliance’’ with the Act.62 Section 791.2(g) provided 11 ‘‘illustrative examples’’ of how the Rule may apply to specific factual situations implicating both vertical and horizontal joint employment.63 C. Decision Vacating Most of the Joint Employer Rule In February 2020, 17 States and the District of Columbia (the States) filed a lawsuit in the United States District Court for the Southern District of New York against the Department asserting that the Joint Employer Rule violated the Administrative Procedure Act (APA).64 The Department moved to dismiss the lawsuit on the grounds that the States did not have standing. The district court denied that motion on June 1, 2020.65 The district court issued an order on June 29, 2020, permitting the International Franchise Association, the Chamber of Commerce of the United States of America, the National Retail Federation, the Associated Builders and Contractors, and the American Hotel and Lodging Association (Intervenors) to intervene as defendants in the case.66 The parties filed cross-motions for summary judgment, which the district court decided on September 8, 2020.67 The district court vacated the Joint Employer Rule’s ‘‘novel standard for vertical joint employer liability’’ because its ‘‘revisions to that scenario are flawed in just about every respect.’’ 68 The district court found that the Rule violated the APA because it was contrary to the law—specifically, it 61 Compare 29 CFR 791.2(e)(2)(i)–(iii) (2020) with 29 CFR 791.2(b)(1)–(3) (1958). 62 29 CFR 791.2(f) (2020). 63 29 CFR 791.2(g) (2020). 64 See New York v. Scalia, No. 1:20–cv–01689 (S.D.N.Y. filed Feb. 26, 2020). The APA requires courts to hold unlawful and set aside agency actions that are ‘‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’’ 5 U.S.C. 706(2)(A). 65 See 464 F. Supp. 3d 528. 66 See 2020 WL 3498755. 67 See 490 F. Supp. 3d 748. 68 Id. at 795. PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 conflicted with the FLSA.69 The district court identified three conflicts: The Rule’s reliance on the FLSA’s definition of ‘‘employer’’ in section 3(d) as the sole textual basis for joint employment liability; its adoption of a control-based test for determining vertical joint employer liability; and its prohibition against considering additional factors beyond control, such as economic dependence.70 In addition, the district court found that the Rule was ‘‘arbitrary and capricious’’ in violation of the APA for three reasons: The Rule did not adequately explain why it departed from the Department’s prior interpretations; the Rule did not consider the conflict between it and the Department’s MSPA joint employment regulations; and the Rule did not adequately consider its cost to workers.71 The district court concluded that the Joint Employer Rule’s ‘‘novel interpretation for vertical joint employer liability’’ was unlawful under the APA and vacated all of § 791.2 except for § 791.2(e).72 The court determined that, because the Rule’s ‘‘non-substantive revisions to horizontal joint employer liability are severable,’’ § 791.2(e) ‘‘remains in effect.’’ 73 In November 2020, the Department and the Intervenors appealed the district court’s decision vacating most of the Joint Employer Rule, and the appeal remains pending before the Court of Appeals for the Second Circuit, as discussed further below.74 D. Proposal To Rescind the Joint Employer Rule On March 12, 2021, the Department issued a notice of proposed rulemaking (NPRM) proposing to rescind the Joint Employer Rule.75 The NPRM explained that the Department was considering rescinding the Joint Employer Rule for several reasons.76 The Department decided to further consider the concerns raised by the district court in New York v. Scalia that the Rule’s reliance on section 3(d) alone among the FLSA’s provisions may be contrary to the FLSA’s text and Congressional intent, particularly as the Department had never previously excluded FLSA sections 3(e) and (g) from the joint employment analysis and had instead 69 See id. at 774. id. at 774–92. 71 See id. at 792–95. 72 Id. at 795–96. 73 Id. 74 See New York v. Scalia, 490 F. Supp. 3d 748, appeal docketed, No. 20–3806 (2d Cir. Nov. 6, 2020). 75 See 86 FR 14038. 76 See 86 FR 14042–46. 70 See E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 applied an economic realities framework that included the definitions of ‘‘employ’’ or ‘‘employee’’ when determining joint employer liability, consistent with the approach taken by courts.77 The Department was similarly concerned that the Rule’s use of section 3(d) alone as the statutory basis for joint employment might not ‘‘easily encompass all scenarios in which joint employment may arise; multiple employers may ‘suffer or permit’ an employee to work and could thus be joint employers under section 3(g) without one [employer] working ‘in the interest of an employer’ under section 3(d).’’ 78 The Department also believed that it should consider and address the district court’s conclusion that the Joint Employer Rule ‘‘unlawfully limits the factors the Department will consider in the joint employer inquiry’’ by focusing on a control-based test to the exclusion of economic dependence generally, certain economic dependence factors, and certain other considerations, as this approach is not consistent with the totality-of-the-circumstances economic realities standard that has generally been used by the courts.79 The Rule’s approach was also different than the Department’s prior guidance on joint employment, and the Department acknowledged in the NPRM the district court’s concerns that the Rule did not adequately explain the reasons for the significant departure.80 Relatedly, the Department recognized in the NPRM that courts have generally declined to adopt the Rule’s vertical joint employment analysis as a replacement for their existing analyses, indicating that the Rule had not provided the intended clarity and that rescinding the Rule would not be disruptive to stakeholders.81 Finally, the Department was concerned that the Rule may not have sufficiently considered the negative effect that it would have on employees by reducing the number of businesses who were FLSA joint employers from which employees may be able to collect back wages due to them under the FLSA.82 For all of these reasons, the Department proposed in the NPRM to rescind the entire Joint Employer Rule.83 77 See 86 FR 14042–43. 86 FR 14043. 79 See 86 FR 14043–44 (quoting Scalia, 490 F. Supp. 3d at 790). 80 See 86 FR 14044. 81 See 86 FR 14044–45. 82 See 86 FR 14045. 83 See 86 FR 14045–46. 78 See VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 E. Status of Pending Appeal of Decision Vacating Most of the Joint Employer Rule Although its filing deadline was not until February 19, 2021, the Department filed an opening brief in support of the Rule on January 15, 2021. The Intervenors filed their opening brief on the same day. On March 31, 2021, the Department filed a motion seeking to hold the appeal in abeyance in light of the published NPRM proposing to rescind the Joint Employer Rule. The Second Circuit denied the motion without explanation. The States filed their response brief on April 16, 2021. The Intervenors filed their reply brief on May 7, 2021. On May 28, 2021, the Department filed a reply brief. In its reply brief, the Department explained that the rulemaking proposing to rescind the Joint Employer Rule may moot the States’ challenge to the Rule, making any resolution of the appeal unnecessary. The Department took no position on the merits of the Rule in its reply brief. The Department argued that if the Second Circuit resolves the appeal, it should reverse the district court’s decision on the grounds that the States had no standing to challenge the Rule. II. Comments and Decision The Department received over 290 comments in response to the NPRM. State officials, members of Congress, labor unions, social justice organizations, worker advocacy groups, and individual commenters wrote in support of the Department’s proposal to rescind the Joint Employer Rule, including a number of commenters who submitted comments with similar template language. These commenters supported rescission of the Rule predominantly on the basis that, in their view, the Rule improperly narrowed the test for joint employer status and conflicted with decades of Department interpretation, the text of the FLSA, and Congressional intent. Some suggested that the Rule did not align with the Supreme Court’s observation that the FLSA’s conception of employment is of ‘‘striking breadth.’’ 84 Commenters also noted detrimental effects of the Rule on vulnerable workers employed by contractors. Others pointed out that a court had vacated the Rule’s vertical joint employment analysis and asserted that the horizontal joint employment test was intertwined with the vacated vertical joint employment provisions. Commenters also raised numerous other 84 Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992). PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 40943 legal and policy criticisms of the Rule, discussed in greater detail below. Various trade associations, business advocacy organizations, law firms, and individual commenters submitted comments opposing the Department’s proposal to rescind the Joint Employer Rule. These commenters generally supported the Rule for, in their view, providing a clearer, common-sense standard for determining joint employer status. Several expressed the view that the Department was relying too much on a district court decision which the commenters believe to be erroneous, and encouraged the Department to stay this rulemaking pending the outcome of the appeal to the Second Circuit. They raised numerous other legal and policy arguments in defense of the Rule (or in objection to the proposed rescission), discussed in greater detail below.85 Having considered the comments submitted in response to the NPRM, the Department has decided to finalize the rescission of the Joint Employer Rule. The Rule was inconsistent with the FLSA’s text and purpose. The Rule’s vertical joint employment analysis had never before been applied by WHD, was different from the analyses applied by every court to have considered the issue prior to the Rule’s issuance, and has generally not been adopted by courts. The Rule’s horizontal joint employment analysis, although consistent with prior guidance, was intertwined with the vertical joint employment analysis, and thus the Department is rescinding the entire Rule as explained below. The Department’s response to commenter feedback on specific aspects of the proposed rescission is also provided below. A. Statutory Analysis and Control-Based Test for Vertical Joint Employment The NPRM observed that the statutory analysis and control-based test for vertical joint employment set forth in the Joint Employer Rule was different, to varying degrees, from the analyses and tests applied by every court to have considered joint employer questions 85 In addition, some commenters provided political or ideological statements that did not specifically support or oppose the proposed rescission. For example, some comments were limited to offering support for working people without suggesting how best to do so in the context of this rulemaking. A few other commenters appeared to confuse the proposed rescission of the Joint Employer Rule with the proposed withdrawal of the Department’s rule related to independent contractors. See 86 FR 14027 (Mar. 12, 2021) (proposing withdrawal of the final rule, ‘‘Independent Contractor Status under the Fair Labor Standards Act,’’ previously published on January 7, 2021 at 86 FR 1168). The Department finalized withdrawal of the Independent Contractor Rule on May 6, 2021. See 86 FR 24303. E:\FR\FM\30JYR1.SGM 30JYR1 40944 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations prior to the Rule’s issuance, as well as WHD’s previous enforcement approach. The NPRM further noted that the Rule may have been impermissibly narrow due to its exclusive focus on control. lotter on DSK11XQN23PROD with RULES1 1. The Rule’s Reliance on Section 3(d) as the Sole Textual Basis for Determining Joint Employer Status In the Rule, the Department stated that section 3(d) of the FLSA, which contains the definition of employer, is the sole statutory basis for determining joint employer status under the Act, and asserted that sections 3(e) and 3(g), which define ‘‘employee’’ and ‘‘employ,’’ respectively, are not relevant to determining joint employer status.86 In the NPRM, the Department explained its concern that, upon further consideration, the text of section 3(d) alone may not easily encompass all scenarios in which joint employment may arise under the Act.87 Multiple commenters representing employees agreed that by limiting the statutory basis of the vertical joint employment analysis to section 3(d) and ignoring the ‘‘suffer or permit’’ language of section 3(g)’s definition of ‘‘employ,’’ the Joint Employer Rule’s test for vertical joint employment was unduly narrow and contrary to law and the Act. See, e.g., National Employment Lawyers Association. The North Carolina Justice Center, for example, stated that the ‘‘rule’s narrow definition of who is responsible as an employer is contrary to the plain language of the statute’s definition of ‘employ’ contained in section 203(g) of the Act.’’ The International Brotherhood of Teamsters noted that the Rule impermissibly ignored the statutory definitions of ‘‘employ’’ and ‘‘employee,’’ which they asserted ‘‘are integral to the ‘employer’ definition.’’ The Northwest Workers’ Justice Project commented on the Rule’s ‘‘novel’’ interpretation and asserted that ‘‘the Secretary is unable to point to a single authority for its unusual assertion that this section [3(d)] is the sole source of joint employment.’’ The Project’s comment further criticized the Rule’s statutory interpretation, observing that ‘‘[t]he word ‘joint’ does not appear in § 203(d)’’ and opining that ‘‘the word ‘includes’ in 29 U.S.C. 203(d) would suggest that there are other types of employers under the FLSA than those that meet the statutory definition of § 203(d).’’ Texas RioGrande Legal Aid noted that the Rule ‘‘grew from the belief that section 3(d) of the FLSA ‘is the touchstone for joint employer 86 85 87 86 status’ ’’ 88 but section 3(d) ‘‘is circular and provides little or no guidance as to the extent of employer-employee relationships.’’ A coalition of State Attorneys General (State AGs) commented that the Rule’s vertical joint employment test ‘‘conflicted with the statutory text of the FLSA’’ because its ‘‘narrow interpretation of the term ‘employer’ and its assertion that the definition of ‘employer’ is the sole textual basis to determine joint employment were not faithful to the Act’s definitions and Congress’ intent in enacting them.’’ Employers and trade associations generally commented that the Joint Employer Rule was consistent with the FLSA and case law and should be upheld. See, e.g., U.S. Chamber of Commerce, Littler Workplace Policy Institute (WPI). The Associated Builders and Contractors, for example, stated that it ‘‘strongly supports the [D]epartment’s clarification [in the Rule] that only the definition of an ‘employer’ in section 3(d) of the FLSA, 29 U.S.C. 203(d), determines joint employer status, not the definition of ‘employee’ in section 3(e)(1) or the definition of ‘employ’ as ‘to suffer or permit work’ in section 3(g) of the FLSA, 29 U.S.C. 203(e)(1), (g).’’ This commenter further stated that ‘‘Section 3(d) of the FLSA is the sole section that defines ‘employer’ (as a person ‘acting directly or indirectly in the interest of an employer in relation to an employee’), while Section 3(g)’s separate definition of ‘employ’ (to ‘suffer or permit’ to work) has been improperly cited by some courts as a basis for finding joint employer status.’’ The Society for Human Resource Management (SHRM) supported the Rule’s statutory analysis, and commented that ‘‘by distancing itself from prior pronouncements espousing ‘economic dependence’ as the hallmark for joint employment (or suggesting that certain business models are inherently joint employment), the Department appropriately returned the focus of the joint employment inquiry to the FLSA’s statutory language.’’ Similarly, the Center for Workplace Compliance stated that ‘‘[w]hile sections 3(e)(1) and 3(g) would be relevant for determining whether an individual was an employee or independent contractor, they do not appear to be relevant to [the] determination of whether a second employer should be jointly liable under the FLSA.’’ The U.S. Chamber of Commerce supported the focus on section 3(d) and stated that ‘‘[u]nlike the broad definition of ‘employ’, the definition of ‘employer’ contains an FR 2825, 2827–28. FR 14042. VerDate Sep<11>2014 16:28 Jul 29, 2021 88 Quoting Jkt 253001 PO 00000 85 FR 2857. Frm 00028 Fmt 4700 Sfmt 4700 active requirement that an entity be ‘acting directly or indirectly in the interest of an employer in relation to an employee.’ ’’ Having reviewed the comments and considered the issue further, the Department has concluded that the Rule’s interpretation that section 3(d) is the ‘‘sole’’ textual basis for determining joint employer status in vertical joint employment scenarios 89 potentially excluded important aspects of joint employment arrangements. As an initial matter, the statutory language of section 3(d) itself raises concerns as to whether relying on that provision as the sole textual basis encompasses all scenarios in which joint employment may arise. Section 3(d) uses the word ‘‘includes’’ rather than the word ‘‘means.’’ 90 Under the Act, an ‘‘employer’’ ‘‘includes any person acting directly or indirectly in the interest of an employer in relation to an employee,’’ ‘‘includes a public agency,’’ but ‘‘does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization.’’ 91 Thus, by its own terms, section 3(d) is not exhaustive. Throughout section 3—the ‘‘definitions’’ section of the FLSA— Congress chose to vary its language for each definition between ‘‘means’’ and ‘‘includes,’’ and its use of ‘‘includes’’ when defining ‘‘employer’’ indicates that the definition that follows ‘‘includes’’ is not an exhaustive definition of ‘‘employer.’’ 92 Furthermore, the Joint Employer Rule limited joint employment in the vertical context to persons ‘‘acting directly or indirectly in the interest of the employer in relation to the employee,’’ confining joint employment to persons acting in the interest of a single employer.93 In other words, the Rule assumed that an employee had one employer and that any other person that was liable was a 89 85 FR 2825. U.S.C. 203(d). 91 Id. (emphases added). 92 Compare, for example, sections 203(a), 203(b), and 203(e), which use the word ‘‘means’’ to define ‘‘person,’’ ‘‘commerce,’’ and ‘‘employee,’’ respectively, with sections 203(d) and 203(g), which use the word ‘‘includes’’ to define ‘‘employer’’ and ‘‘employ,’’ respectively. ‘‘It is a well-established canon of statutory interpretation that the use of different words or terms within a statute demonstrates that Congress intended to convey a different meaning for those words.’’ SEC v. McCarthy, 322 F.3d 650, 656 (9th Cir. 2003); see also Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158, 165 (3d Cir. 2012) (‘‘If possible, we must give effect to every clause and word of a statute, . . . and be reluctant to treat statutory terms as surplusage.’’) (internal quotation marks omitted). 93 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) (emphasis added). 90 29 E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations joint employer. However, section 3(d) of the Act specifically defines a person ‘‘acting directly or indirectly in the interest of an employer in relation to the employee’’ as an ‘‘employer’’ itself.94 Thus, while the Rule allowed only a single employer—‘‘the employer’’—to ‘‘suffer[ ], permit[ ], or otherwise employ[ ] the employee to work’’ in the vertical scenario,95 section 3(d) itself provides for any number of other employers that can suffer, permit, or otherwise employ employees.96 In light of this, the Joint Employer Rule did not even adhere to the statutory text— section 3(d)—which was its cited basis. Additionally, there is case law indicating that section 3(d) was intended for the purpose of imposing responsibility upon the agents of employers, rather than to provide an exhaustive definition of joint employers under the Act.97 The Rule acknowledged commenter arguments regarding this distinction within the Act’s ‘‘definitions’’ section, as well as the import of section 3(d)’s ‘‘includes’’ language,98 but did not address these arguments. Confining the analysis to only the Act’s definition of ‘‘employer’’ resulted in an incomplete analysis of some potential joint employment scenarios. The Department has also evaluated the Rule’s singular focus on section 3(d) against the backdrop of the history and purpose of the ‘‘suffer or permit’’ language in section 3(g). As the Rule acknowledged, the Act’s definition of 94 29 U.S.C. 203(d) (emphasis added). CFR 791.2(a)(1) (2020). The Joint Employer Rule preamble acknowledged the possibility that ‘‘multiple employers [may] suffer, permit, or otherwise employ an employee to work,’’ but only in the horizontal scenario involving ‘‘separate sets of hours.’’ 85 FR 2823. 96 29 U.S.C. 203(d). 97 See Greenberg v. Arsenal Bldg. Corp., 144 F.2d 292, 294 (2d Cir. 1944) (explaining that ‘‘the section would have little meaning or effect if such were not the case’’). The Supreme Court reversed an unrelated part of the Second Circuit’s holding in Greenberg. See 324 U.S. 697, 714–16 (1945). Greenberg is not alone in concluding that section 3(d)’s ‘‘includes’’ language was intended to impose liability on an employer’s agents. See, e.g., Donovan v. Agnew, 712 F.2d 1509, 1513 (1st Cir. 1983) (noting that section 3(d) was ‘‘intended to prevent employers from shielding themselves from responsibility for the acts of their agents’’); Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 965–66 (6th Cir. 1991) (relying on section 3(d) to hold individually liable the owner/officer who exercised operational control of the employer); Arias v. Raimondo, 860 F.3d 1185, 1191–92 (9th Cir. 2017) (observing that section 3(d) ‘‘clearly means to extend [the FLSA’s] reach beyond actual employers.), cert. denied, 138 S. Ct. 673 (2018); see also Thompson v. Real Estate Mortg. Network, 748 F.3d 142, 153–54 (3d Cir. 2014) (holding that ‘‘a company’s owners, officers, or supervisory personnel may also constitute ‘joint employers’ ’’ with the company under 3(d)). 98 85 FR 2826. lotter on DSK11XQN23PROD with RULES1 95 29 VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 ‘‘employ’’ was a rejection of the common law standard for determining who is an employee under the Act in favor of a broader scope of coverage. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (‘‘[T]he FLSA . . . defines the verb ‘employ’ expansively to mean ‘suffer or permit to work.’ This . . . definition, whose striking breadth we have previously noted, stretches the meaning of ‘employee’ to cover some parties who might not qualify as such under a strict application of traditional agency law principles.’’) (citations omitted); Walling v. Portland Terminal Co., 330 U.S. 148, 150–51 (1947) (‘‘But in determining who are ‘employees’ under the Act, common law employee categories or employer-employee classifications under other statutes are not of controlling significance. This Act contains its own definitions, 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.’’) (citations omitted). Section 3(g)’s ‘‘suffer or permit’’ language was intended to include as employers entities that used intermediaries to shield themselves from liability.99 Rather than being derived from the common law of agency, the FLSA’s definition of ‘‘employ’’ and its ‘‘suffer or permit’’ language originally came from state laws regulating child labor.100 This language was ‘‘designed to reach businesses that used middlemen to illegally hire and supervise children.’’ Antenor v. D & S Farms, 88 F.3d 925, 929 n.5 (11th Cir. 1996). This standard was intended to expand coverage beyond employers who control the means and manner of performance to include entities who ‘‘suffer’’ or ‘‘permit’’ work.101 Accordingly, the Rule’s reliance solely on section 3(d), to the exclusion of section 3(g), was in tension with 99 See Rutherford Food, 331 U.S. at 728; Salinas v. Commercial Interiors, Inc., 848 F.3d 125, 136– 140 (4th Cir. 2017). When Congress enacted the Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C. 1801 et. seq., it provided that ‘‘[t]he term ‘employ’ has the meaning given such term under section 3(g) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(g)) for the purposes of implementing the requirements of that Act.’’ 29 U.S.C. 1802(5). The committee report provides that ‘‘the Committee’s use of [section 3(g)] was deliberate and done with the clear intent of adopting the ‘joint employer’ doctrine as a central foundation of this new statute.’’ H.R. Rep. No. 97– 885, at 6 (1982). 100 See Rutherford Food, 331 U.S. at 728 & n.7. 101 See generally People ex rel. Price v. Sheffield Farms-Slawson-Decker Co., 225 N.Y. 25, 29–31 (1918). PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 40945 Congress’ well-understood intent in enacting those provisions. Moreover, the Joint Employer Rule’s textual analysis needlessly bifurcated the statutory terms ‘‘employ’’ and ‘‘employer’’ in the vertical context. Specifically, it interpreted section 3(g) as defining who is an ‘‘employer’’ (person A is an employer of person B because person A suffers, permits, or otherwise employs person B to work), and section 3(d) as defining someone who is a ‘‘joint employer’’ (person C is a joint employer of employee B because person C acts directly or indirectly in the interest of employer A in relation to employee B). The Rule thus applied a different analytical framework to different employers. This bifurcated approach has not been used by any court nor is this stratification of employers supported by the text of the Act. Instead, all employers under the Act—joint employers or otherwise—are jointly and severally liable for wages owed. If anything, the Rule’s section 3(d) analysis was backwards to the extent that it inquired whether entities which are higher in the ‘‘vertical’’ structure of a particular industry (such as a general contractor or staffing agency client) are ‘‘acting . . . in the interests of’’ acknowledged employers which are lower in the structure (such as a subcontractor or staffing agency). This bifurcation also makes it unclear which standard—‘‘suffer or permit’’ under section 3(g) or the control-based standard under section 3(d)—should apply to which entity if, for example, both potential employers deny any employment relationship with a worker. The Joint Employer Rule discussed the Supreme Court’s decision in Falk v. Brennan 102 at length, relying on it to buttress its statutory interpretation argument. Upon further consideration, while the Court did address a joint employment situation in Falk v. Brennan, the Department now believes that the case’s utility is limited. In its four-sentence discussion of joint employment, the Court explicitly noted the Act’s definitions in both section 3(d) (‘‘employer’’) and section 3(e) (‘‘employee’’), and based its conclusion that a management company was a joint employer ‘‘[i]n view of the expansiveness of the Act’s definition of ‘employer’ and the extent of the [purported joint employer’s] managerial 102 Notably, the district court in New York v. Scalia concluded that ‘‘Falk cuts against the Department’s argument that section 3(d) is the sole textual basis for joint employer liability’’ because Falk cited to the statutory definition of ‘‘employee’’ as well as ‘‘employer’’ and observed that the FLSA’s definition of employer is expansive. See 490 F. Supp. 3d at 783–84. E:\FR\FM\30JYR1.SGM 30JYR1 40946 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations responsibilities at each of the buildings, which gave it substantial control of the terms and conditions of the work of these employees.’’ 103 Moreover, Falk was an affirmance of a Fourth Circuit case, which noted that the Act’s definitions (both 3(d) and 3(g)) were ‘‘very broadly cast’’ and that ‘‘courts have accordingly found an employment relationship for purposes of the Act far more readily than would be dictated by common law doctrines.’’ 104 The Court commented favorably on the Fourth Circuit’s holding, stating that ‘‘the Court of Appeals was unquestionably correct in holding that [the management company] is also an employer . . . . ’’ 105 The Department’s brief before the Supreme Court in Falk v. Brennan also argued that the petitioner building management company was a joint employer of the building’s maintenance workers based on both section 3(d) and section 3(g).106 The brief further stated that ‘‘[s]ince petitioners do the hiring and firing, they ‘employ’ the workers within the plain meaning of this statutory definition.’’ 107 The Department’s brief thus concluded that it is preferable to read the relevant statutory provisions of section 3(d) and section 3(g) together because, among other reasons, section 3(g) defined ‘‘employ’’ as it did with the intent of including as an employer entities that used intermediaries that employed workers but disclaimed that they themselves were employers of the workers.108 Similarly, all of the circuit courts of appeals to have considered joint employment under the FLSA have looked to the economic realities test as the proper framework, and none have explicitly identified section 3(d) as the sole textual basis for joint employment. In particular, the case law heavily relied upon in the Joint Employer Rule from the First, Third, and Fifth Circuits, as well as the Bonnette decision itself, all apply an economic realities analysis 103 414 U.S. at 195. v. Falk, 439 F.2d 340, 344 (4th Cir. lotter on DSK11XQN23PROD with RULES1 104 Shultz 1971). 105 414 U.S. at 195. 106 Brief for Respondent Secretary of Labor, Falk v. Brennan, 414 U.S. 190 (1973) (No. 72–844), 1973 WL 173856, at *10 (‘‘The Act clearly defines an ‘employer’ to include ‘any person acting directly or indirectly in the interest of an employer in relation to an employee * * *’ (Section 3(d)), a description plainly applicable to petitioners in their relation to the building personnel. The definition of the term ‘employ’ in Section 3(g) as including ‘to suffer or permit to work’ confirms this conclusion, since it is petitioners, not the building owners, who have control over the hiring, job assignments, and discharge of the building workers.’’). 107 Id. at *26. 108 Id.; see Rutherford Food, 331 U.S. at 728; Salinas, 848 F.3d at 136–140. VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 when determining joint employment under the FLSA.109 The Rule’s approach also represented a significant shift from WHD’s longstanding analysis; WHD had never excluded sections 3(e) and (g) from the joint employment analysis and had instead consistently applied an economic realities framework that did not exclude the definitions of ‘‘employ’’ or ‘‘employee’’ when determining joint employer liability, as discussed above. In view of the foregoing, limiting the statutory basis for joint employment analyses solely to section 3(d), to the exclusion of the other highly relevant definitions of ‘‘employee’’ in section 3(e) and ‘‘employ’’ in section 3(g), was problematic and inhibited compliance with the Act. 2. The Vertical Joint Employment Test’s Singular Emphasis on Control For vertical joint employment scenarios, the Joint Employer Rule adopted a four-factor test focused on the actual exercise of control. Generally, it excluded factors that were not indicative of a potential joint employer’s control, directed that additional factors may be considered ‘‘only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work,’’ and specifically excluded any consideration of the employee’s economic dependence on the potential joint employer.110 The NPRM questioned whether the fourfactor test’s emphasis on control was unduly narrow.111 While recognizing that the tests for vertical joint employment differ among the circuit courts of appeals, the NPRM observed that ‘‘all courts consistently use a totality-of-the-circumstances economic realities approach to determine the scope of joint employment under the FLSA, rather than limiting the focus exclusively to control.’’ 112 Organizations representing employee interests generally opposed the fourfactor test’s emphasis on control and, in particular, criticized the Joint Employer Rule’s requirement that actual control be exercised. The Shriver Center, for example, commented that ‘‘[e]ven under the more restrictive common-law employment test, the [Department]’s rule is too narrow: it fails to consider the right to control, a cornerstone of 109 See, e.g., Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 668, 675 (1st Cir. 1998); In re Enterprise Rent-A-Car Wage & Hour Emp’t Practices Litig., 683 F.3d 462, 469–470 (3d Cir. 2012); Gray v. Powers, 673 F.3d 352, 357 (5th Cir. 2012); Bonnette, 704 F.2d at 1469. 110 29 CFR 791.2(b) and (c) (2020). 111 86 FR 14043. 112 Id. PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 common-law employment determinations under long-standing Supreme Court and FLSA law.’’ See also Workplace Justice Project. The Construction Employers of America stated that the Rule’s analysis ‘‘replaced the historic focus on economic dependence for determining joint employment with a four-factor test for assessing the level of control the potential joint employer has over the workers at issue.’’ The Northwest Workers’ Justice Project noted that there is case law that presents a broader analysis than solely control, stating, ‘‘[o]f course, both Real [v. Driscoll Strawberry Assocs., 603 F.2d 748 (9th Cir. 1979)] and Rutherford [Food Corp. v. McComb, 331 U.S. 722 (1947)] articulate broader factors beyond control to be considered in determining employment under the FLSA.’’ The State AGs also commented that the control-based test for vertical joint employment set forth by the Rule was ‘‘contrary to the FLSA’s text and case law’’ and that requiring the exercise of actual control was ‘‘inconsistent with the ‘suffer or permit’ language of the statute.’’ Organizations representing employers generally supported the Joint Employer Rule’s four-factor test, and specifically commented that the requirement for an actual exercise of control would provide much-needed clarity for employers. The National Association of Home Builders, for instance, stated that the Rule ‘‘provides a clearer methodology for determining joint employer status with the focus on the actual exercise of power.’’ The U.S. Chamber of Commerce also supported the test’s emphasis on the exercise of control, explaining that ‘‘contractual reservations of control are not probative of the relationship between the employer and the putative employee— the touchstone of the joint employer analysis—if the putative employer never exercises such control.’’ The National Restaurant Association and Restaurant Law Center also praised the test for similar reasons, commenting that the Rule ‘‘created a more appropriate and reliable standard using a multifactor balancing test that focuses on the economic realities of the potential joint employer’s exercise of control over the employee’s terms and conditions of employment. Because this test focuses on the actual and direct control over the employee’s terms and conditions of employment, there is greater predictability and uniformity in the joint employment analysis.’’ See also Associated Builders and Contractors (‘‘ABC therefore supports the E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations [D]epartment’s rule codifying the Bonnette test, with an additional emphasis on ‘actual,’ as opposed to reserved but unexercised control by one employer over another’s employees, as the test that is most consistent with the statutory definition of ‘employer.’ ’’); SHRM (‘‘Ultimately, by ensuring that the inquiry is directed [at] a putative joint employer’s actual control over critical terms of employment, the [Joint Employer Rule] stands on solid ground statutorily, and is consistent with the relevant Supreme Court authority.’’). Upon consideration of the comments received, the Department has concluded that the four-factor test’s exclusive focus on control—and specifically, its mandate for an actual exercise of control—was not the most appropriate standard for vertical joint employment scenarios in view of the Act and case law. It is well-settled that in enacting the FLSA, Congress rejected the common law control standard for employment. In Darden, the Supreme Court stated that the FLSA defines ‘‘employ’’ ‘‘expansively’’ and with ‘‘striking breadth’’ and ‘‘stretches the meaning of ‘employee’ to cover some parties who might not qualify as such under a strict application of traditional agency law principles.’’ 113 Although the specific factors may vary, all courts consistently use a totality-of-the-circumstances economic realities approach to determine the scope of joint employment under the FLSA. In addition to Bonnette, upon which the Rule heavily relied, multiple other circuit court decisions relied upon by the Rule also ground their joint employment analyses in the overarching totality-of-the-circumstances economic realities standard.114 Court decisions that have not applied the Bonnette factors generally ground their joint employment analyses in the totality-ofthe-circumstances economic realities standard as well.115 Although some courts have applied an analysis that addresses only, or primarily, the potential joint employer’s control,116 these cases have nonetheless recognized that the control factors considered ‘‘do not constitute an exhaustive list of all potentially relevant facts’’ and ‘‘should not be ‘blindly applied’ ’’; rather, a joint 113 503 U.S. at 326. e.g., Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at 469; Gray, 673 F.3d at 354–55. 115 See, e.g., Zheng, 355 F.3d at 69–75; Salinas, 848 F.3d at 142–43; Torres-Lopez, 111 F.3d at 639– 644 (noting that an economic realities analysis applies when determining joint employment and that the concept of joint employment, like employment generally, ‘‘should be defined expansively’’ under the FLSA). 116 See Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at 468–69. lotter on DSK11XQN23PROD with RULES1 114 See, VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 employment determination must consider the employment situation in totality, including the economic realities of the working relationship.117 In contrast, the Rule provided that ‘‘[a]dditional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.’’ 118 While the exercise of ‘‘significant control’’ may certainly establish joint employment under the Act, no court has set this standard as the requirement for a finding of joint employment. Especially problematic was the Rule’s requirement for the actual exercise of control, a standard adopted by no court. The Rule stated that it was ‘‘not the Department’s intent’’ to promulgate a rule narrower than the common law.119 However, the Rule also plainly required an actual exercise of control, stating that ‘‘the regulation now makes clear that an actual exercise of control, directly or indirectly, is required for at least one of the factors and is the clearer indication of joint employer status.’’ 120 Under the common law standard, the mere right to control indicates a common law employment relationship; in contrast, the Rule required an actual exercise of control for at least one factor.121 For this reason too, the Rule’s test for vertical joint employment was in tension with the economic realities analysis used by courts across the country, which was intended to be more comprehensive than the common law standard.122 117 Enterprise, 683 F.3d at 469 (emphasis in original) (quoting Bonnette, 704 F.2d at 1469–1470). 118 29 CFR 791.2(b) (emphasis added). 119 85 FR 2834. 120 Id. 121 See, e.g., Zheng, 355 F.3d at 69 (‘‘Measured against the expansive language of the FLSA, the four-part test [based on Bonnette] employed by the District Court is unduly narrow, as it focuses solely on the formal right to control the physical performance of another’s work. That right is central to the common-law employment relationship, see Restatement of Agency section 220(1) (1933) (‘A servant is a person employed to perform service for another in his affairs and who, with respect to his physical conduct in the performance of the service, is subject to the other’s control or right to control.’)’’). 122 See Falk, 439 F.2d at 344 (observing that courts find employment under the FLSA ‘‘far more readily than would be dictated by common law doctrines’’); Portland Terminal Co., 330 U.S. at 150–51 (noting that the FLSA’s definitions are ‘‘comprehensive enough to require its application’’ to many working relationships which, under the common law control standard, may not be employer-employee relationships); Darden, 503 U.S. at 326 (stating that the FLSA’s ‘‘suffer or permit’’ standard for employment ‘‘stretches the meaning of ‘employee’ to cover some parties who might not qualify as such under a strict application of traditional agency law principles’’). PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 40947 The Department appreciates employers’ desire for clarity and certainty regarding compliance under the Act. The Rule’s narrowing of the analysis of control, however, was contrary to the Act and longstanding case law and thus did not guarantee enhanced clarity. Because the Rule’s test (including the requirement for the actual exercise of control) conflicted with the tests used from every circuit, there likely was more uncertainty under this new interpretation. B. Taking Into Account Prior WHD Guidance The Department’s NPRM noted that the Joint Employer Rule’s vertical joint employment analysis, in addition to having never before been applied by a court, had never before been applied by WHD.123 The Department indicated that it tentatively shared the concern that the Rule did not sufficiently take into account and explain departures from WHD’s prior joint employment guidance, including its MSPA joint employment regulation and the withdrawn Home Care AI and Joint Employment AI.124 The Department further indicated that this concern provided additional support for rescinding the Rule.125 Texas RioGrande Legal Aid commented that the Joint Employer Rule conflicted with the MSPA joint employment regulation and that, ‘‘under the Rule, many agricultural employers could have been deemed joint employers under the MSPA but not under the FLSA,’’ causing ‘‘immense confusion’’ in its view ‘‘among the regulated community in the agricultural sector.’’ The State AGs stated that the Joint Employer Rule ‘‘departed from decades of agency interpretation of and guidance on [the] joint employer analysis,’’ including the Department ’s vertical joint employment standard in its MSPA regulation, its Home Care AI, and its Joint Employment AI. According to the AGs, WHD’s prior guidance had ‘‘rejected a ‘control-based test’ like the one adopted by the Rule,’’ and the Rule did not adequately explain its departure from WHD’s prior interpretations. The National Women’s Law Center added that the Rule ‘‘set forth a new joint employment standard’’ that was different from WHD’s previous enforcement approach and ‘‘departed from longstanding . . . [WHD] interpretations of covered employment and employer under the FLSA.’’ 123 See 86 FR 14044. id. 125 See id. 124 See E:\FR\FM\30JYR1.SGM 30JYR1 lotter on DSK11XQN23PROD with RULES1 40948 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations Other commenters disputed the concerns raised by the Department in the NPRM. The Texas Public Policy Foundation, for example, asserted that it was ‘‘arbitrary for WHD to point to ‘inconsistencies’ between the old agency guidance and the new agency guidance and assert that those inconsistencies, by themselves, justify rescission’’ because ‘‘[o]therwise, an agency would never be able to offer new or updated regulatory guidance.’’ Noting that the Department had described its concern as tentative in the NPRM, this commenter added that ‘‘[i]t is impermissible for WHD to withdraw the Joint Employer Rule based on WHD’s ‘tentative’ concern.’’ Some commenters contrasted the Department’s brief before the Second Circuit with the NPRM. The National Association of Home Builders commented that the Department’s ‘‘rationale [in the NPRM] is contrary to the arguments’’ that the Department made in its opening brief to the Second Circuit in the appeal of the district court’s decision vacating most of the Rule. Associated Builders and Contractors stated that the NPRM’s reliance on the district court’s decision ‘‘is arbitrary in light of the fact that, less than three months ago, the [D]epartment filed a brief to the court of appeals declaring that each of the same aspects of the district court decision was wrong and should be reversed.’’ It added that, ‘‘[i]n light of the pending nature of the appeal from the district court decision, at a minimum the NPRM should be held in abeyance pending the outcome of the appeal.’’ The International Franchise Association agreed, stating that ‘‘[n]otwithstanding the [Department’s] own pending appeal from the district court’s decision, the [Department] has proposed to rescind its [Joint Employer] Rule by relying on the same district court’s opinion that it seeks to challenge on appeal at the Second Circuit.’’ It added that the Department’s proposal to withdraw the Rule ‘‘should be withdrawn, or at the very least, held in abeyance until a final ruling in the pending Second Circuit appeal.’’ WPI also agreed, stating that ‘‘[e]ach aspect of the district court decision on which [the Department] now relies in proposing to rescind the [R]ule is refuted by [the Department]’s own brief to the Second Circuit.’’ It asserted that it was ‘‘arbitrary and capricious for [the Department] to rely on a court decision which it has only recently declared to be wrong, while that decision remains pending on appeal’’ and suggested that the Department ‘‘hold its NPRM in VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 abeyance pending the appeal’s outcome.’’ 126 In response, the Department agrees that ‘‘[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change.’’ 127 When an agency changes its position, ‘‘it need not demonstrate . . . that the reasons for the new policy are better than the reasons for the old one.’’ 128 ‘‘But the agency must at least ‘display awareness that it is changing position.’ ’’ 129 The agency’s explanation is sufficient if ‘‘the new policy is permissible under the statute, . . . there are good reasons for it, and . . . the agency believes it to be better, which the conscious change of course adequately indicates.’’ 130 When explaining a changed position, ‘‘an agency must also be cognizant that longstanding policies may have ‘engendered serious reliance interests that must be taken into account.’ ’’ 131 In such cases, the policy change itself does not need ‘‘further justification,’’ but ‘‘a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.’’ 132 For these reasons, ‘‘ ‘an unexplained inconsistency’ in agency policy is ‘a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.’ ’’ 133 Having considered the comments and reviewed the issue further, the Department believes that the Joint Employer Rule did not provide a reasoned explanation for the new FLSA vertical joint employment standard that 126 The International Franchise Association described the ‘‘30-day window for public comment’’ on the NPRM proposing to withdraw the Joint Employer Rule as ‘‘insufficient.’’ WPI agreed, stating that ‘‘30 days is insufficient time to comment on the proposal.’’ The comment period was 31 days and was, in any event, a similar duration as the comment periods for some other recent Department rulemakings. See, e.g., 85 FR 60600 (Sept. 25, 2020); 86 FR 14027. Additionally, because the NPRM was published only a little over one year after the Rule was published, interested stakeholders should have been familiar with the Rule that was proposed for rescission as well as the implications of any rescission. 127 Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (citing Nat’l Cable & Telecomm. Ass’n v. Brand X internet Servs., 545 U.S. 967, 981– 82 (2005); Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 863– 64 (1984)). 128 FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009). 129 Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 U.S. at 515, and removing emphasis). 130 Fox Television, 556 U.S. at 515. 131 Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 U.S. at 515). 132 Fox Television, 556 U.S. at 515–16. 133 Encino, 136 S. Ct. at 2126 (quoting Brand X, 545 U.S. at 981). PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 it adopted. As explained above in Section II.A.1., there was not a reasonable basis for relying exclusively on section 3(d) and completely excluding sections 3(e) and (g) when interpreting who is a joint employer under the FLSA. As further explained in Section II.A.2., there was not a reasonable basis for adopting a narrow standard limited to control for determining who is a joint employer under the FLSA. The Rule’s stated desire to provide a uniform vertical joint employment standard may have been valid,134 and the Department recognizes that there may be more than one permissible interpretive vertical joint employment standard under the FLSA; however, the standard that the Rule adopted was not permissible under the FLSA. The Department also believes that the Joint Employer Rule did not sufficiently take into account prior WHD guidance. The Department’s MSPA joint employment regulation 135 and its 1997 final rule 136 implementing it have been in effect for about 24 years. In keeping with MSPA and its legislative history,137 the MSPA regulation expressly ties its joint employment analysis to the FLSA. The MSPA regulation provides that ‘‘[j]oint employment under the Fair Labor Standards Act is joint employment under the MSPA’’ 138 and sets forth a multi-factor analysis for determining vertical joint employment that is different than the Rule’s analysis.139 The Joint Employer Rule, however, did not address or account for any differences between its new regulatory standard and MSPA’s existing regulatory standard or any effects that it may have on joint employment under MSPA. In addition, the Department’s interpretive guidance in the Home Care AI and the Joint Employment AI rejected a joint employment analysis that was limited to control, and those AIs relied on FLSA sections 3(e) and (g) in addition to section 3(d).140 Although the Home Care AI and the Joint Employment AI were withdrawn before the effective date of the Joint Employer Rule, the Department did not address or sufficiently account for its departures 134 See Scalia, 490 F. Supp. 3d at 795 (making clear that its decision to vacate most of the Rule did ‘‘not imply that the Department cannot engage in rulemaking to try to harmonize joint employer standards’’). 135 See 29 CFR 500.20(h)(5). 136 See 62 FR 11745–46. 137 See note 99, supra. 138 See 29 CFR 500.20(h)(5)(i). 139 See 29 CFR 500.20(h)(5)(iv). 140 See 2016 WL 284582, at *2–4 & 9; 2014 WL 2816951, at *2 & n.5. E:\FR\FM\30JYR1.SGM 30JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations from their analyses in the Rule. In summary, the Department was and is allowed to change its interpretation of joint employment under the FLSA; however, the Rule failed to account for and address inconsistences with WHD’s prior and existing guidance, which is an additional reason to rescind the Rule. In response to comments asserting an inconsistency between the Department’s opening brief to the Second Circuit in the appeal of the district court’s decision vacating most of the Joint Employer Rule and its NPRM proposing to rescind the Rule, the Department’s filings with the Second Circuit have been consistent with the status of this rescission rulemaking. The Department filed its opening brief with the Second Circuit on January 15, 2021—prior to any reconsideration of the Rule and well before the deadline for filing the brief. Following the Department’s NPRM in March proposing to rescind the Rule, the Department requested that the Second Circuit hold the appeal in abeyance while this rulemaking progressed. Although the Second Circuit denied the request, asking it to hold the appeal in abeyance was consistent with this rulemaking. In addition, the Department filed a reply brief with the Second Circuit on May 28, 2021, in which it took ‘‘no position’’ regarding ‘‘the merits of the Joint Employer Rule’’ in light of this pending rulemaking. In the reply brief, the Department noted that completion of this rulemaking may moot the States’ challenge to the Rule and requested that the Second Circuit, if it resolves the appeal at all, reverse the district court’s decision solely on the grounds that the States lacked standing to challenge the Rule. Accordingly, the Department’s position in the pending Second Circuit appeal has been consistent with the status of this rescission rulemaking; the Department stopped defending the merits of the Rule before the Second Circuit consistent with its concerns with the Rule as set forth in the NPRM proposing to rescind the Rule. Finally, issuing this final rule now rather than waiting for the Second Circuit to resolve the appeal is consistent with the Department’s position in its reply brief. Although the district court’s decision vacating the Rule’s vertical joint employment analysis was a primary consideration for proposing rescission as noted in the NPRM, the Department’s decision to rescind the Rule as set forth herein is independent from the district court’s decision and represents its reasoned interpretation of the FLSA as supported by case law, regardless of the Second Circuit’s ultimate resolution of the appeal. VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 C. The Joint Employer Rule’s Vertical Joint Employment Analysis Did Not Significantly Impact Judicial Analysis of FLSA Cases The NPRM stated that courts have generally declined to adopt the Joint Employer Rule’s vertical joint employment analysis since its promulgation.141 The NPRM further stated that, in light of this judicial landscape, rescinding the Joint Employer Rule would not be disruptive.142 The NPRM added that WHD does not believe that it would be difficult or burdensome to educate and reorient its enforcement staff if the Rule is rescinded.143 The State AGs agreed in their comment that, ‘‘based on the judicial landscape,’’ rescinding the Joint Employer Rule ‘‘would not be disruptive.’’ They added that it was ‘‘not surprising’’ that only two district court decisions had adopted the Rule’s vertical joint employment analysis given that, in their view, the Rule’s analysis ‘‘runs counter to Supreme Court precedent’’ and ‘‘conflicts with numerous court of appeals decisions interpreting joint employment.’’ Texas RioGrande Legal Aid added that, ‘‘aware of the Rule’s mismatch with the FLSA’s text and purpose, courts would have been likely to continue to eschew the Rule’s framing in favor of their established formulations of the multifactor analysis.’’ Having considered the comments and reviewed the issue further, the Department believes that courts’ general non-adoption of the Joint Employer Rule’s vertical joint employment analysis provides additional support for rescinding the Rule. As a general matter, courts have declined to adopt the Joint Employer Rule’s analysis. In addition to the Southern District of New York’s decision to vacate the Rule’s vertical joint employment analysis, other courts have declined to adopt the Rule’s analysis for similar reasons.144 The Department is aware of two FLSA cases 141 See 86 FR 14044–45 (citing cases, including two exceptions). 142 See 86 FR 14045. 143 See id. 144 See Reyes-Trujillo v. Four Star Greenhouse, Inc., No. 20–11692, — F. Supp. 3d —, 2021 WL 103636, at *6–9 (E.D. Mich. Jan. 12, 2021) (agreeing that the Joint Employer Rule’s exclusive focus on the potential joint employer’s control runs counter to the FLSA’s expansive definition of ‘‘employer’’ and thus declining to adopt the Rule’s analysis); Elsayed v. Family Fare LLC, No. 1:18–cv–1045, 2020 WL 4586788, at *4 (M.D.N.C. Aug. 10, 2020) (finding ‘‘it unnecessary to wade into whether the DOL’s [Joint Employer] Rule is entitled to Brand X deference or whether the [Rule] is lawful under the APA’’ and instead ‘‘rely[ing] on established Fourth Circuit precedent’’ regarding joint employment). PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 40949 in which a court has adopted and applied the Rule’s vertical joint employment analysis.145 Both cases were district court decisions from the Tenth Circuit, which has not issued a definitive decision regarding the analysis to apply in FLSA vertical joint employment cases. Neither case applied the rule in a uniform manner, relying on additional factors or stating them differently. Moreover, as the Joint Employer Rule acknowledged, a number of circuit courts of appeals had previously established analytical frameworks for vertical joint employment cases, and all of these analyses are different from the analysis in the Joint Employer Rule.146 Notwithstanding the Rule, district courts in those circuits have generally continued to apply binding precedent from their circuit courts of appeals when deciding FLSA vertical joint employment issues—often with little, if any, meaningful discussion of the Rule’s analysis.147 In sum, despite the Joint 145 See Clyde v. My Buddy The Plumber Heating & Air, LLC, No. 2:19–cv–00756–JNP–CMR, 2021 WL 778532 (D. Utah Mar. 1, 2021); Sanders v. Glendale Rest. Concepts, LP, No. 19–cv–01850–NYW, 2020 WL 5569786 (D. Colo. Sept. 17, 2020). In Clyde, the district court found it ‘‘appropriate to rely upon the factors listed in the federal regulations interpreting the FLSA for guidance.’’ 2021 WL 778532, at *2 (citing Skidmore v. Swift & Co., 323 U.S. 134, 139– 40 (1944)). It also relied on additional joint employment factors from the Fourth Circuit’s decision in Salinas. See id. at *3. In Sanders, the district court actually articulated the four factors as Bonnette did but applied them as a result of the Joint Employer Rule and the parties’ agreement that those four factors applied instead of the factors from the Fourth Circuit’s decision in Salinas, which some of the courts in that district ‘‘favored.’’ 2020 WL 5569786, at *3–4. In addition to these two district court decisions, there is the Sixth Circuit’s decision in Rhea v. West Tennessee Violent Crime & Drug Task Force, 825 F. App’x 272 (6th Cir. 2020). In that case, the Sixth Circuit, after applying the Bonnette factors to determine that one defendant was not the employee’s employer under the FLSA, listed the Rule’s vertical joint employment factors in a footnote, asserted that the Rule’s factors ‘‘focus[] on the same factors as that of determining employer status,’’ and stated that ‘‘[n]either would [the defendant] be a ‘joint employer’ under the FLSA.’’ Id. at 275–77 & n.4. However, the Sixth Circuit did not engage in any substantial analysis of the Rule’s factors or meaningfully apply them. See id. at 277 n.4. 146 See 85 FR 2831 (comparing the Rule’s fourfactor analysis to the various analyses adopted by circuit courts of appeals). 147 See, e.g., Hamm v. Acadia Healthcare Co., No. 20–1515, 2021 WL 1212539, at *5–6 (E.D. La. Mar. 31, 2021) (reciting Fifth Circuit’s vertical joint employment analysis); Zhao v. Ke Zhang Inc., No. 18–CV–6452 (EK) (VMS), 2021 WL 1210369, at *4– 6 (E.D.N.Y. Mar. 31, 2021) (applying Second Circuit’s vertical joint employment analysis); Gil v. Pizzarotti LLC, No. 1:19-cv-03497–MKV, 2021 WL 1178027, at *4–13 & n.2 (S.D.N.Y. Mar. 29, 2021) (applying Second Circuit’s vertical joint employment analysis although noting in footnote in response to employer’s argument that it would have reached the same result had it applied the Rule’s analysis); Blan v. Classic Limousine Transp., LLC, E:\FR\FM\30JYR1.SGM Continued 30JYR1 40950 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations Employer Rule’s stated purpose of ‘‘promot[ing] greater uniformity in court decisions,’’ 148 there has been no widespread adoption of the Rule’s vertical joint employment analysis, and the Rule has not significantly affected judicial analysis of FLSA joint employment cases. Additionally, rescinding the Joint Employer Rule would not be disruptive for WHD. WHD has not issued subregulatory guidance that would need to be withdrawn or modified as a result of the rescission. For all of these reasons, rescission of the Rule will have little effect on courts’ and WHD’s analyses in FLSA vertical joint employment cases. lotter on DSK11XQN23PROD with RULES1 D. Effects on Employees of the Vertical Joint Employment Analysis The Joint Employer Rule acknowledged that, although it would not change the wages due an employee under the FLSA in the vertical joint employment scenario, ‘‘it may reduce the number of businesses currently found to be joint employers from which employees may be able to collect back wages due to them under the Act.’’ 149 The Rule further acknowledged that, ‘‘[t]his, in turn, may reduce the amount of back wages that employees are able to collect when their employer does not comply with the Act and, for example, their employer is or becomes insolvent.’’ 150 One commenter, the Economic Policy Institute (EPI), submitted a quantitative analysis of the monetary amount that it estimated would transfer from employees to employers as a result of the Rule.151 In response, the Rule stated that, although it ‘‘appreciates EPI’s quantitative analysis,’’ it ‘‘does not believe there are No. 19–807, 2021 WL 1176063, at *8 (W.D. Pa. Mar. 29, 2021) (applying Third Circuit’s vertical joint employment analysis); Yela v. Trending Media Grp., Inc., No. 19–21712–CIV, 2020 WL 6271047, at *5–7 (S.D. Fla. Sept. 18, 2020) (applying Eleventh Circuit’s vertical joint employment analysis); Tombros v. Cycloware, LLC, No. 8:19-cv-03548–PX, 2020 WL 4748458, at *2–3 (D. Md. Aug. 17, 2020); Williams v. Bob Evans Restaurants, LLC, No. 2:18cv-01353, 2020 WL 4692504, at *4–6 (W.D. Pa. Aug. 13, 2020) (applying Third Circuit’s vertical joint employment analysis); Elsayed, 2020 WL 4586788, at *4–8 (applying Fourth Circuit’s vertical joint employment analysis). Cf. Pontones v. Los Tres Magueyes, Inc., No. 5:18–CV–87–FL, 2021 WL 1430793, at *3–10 (E.D.N.C. Apr. 15, 2021) (applying Fourth Circuit’s vertical joint employment analysis and then the Rule’s analysis in the alternative); id. at *8 n.18 (noting that because both analyses reached the same result and the Department had issued a proposal to rescind the Rule, ‘‘the court does not definitively resolve here the level of deference merited for the interpretative guidance in the [Joint Employer Rule]’’). 148 85 FR 2823. 149 85 FR 2853. 150 Id. 151 See id. VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 data to accurately quantify the impact of this [R]ule.’’ 152 The Rule added that it ‘‘lacks data on the current number of businesses that are in a joint employment relationship, or to estimate the financial capabilities (or lack thereof) of these businesses and therefore is unable to estimate the magnitude of a decrease in the number of employers liable as joint employers.’’ 153 The Rule discussed in a qualitative manner some potential benefits to employees, such as ‘‘promot[ing] innovation and certainty in business relationships’’ and encouraging businesses to engage in certain practices with an employer that ‘‘could benefit the employer’s employees.’’ 154 The Rule did not otherwise consider any potential costs to workers. Many commenters expressed concerns that the Joint Employer Rule would incentivize companies to expand their use of temporary staffing agencies, contractors, and subcontractors rather than employing workers directly, which is a concern that the Department shares. Congressman Bobby Scott and 78 other Members of Congress wrote that the Rule ‘‘promotes business models that rely on subcontracting with businesses that pay lower wages to cut costs or with thinly capitalized lower level businesses that cut corners on FLSA compliance.’’ As several commenters stated in comments that used template language, the number of workers employed through temporary staffing agencies ‘‘has increased dramatically in recent years,’’ especially in ‘‘low-wage, ‘blue-collar’ occupations.’’ The National Employment Law Project (NELP) stated that ‘‘[t]emporary and staffing agency work hours have grown 3.9 times faster than overall work hours, and temporary and staffing agency jobs have grown 4.3 times faster than jobs overall.’’ Several commenters identified particular industries that have experienced especially high growth in outsourcing and subcontracting, including janitorial services, construction, agriculture, manufacturing, warehousing and logistics, hospitality, and waste management. In particular, NELP noted that outsourcing of janitorial services ‘‘has grown dramatically over the past two decades, resulting in an estimated 37 percent of janitorial workers hired through labor contractors rather than directly by the company at which they work.’’ NELP also reported that 58 percent of security guard positions are outsourced. PO 00000 152 Id. 153 Id. 154 Id. Frm 00034 Fmt 4700 Sfmt 4700 Several commenters asserted that the increase in temporary, staffing agency, and subcontracting jobs is detrimental to workers, because on average, ‘‘temporary help agency workers earn 41 percent less’’ than workers in ‘‘standard work arrangements,’’ they ‘‘experience large benefit penalties relative to their counterparts in standard work arrangements,’’ and although their jobs tend to be more hazardous than those of ‘‘permanent, direct hires,’’ ‘‘they often receive insufficient safety training and are more vulnerable to retaliation for reporting injuries than workers in traditional employment relationships.’’ Some commenters, including the Public Justice Center and NELP, noted that temporary staffing agencies must compete with each other ‘‘on the one major cost they can control—labor costs,’’ and this ‘‘competitive pressure drives down wages and incentivizes cutting corners through violating labor standards like minimum wage and health and safety laws.’’ NELP also stated that ‘‘[t]emporary staffing agencies consistently rank among the worst large industries for the rate of wage and hour violations.’’ The Public Justice Center described the industry’s frequent use of a ‘‘triangular employment relationship through which the staffing agency acts as temp workers’ employer even though the worksite company determines the assignments and working conditions,’’ thus allowing the worksite company to gain the benefits of employing workers while avoiding many of the legal responsibilities. In addition, several commenters, including the Communications Workers of America, the Kentucky Equal Justice Center, and the Workplace Justice Project, stated that individuals who work for staffing agencies or subcontractors often have trouble identifying their actual employer when a dispute over payment or working conditions arises. Other commenters, such as the National Employment Lawyers Association, wrote that holding a company responsible as a joint employer incentivizes that company to ‘‘provide better oversight of working conditions, to ensure that child labor, minimum wage and overtime rules are followed.’’ Many commenters also stated that the increased use of temporary staffing agencies disproportionately impacts people of color and women. NELP, the Public Justice Center, and the State AGs reported that Black workers comprise 12.1 percent of the overall workforce, but 25.9 percent of temporary help agency workers, while Latino workers make up 16.6 percent of the total E:\FR\FM\30JYR1.SGM 30JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations workforce, but 25.4 percent of temporary help agency workers. NELP and the Public Justice Center explained that, because temporary workers ‘‘are especially vulnerable to illegal conduct such as wage theft, unsafe working conditions, and discrimination,’’ an increase in temporary work can ‘‘exacerbate occupational segregation, income inequality, and the wealth gap for people of color.’’ In addition, the National Women’s Law Center commented that women are ‘‘broadly overrepresented in low-paid jobs,’’ and noted that women working for ‘‘contract firms in full-time jobs typically earn 17 percent less than women in traditional employment arrangements and 42 percent less than full-time male workers provided by contract firms.’’ In addition, Congressman Bobby Scott and 78 other members of Congress noted that ‘‘because the Equal Pay Act of 1963 shares the FLSA’s definitions of employment, the [Joint Employer Rule] would make it harder for women to hold all responsible employers accountable when bringing equal pay claims.’’ The National Women’s Law Center also pointed out that the FLSA requires employers to provide breastfeeding workers with adequate time and safe space to pump at work, but in the case of temporary or subcontracted workers, the worksite is often controlled by a contracting entity, thus creating a potential barrier to the worker’s ability to pump. Numerous organizations that provide legal representation to workers shared accounts of particular cases where, in their view, their clients would not have been able to recover back wages owed but for the fact that courts applied broader joint employer liability principles than those set forth in the Joint Employer Rule. For example, the Equal Justice Center represented approximately 30 individuals who worked for a small cleaning company to provide janitorial services at outlets of a big-box store in the Austin area. The workers sued for unpaid wages and overtime premiums, but the cleaning company went out of business. However, the workers succeeded in establishing that the big-box store was a joint employer based on the economic realities test derived from Rutherford and defined by the Fifth Circuit in Wirtz v. Dr. Pepper Bottling Co.155 According to the commenter, the workers successfully asserted that because they ‘‘consistently and exclusively cleaned the [big box] company’s stores, at hours dictated by the stores’ schedules and 155 See Rutherford, 331 U.S. at 726; Wirtz v. Dr. Pepper Bottling Co., 374 F.2d 5, 8 (5th Cir. 1967). VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 according to standards set by the company’s management, the [big box] company could be a joint employer under the FLSA.’’ In contrast, the commenter believed that the big box store likely would not have been a joint employer under the Joint Employer Rule. In another case, the North Carolina Justice Center represented ‘‘hundreds of janitorial workers’’ who cleaned public school buildings through a subcontractor that went bankrupt, failing to pay several weeks of wages. According to the Center, the workers were able to recover back wages from the school district and the contractor as joint employers. The Center asserted that under the Joint Employer Rule, however, ‘‘it is highly unlikely either the contractor or the district would be liable for the failure to pay minimum wage and overtime.’’ In addition, NELP discussed a case involving warehouses owned by Wal-Mart, which contracted with Schneider Logistics to operate the warehouses, which in turn contracted with two staffing companies to provide labor. After the warehouse workers sued for violations of the FLSA, Wal-Mart moved for summary judgment that it was not a joint employer. The district court, applying the Bonnette and TorresLopez factors, determined that several factors in addition to Wal-Mart’s control over the plaintiffs’ working conditions suggested that Wal-Mart could be found to be a joint employer, including that the plaintiffs performed piecework that did not require initiative, judgment, or foresight; there was permanence in the plaintiffs’ work for Wal-Mart; and the service performed by the plaintiffs was an integral part of Wal-Mart’s business.156 Thus, the court denied WalMart’s motion.157 According to NELP, the case eventually settled, but the staffing companies could afford to pay only 7.5 percent of the settlement amount. However, ‘‘because the court took into account the realities of the workers’ relationship with Schneider and Wal-Mart, the workers were able to obtain damages from these parties.’’ Other commenters also emphasized the importance that joint employment liability plays in the recovery of back wages. For example, the Northwest Workers’ Justice Project described a case in which workers who were employed 156 Carrillo v. Schneider Logistics Trans-Loading & Distrib., Inc., No. 2:11–CV–8557–CAS, 2014 WL 183956, at *6–15 (C.D. Cal. Jan. 14, 2014) (applying Bonnette, 704 F.2d at 1470 and Torres-Lopez, 111 F.3d at 639–40). The court rejected Wal-Mart’s attempt to analogize the case to decisions applying only the Bonnette factors, explaining that ‘‘the Torres-Lopez factors form an important component of the joint employer analysis.’’ Id. at *10. 157 Id. at *6, 16. PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 40951 by a contractor to cut, bag, and stock fruit at H–E–B grocery stores in Texas and who sued for minimum wage and overtime violations. According to the Project, the workers, mostly immigrants and women, worked on location only at H–E–B stores, often for 50 hours or more per week, and were paid per bag of produce sold, which never amounted to minimum wage. The case was apparently brought in the U.S. District Court for the District of Texas, which applies the Fifth Circuit’s ‘‘economic realities’’ test requiring the consideration of several factors to determine joint employer liability.158 H–E–B initially denied responsibility as a joint employer, but ultimately settled, which the Project reported would not have been possible ‘‘[w]ithout joint employment.’’ In addition, Justice at Work (Massachusetts), the Legal Aid Society, the Public Justice Center, the United Brotherhood of Carpenters and Joiners, and the Worker Justice Center of New York reported that they have brought or observed numerous cases in the construction industry where a subcontractor labor broker disappears or refuses to pay, and the next tier contractor denies responsibility, leaving workers without pay. Some organizations that provide legal assistance to agricultural workers commented that joint employment is particularly important in the agricultural industry. Texas RioGrande Legal Aid reported that ‘‘[j]oint employer issues arise frequently in the agricultural sector because the sector is riddled with middlemen: Undercapitalized farm labor contractors who pay the workers while furnishing their labor to fixed-site farm operators.’’ The organization has found that ‘‘farmworkers’ attempts to seek unpaid wages from farm labor contractors, as opposed to fixed-site agricultural employers, are frequently futile,’’ in part because ‘‘[f]arm labor contractors are often undercapitalized and unable to meet their wage obligations because of disadvantageous deals made with growers.’’ NELP pointed to a study conducted by EPI that found that from 2005 to 2019, farm labor contractors accounted for 14 percent of agricultural jobs, but 24 percent of all employment law violations in agriculture. Texas RioGrande Legal Aid noted that DOL’s H–2A regulations require farm labor contractors petitioning for temporary labor certification to post bonds as a 158 The case appears to be Silva v. Pastranas Produce Inc., No. 4:12–CV–00470 (S.D. Tex. filed Feb. 16, 2012); see also Gray, 673 F.3d at 354–55; Wirtz v. Lone Star Steel Co., 405 F.2d 668, 669–70 (5th Cir. 1968). E:\FR\FM\30JYR1.SGM 30JYR1 lotter on DSK11XQN23PROD with RULES1 40952 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations ‘‘ ‘ necessary compliance mechanism’ to ensure that the labor contractor pays the H–2A workers their wages,’’ because many of these contractors are unreliable. In addition, the Centro de los Derechos del Migrante explained that, while MSPA ‘‘protects many farmworkers above and beyond the FLSA floor, nearly half a million migrant agricultural workers in the H–2A program are excluded from’’ the protections of MSPA, ‘‘and rely instead on the FLSA.’’ The organization asserted, however, that ‘‘[b]y opening loopholes in the FLSA not found in [MSPA], the 2020 Rule would incentivize employers to sidestep . . . [MSPA]’s protections by hiring workers to whom only the FLSA applies, driving down standards across the entire agricultural industry.’’ It further noted the history of diminished legal protections for agricultural workers, which was ‘‘born of a dark history of racial discrimination,’’ and argued that reducing protections for these workers would perpetuate that legacy, as 92 percent of H–2A workers are Mexican. In contrast, several commenters who oppose rescinding the Joint Employer Rule asserted that the Rule promotes job growth. WPI stated that, ‘‘[d]uring the ‘period in which [the Department] consistently applied the ‘right of control’ factors identified with the Bonnette test of the Ninth Circuit, significant job growth took place in the industries represented by WPI,’’ including temporary staffing, construction, retail, and hospitality. It is not clear what period of time WPI is referring to, as all of the statistics cited by WPI predate the effective date of the Joint Employer Rule. Moreover, the Joint Employer Rule was in effect for only a brief period of time, and WPI did not present any direct evidence that job growth during that short window of time was driven, in whole or in part, by the adoption of the Rule. Given data limitations, it would not be possible to determine whether job growth in these industries was related to the Joint Employer Rule. Further, as the comments discussed above indicate, to the extent that jobs with temporary staffing agencies or thinly capitalized subcontractors have replaced standard employment arrangements, such a trend is disadvantageous to workers in many respects, and could have a particularly negative effect on people of color and women. The Washington Legal Foundation also generally asserted that the Joint Employer Rule fosters job growth, and contended that logically, allowing the Rule to remain in place would result in increased job creation, VerDate Sep<11>2014 16:59 Jul 29, 2021 Jkt 253001 higher salaries, and no wage theft. However, the Department does not believe that allowing the Rule to remain in effect would have clearly lead to the creation of more, higher-paying jobs free of wage theft, for the reasons discussed by the commenters above. Instead, the Department agrees with the commenters who stated that the Rule would have further incentivized companies to source labor through temporary staffing firms or subcontractors, rather than hiring employees directly, which tends to result in lower pay and fewer benefits, and can leave employees without recourse for unpaid wages when the staffing firm or subcontractor is unable or unwilling to pay. Upon consideration of the comments, the Department concludes that the Joint Employer Rule did not satisfactorily consider the costs to employees. This conclusion is premised in part on WHD’s role as the agency responsible for enforcing the FLSA and for collecting back wages due to employees when it finds violations, as well as a recent Presidential Memorandum instructing the Director of the Office of Management and Budget to recommend new procedures for regulatory review that better ‘‘take into account the distributional consequences of regulations.’’ 159 As noted in the economic analysis, rescinding the Joint Employer Rule could help protect the well-being and economic security of workers in low-wage industries, many of whom are immigrants, people of color, and women, because FLSA violations are more severe and widespread in low-wage labor markets.160 The Department believes that the Joint Employer Rule would have made it more difficult for workers to collect back wages owed and incentivized workplace fissuring,161 which are serious concerns that may have a disproportionate impact on lowwage and vulnerable workers. The Rule’s failure to weigh these concerns is an additional reason for its rescission. 159 Modernizing Regulatory Review: Memorandum for the Heads of Executive Departments and Agencies (Jan. 20, 2021), published at 86 FR 7223 (Jan. 26, 2021). 160 Annette Bernhardt et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities (2009), available at https://www.nelp.org/wp-content/ uploads/2015/03/BrokenLawsReport2009.pdf. 161 The Joint Employer Rule described workplace fissuring as the ‘‘increased reliance by employers on subcontractors, temporary help agencies, and labor brokers rather than hiring employees directly.’’ 85 FR 2853 n.100. PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 E. Effects on Other Stakeholders of the Vertical Joint Employment Analysis In addition to discussing the issues identified in the NPRM, commenters also noted other ways in which rescission of the Joint Employer Rule would affect various stakeholders. In particular, most commenters opposed to rescission of the Rule emphasized the importance of clarity and predictability to the business community. However, the Department generally believes that the impact of rescission on the business community and other stakeholders will not be substantial because the Rule has not been widely adopted by the courts. Furthermore, for the reasons set forth above, the Department believes that the Rule should be rescinded because it was inconsistent with the text and purpose of the FLSA. Many commenters asserted that the Joint Employer Rule provided clarity and predictability to the regulated community, and argued that rescinding the Rule would lead to confusion and uncertainty. The U.S. Chamber of Commerce stated that the Rule ‘‘brought needed clarity and consistency to a key issue that had long vexed employers and the WHD.’’ The FreedomWorks Foundation wrote that a ‘‘lack of clarity surrounding issues of joint employment [is] especially harmful to small businesses, which employ almost half of Americans and often do not have the resources to secure top-notch legal advice,’’ a concern echoed by the National Federation of Independent Businesses (NFIB). However, the Department does not agree that leaving the Joint Employer Rule in place would have provided increased clarity and certainty to the regulated community. As discussed above, the Rule conflicted with the text and purposes of the FLSA and was not widely adopted by the courts.162 Thus, even if the Second Circuit Court of Appeals were to reverse the district court decision vacating the Rule on standing grounds, it is likely that many courts would still reject the Rule and continue to rely on prior precedent. As such, leaving the Joint Employer Rule in place would not have established a uniform standard consistently applied by all courts across the country. Because it conflicted with 162 See, e.g., Reyes-Trujillo, 2021 WL 103636, at *6–9 (agreeing that the Joint Employer Rule’s exclusive focus on the potential joint employer’s control runs counter to the FLSA’s expansive definition of ‘‘employer’’ and thus declining to adopt the Rule’s analysis); Elsayed, 2020 WL 4586788, at *4 (finding ‘‘it unnecessary to wade into whether the DOL’s [Joint Employer] Rule is entitled to Brand X deference or whether the [Rule] is lawful under the APA’’ and instead ‘‘rely[ing] on established Fourth Circuit precedent’’ regarding joint employment). E:\FR\FM\30JYR1.SGM 30JYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations established precedent in the circuits, the Rule presented employers with the difficult choice of conducting their business in a manner consistent with circuit precedent or with the Rule. Furthermore, because employers had to consider circuit precedent as no circuit had adopted the Rule, the Rule likely provided little clarity. Accordingly, the Department does not agree that rescinding the Rule will result in significantly less clarity and uncertainty for the regulated community. More fundamentally, because the regulation conflicted with the text and purpose of the FLSA, it should be rescinded. Other commenters expressed concerns that rescinding the Joint Employer Rule could impose additional costs on businesses. The Texas Public Policy Foundation asserted generally that rescission would ‘‘result in more employers being deemed to be joint employers, raising operating expenses for those employers.’’ Again, because the Rule was not widely adopted by courts, the Department does not expect that the Rule’s rescission will substantially increase prospective joint employers’ costs. In addition, the Department believes that the Rule’s rescission will continue to incentivize businesses at the top of a vertical industry structure to ensure that labor suppliers and other potential joint employers comply with the FLSA; as long as they do so, businesses at the top will not incur the additional cost of paying the joint employer’s employees. Other commenters, such as the National Retail Federation, expressed concern that rescinding the Rule would discourage businesses ‘‘from entering into beneficial contractual relationships with third-party business parties, inhibiting business-to-business collaboration.’’ Commenters like the National Restaurant Association and Restaurant Law Center stated that rescinding the Rule could negatively impact businesses that use a franchising model. But the vast majority of these businesses operate in jurisdictions that have not adopted the Joint Employer Rule, so their calculation of potential liability will not change. Furthermore, the current law governing joint employment allows businesses to enter into beneficial relationships without creating joint employment liability. In fact, as commenters both supporting and opposing rescission noted, the growth of temporary staffing, independent contractors, and franchise relationships outpaced standard employment in many respects in the years before the Joint Employer Rule was introduced. See, e.g., International Franchise Association VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 (asserting that after the financial crisis, from 2009–12, ‘‘employment in the franchise sector grew 7.4%, versus 1.8% growth in total U.S. employment’’); NELP (asserting that since 2009, ‘‘[t]emporary and staffing agency work hours have grown 3.9 times faster than overall work hours, and temporary and staffing agency jobs have grown 4.3 times faster than jobs overall;’’ and noting that ‘‘staffing and temporary help services provided 11.3 percent of all manufacturing employment in 2015, up from just 2.3 percent in 1989’’). This indicates that the prior legal landscape did not pose a significant hindrance to the formation of these types of relationships.163 Commenters who support the Rule also asserted that rescinding the Rule would make companies less likely to offer assistance to related companies, such as a franchisor offering sexual harassment training materials to a franchisee, for fear of becoming a joint employer. These commenters pointed out that this type of assistance can benefit workers by, for example, reducing sexual harassment in the workplace or improving workplace safety.164 However, the commenters did not cite any court decision finding that a company is a joint employer primarily on this basis, while at least some courts have not regarded the provision of training assistance as strong evidence of a joint employer relationship.165 163 Other commenters expressed concerns about the imposition of additional costs on particular industries in the wake of the COVID–19 pandemic. For example, the American Hotel and Lodging Association stated that ‘‘[l]eisure and hospitality account for 37% of all jobs lost since the onset of the pandemic,’’ and ‘‘hotels are not projected to return to pre-pandemic levels until 2024 at the earliest,’’ and asserted that rescinding the Rule would impose new costs that are particularly unwelcome now. However, for the reasons discussed in this paragraph, the Department does not believe that rescission of the Rule will impose substantial new costs on businesses. Moreover, workers in industries experiencing financial stress (as a result of the pandemic or otherwise) are particularly at risk of losing the wages they are owed to the extent that liability is confined to smaller businesses at the bottom of the industry. 164 Commenters provided various examples of the types of assistance that a company might offer a related company. The U.S. Chamber of Commerce discussed model handbooks, apprenticeship programs, and association health plans. The Washington Legal Foundation and the American Hotel and Lodging Association cited training employees to detect human trafficking. SHRM mentioned the provision of face coverings and protective personal equipment during the COVID– 19 pandemic. The discussion of whether companies will be more or less likely to assist other companies after the Rule is rescinded applies equally to the various types of assistance noted by the commenters. 165 See, e.g., Moreau v. Air France, 356 F.3d 942, 950–53 (9th Cir. 2004) (holding that Air France was not joint employer with ground service operations companies, even though it provided some training PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 40953 Furthermore, to the extent that a court might consider this type of assistance as part of the joint employer analysis, it would be merely one aspect of one factor among many that the courts use to assess whether a joint employer relationship exists, and no one factor is dispositive. Moreover, as the comments discussed above noted, the prospect of joint employer liability can incentivize a company to ‘‘provide better oversight of working conditions, to ensure that child labor, minimum wage and overtime rules are followed.’’ See, e.g., National Employment Lawyers Association. The Department agrees with this assessment. Some commenters expressed particular concern as to how rescinding the Joint Employer Rule would affect the construction industry. The Associated Builders and Contractors wrote that the construction industry consists ‘‘primarily of specialized, separate employers who come together [to work] on specific construction projects,’’ and ‘‘standard construction methods require project owners and/or prime contractors to exercise routine control over the [work] site in ways that indirectly affect many employees’ terms and conditions of employment,’’ thus potentially leading to joint employer liability. The National Association of Home Builders asserted that the uncertainty faced by home builders due to their reliance on subcontractors could make costs less predictable, which could increase the cost of new homes. However, as noted previously, because the Joint Employer Rule was not adopted in most jurisdictions, the Department does not expect that the Rule’s rescission will significantly increase uncertainty or impose substantial new costs, including in the construction industry. In addition, current court precedent requires consideration of a variety of factors before a company can be held liable as a joint employer; a single factor standing alone, like supervision of a work site, would likely not be enough to establish joint employer liability. Furthermore, as discussed above, many commenters have noted that subcontractors’ failure to pay wages owed is a particular problem in the construction industry; rescinding the Joint Employer Rule will further incentivize project managers to select and monitor subcontractors with an emphasis on ensuring compliance with the FLSA. Such a result is to those companies’ employees, in an FMLA case applying FLSA case law); Martin v. Sprint United Mgmt. Co., 273 F. Supp. 3d 404, 427, 434 (S.D.N.Y. 2017) (finding that Sprint was not joint employer with subcontractor despite the fact that it trained subcontractor’s employees). E:\FR\FM\30JYR1.SGM 30JYR1 40954 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 beneficial to workers and promotes compliance with the FLSA, helping to ensure a level playing field for responsible employers. F. Horizontal Joint Employment Analysis As described in the NPRM, horizontal joint employment may be present where one employer employs an employee for one set of hours in a workweek, and one or more other employers employs the same employee for separate hours in the same workweek. If the two (or more) employers jointly employ the employee, the hours worked by that employee for all of the employers must be aggregated for the workweek and all of the employers are jointly and severally liable.166 For horizontal joint employment, the Joint Employer Rule adopted the standard in the prior version of 29 CFR 791.2 with non-substantive revisions and set forth that standard in 29 CFR 791.2(e).167 The Joint Employer Rule’s horizontal joint employment standard focused on the degree of the employers’ association with respect to the employment of the employee, reflected the Department’s historical approach to the issue, and was consistent with the relevant case law. The NPRM stated that the Department was not considering revising its longstanding horizontal joint employment standard but proposed to rescind the entire Joint Employer Rule (including 29 CFR 791.2(e)) because the structure of the Joint Employer Rule made it impractical for the horizontal joint employment provisions to stand on their own.168 Few commenters addressed horizontal joint employment. The U.S. Chamber of Commerce noted that horizontal joint employment ‘‘relationships do not create the same level of uncertainty, or present the same level of exposure, as vertical joint employment relationships, and the provisions in the [Joint Employer Rule] addressing horizontal joint employment relationships have not been questioned.’’ The Washington Legal Foundation stated that, although the Joint Employer Rule made only nonsubstantive revisions to the horizontal joint employment standard, ‘‘it was still important to issue the Final Rule about horizontal joint employment’’ because, in its view, the Department ‘‘provided regulatory certainty by codifying longstanding practices.’’ It further stated that if the Department rescinds the Joint Employer Rule, the Department ‘‘will inject uncertainty,’’ and ‘‘[i]n these trying times the regulated community needs certainty,’’ which ‘‘[e]xperts say . . . is important to economic growth.’’ The State AGs commented that the Joint Employer Rule’s ‘‘provisions relating to the horizontal joint employment test should be rescinded because they are inextricably intertwined with the nowvacated vertical joint employment provisions.’’ They further commented that ‘‘[r]escinding the provisions relating to horizontal joint employment makes practical sense,’’ ‘‘the horizontal joint employment standard has long been established,’’ and thus ‘‘stakeholders can easily refer to DOL’s earlier interpretations and relevant case law to understand their obligations.’’ Having considered the comments and the issue further, the Department is rescinding the Joint Employer Rule in its entirety (i.e., all of 29 CFR part 791, including the horizontal joint employment standard in § 791.2(e)). The Joint Employer Rule intertwined the horizontal joint employment provisions with the vertical joint employment provisions in 29 CFR 791.2. For example, § 791.2(f) addressed the consequences of joint employment for both the vertical and horizontal scenarios, and § 791.2(g) provided 11 ‘‘illustrative examples’’ of how the Rule may apply to specific factual situations implicating both vertical and horizontal joint employment.169 Accordingly, it would be difficult and impractical for § 791.2(e) to remain alone. In addition, § 791.2(e) would lack context alone and potentially be confusing as its references to the ‘‘second’’ joint employment scenario would not make sense without the rest of § 791.2 and the discussion of the ‘‘first’’ joint employment scenario therein. Although the Department is rescinding the Joint Employer Rule in its entirety, it did not reconsider the substance of its longstanding horizontal joint employment analysis. The focus of a horizontal joint employment analysis will continue to be the degree of association between the potential joint employers, as it was in the Joint Employer Rule and the prior version of part 791.170 As has been the Department’s position for decades, the association will be sufficient to demonstrate joint employment in the following situations, among others: (1) There is an arrangement between the employers to share the employee’s services; (2) one employer is acting 86 FR 14045. 85 FR 2844–45. 168 See 86 FR 14045–46. VerDate Sep<11>2014 16:28 Jul 29, 2021 85 FR 2860–62 (29 CFR 791.2(f), (g)) (2020)). 170 See 85 FR 2859–60 (29 CFR 791.2(e) (2020)); 23 FR 5906 (29 CFR 791.2) (1958). 167 See Jkt 253001 G. Effect of Rescission The NPRM stated that, if the Joint Employer Rule is rescinded as proposed, part 791 of title 29 of the Code of Federal Regulations would be removed in its entirety and reserved.172 The NPRM also noted that the Department was not proposing regulatory guidance to replace the guidance located in part 791.173 Because this final rule adopts and finalizes the rescission of the Joint Employer Rule, part 791 is removed in its entirety and reserved. As stated in the NPRM, the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate. 174 III. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and its attendant regulations, 5 CFR part 1320, require the Department to consider the agency’s need for its information collections, their practical utility, as well as the impact of paperwork and other information collection burdens imposed on the public, and how to minimize those burdens. This final rule does not contain a collection of information subject to Office of Management and Budget (OMB) approval under the Paperwork Reduction Act. IV. Executive Order 12866, Regulatory Planning and Review; and Executive Order 13563, Improved Regulation and Regulatory Review A. Introduction Under Executive Order 12866, OMB’s Office of Information and Regulatory Affairs (OIRA) determines whether a regulatory action is significant and, therefore, subject to the requirements of the Executive Order and OMB review.175 Section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as a regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the 171 23 169 See 166 See directly or indirectly in the interest of the other employer in relation to the employee; or (3) the employers share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.171 PO 00000 Frm 00038 Fmt 4700 Sfmt 4700 FR 5906 (29 CFR 791.2) (1958). 86 FR 14046. 173 See id. 174 See id. 175 See 58 FR 51735, 51741 (Oct. 4, 1993). 172 See E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations economy of $100 million or more, or adversely affect in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as economically significant); (2) create serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive order. OIRA has determined that this rescission is economically significant under section 3(f) of Executive Order 12866. Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA has also designated this rule as a major rule, as defined by 5 U.S.C. 804(2). Executive Order 13563 directs agencies to, among other things, propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored to impose the least burden on society, consistent with obtaining the regulatory objectives; and that, in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. Executive Order 13563 recognizes that some costs and benefits are difficult to quantify and provides that, when appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts. The analysis below outlines the impacts that the Department anticipates may result from this rescission and was prepared pursuant to the above-mentioned Executive orders. lotter on DSK11XQN23PROD with RULES1 B. Costs 1. Rule Familiarization Costs Rescinding the Joint Employer Rule will impose direct costs on businesses that will need to review the rescission. To estimate these regulatory familiarization costs, the Department determined: (1) The number of potentially affected entities, (2) the average hourly wage rate of the employees reviewing the rescission, and (3) the amount of time required to review the rescission. It is uncertain whether these entities would incur regulatory familiarization costs at the firm or the establishment level. For example, in smaller businesses there might be just one specialist reviewing the rescission, while larger businesses VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 might review it at corporate headquarters and determine policy for all establishments owned by the business. To avoid underestimating the costs of this rescission, the Department uses both the number of establishments and the number of firms to estimate a potential range for regulatory familiarization costs. The lower bound of the range is calculated assuming that one specialist per firm will review the rescission, and the upper bound of the range assumes one specialist per establishment. The most recent data on private sector entities at the time this final rule was drafted are from the 2017 Statistics of U.S. Businesses (SUSB), which reports 5,996,900 private firms and 7,860,674 private establishments with paid employees.176 Because the Department is unable to determine how many of these businesses have workers with one or more joint employers, this analysis assumes all businesses will undertake review. The Department believes ten minutes per entity, on average, to be an appropriate review time here. This rulemaking is a rescission and will not set forth any new regulations or guidance regarding joint employment. Additionally, as it believed when it issued the Joint Employer Rule, the Department believes that many entities are not joint employers and thus would not spend any time reviewing the rescission. Therefore, the ten-minute review time represents an average of no time for the majority of entities that are not joint employers, and potentially more than ten minutes for review by some entities that might be joint employers. The Department’s analysis assumes that the rescission would be reviewed by Compensation, Benefits, and Job Analysis Specialists (SOC 13–1141) or employees of similar status and comparable pay. The median hourly wage for these workers was $32.30 per hour in 2020, the most recent year of data available.177 The Department also assumes that benefits are paid at a rate of 46 percent 178 and overhead costs are paid at a rate of 17 percent of the base wage, resulting in a fully loaded hourly rate of $52.65. 176 Census Bureau, Statistics of U.S. Businesses (2017), https://www.census.gov/data/tables/2017/ econ/susb/2017-susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry. 177 Bureau of Labor Statistics, Occupational Employment and Wages (May 2020), https:// www.bls.gov/oes/current/oes131141.htm. 178 The benefits-earnings ratio is derived from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation data using variables CMU1020000000000D and CMU1030000000000D. PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 40955 The Department estimates that the lower bound of regulatory familiarization cost range would be $52,728,043 (5,996,900 firms × $52.65 × 0.167 hours), and the upper bound, $69,115,369 (7,860,674 establishments × $52.65 × 0.167 hours). The Department estimates that all regulatory familiarization costs would occur in Year 1. Additionally, the Department estimated average annualized costs of regulatory familiarization with this rescission over 10 years. Over 10 years, it would have an average annual cost of $7.0 million to $9.2 million, calculated at a 7 percent discount rate ($5.8 million to $7.6 million calculated at a 3 percent discount rate). All costs are in 2020 dollars. 2. Other Costs As discussed above, some commenters asserted that there may be other potential costs to the regulated community, such as reduced clarity from the lack of the Rule’s regulatory guidance. Because it lacks data on the number of businesses that are in a joint employment relationship or those that changed their policies as a result of the Joint Employer Rule, the Department has not quantified these potential costs, which are expected to be de minimis. Although the rescission removes the regulations at 29 CFR part 791, the Department believes that this will not result in substantial costs or decreased clarity for the regulated community because, as discussed above, most courts apply a vertical joint employment analysis different from the analysis in the Joint Employer Rule and have not adopted the Rule’s analysis. The State AGs agree with this assertion in their comment. Texas RioGrande Legal Aid asserts that the Joint Employer Rule would not have created clarity for the agricultural sector, because employers would face conflicting obligations under the different regulatory regimes of FLSA and MSPA. WPI asserted that using an ‘‘expanded’’ joint employment standard instead of the standard put forth in the Joint Employer Rule would result in a loss of output of $17.2 billion to $33.3 billion annually for the franchise business sector. WPI cites a comment provided by the International Franchise Association to the 2019 Joint Employer NPRM. In this comment, the International Franchise Association discusses a study by Dr. Ron Bird, looking at the effects of the National Labor Relations Board’s re-articulation of its joint employer standard in the Browning-Ferris case. The National Labor Relations Board is responsible for E:\FR\FM\30JYR1.SGM 30JYR1 40956 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations enforcing the National Labor Relations Act (NLRA), which differs from the FLSA. The commenters, however, do not provide any data or information connecting this output loss to rescission of the Joint Employer Rule. lotter on DSK11XQN23PROD with RULES1 C. Transfers In the Joint Employer Rule’s regulatory impact analysis, the Department acknowledged that the Rule could limit the ability of workers to collect wages due to them under the FLSA because when there is only one employer liable, there are fewer employers from which to collect those wages and no other options if that sole employer lacks sufficient assets to pay.179 Because the Joint Employer Rule provided new criteria for determining joint employer status under the FLSA and given the specifics of those criteria, it potentially reduced the number of businesses found to be joint employers from which employees may be able to collect back wages due to them under the Act. This, in turn, potentially reduced the amount of back wages that employees were able to collect when an employer did not comply with the Act and, for example, was or became insolvent. Like the Joint Employer Rule, this rescission will not change the amount of wages due any employee under the FLSA. However, rescinding the Joint Employer Rule could result in a transfer from employers to employees in the form of back wages owed that employees would thereafter be able to collect. The Department lacks data on the current number of businesses that are in a joint employment relationship, or to estimate the financial capabilities (or lack thereof) of these businesses and therefore is unable to estimate the magnitude of an increase in the number of employers liable as joint employers. Although the Rule would not have changed the amount of wages due to an employee, the narrower standard for joint employment in the Rule could have incentivized ‘‘workplace fissuring.’’ Research has shown that this type of domestic outsourcing can suppress workers’ wages, especially for low-wage occupations.180 The State AGs asserted, ‘‘[f]issured workplaces result in lower wages, greater wage theft, and less job security, especially for immigrants or people of color who make up a disproportionate share of low-wage 179 See 85 FR 2853. 180 Arindrajit Dube & Ethan Kaplan, Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards, ILR Review 63, no. 2, 287–306 (2010). VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 workers in nonstandard work arrangements.’’ In 2019, the Economic Policy Institute (EPI) submitted a comment in response to the Joint Employer NPRM in which they calculated that the Rule would result in transfers from employees to employers of over $1 billion.181 They again referenced this analysis in their comment on the proposed rescission. EPI explained that these transfers would result from both an increase in workplace ‘‘fissuring’’ as well as from an increase in wage theft by employers. Rescinding this standard could help mitigate any increased workplace fissuring and wage theft that would have resulted. The Department is unable to determine to what extent these transfers occurred while the Joint Employer Rule was in effect, and therefore has not provided a quantitative estimate of transfers from employers to employees because of this rescission. The Department is also unable to estimate the increase in back wages that employees will be able to collect because of this change. This rescission could also benefit some small businesses, because the Joint Employer Rule’s narrowing of the joint employment standard could have made them solely liable and responsible for complying with the FLSA without relying on the resources of a larger business in certain situations. The Texas Public Policy Foundation commented on the Department’s economic analysis, saying that the Department did not make any specific findings of the Rule’s effect on workers. The Department still believes that due to lack of data on the number of joint employment relationships, as well as how these relationships would have changed under the Joint Employer Rule, it is not possible to quantify the magnitude of transfers associated with the Rule or with its rescission. Likewise, the commenter does not provide any data or information about the impact of this rescission on workers. D. Benefits The Department believes that rescinding the Joint Employer Rule will result in benefits to workers and will strengthen wage and hour protections for vulnerable workers. Removing a standard for joint employment that is narrower than the standard applied by courts and WHD’s prior standards may enable more workers to collect back 181 Celine McNicholas & Heidi Shierholz, EPI comments regarding the Department of Labor’s proposed joint-employer standard, June 25, 2019, available at https://www.epi.org/publication/epicomments-regarding-the-department-of-laborsproposed-joint-employer-standard/. PO 00000 Frm 00040 Fmt 4700 Sfmt 4700 wages to which they would already be entitled under the FLSA. This could particularly improve the well-being and economic security of workers in lowwage industries, many of whom are immigrants and people of color, because FLSA violations are more severe and widespread in low-wage labor markets.182 V. Regulatory Flexibility Act (RFA) Analysis The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104–121 (1996), requires Federal agencies engaged in rulemaking to consider the impact of their proposals on small entities, consider alternatives to minimize that impact, and solicit public comment on their analyses. The RFA requires the assessment of the impact of a regulation on a wide range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions. Accordingly, the Department examined this rescission to determine whether it would have a significant economic impact on a substantial number of small entities. The most recent data on private sector entities at the time this final rule was drafted are from the 2017 Statistics of U.S. Businesses (SUSB), which reports 5,996,900 private firms and 7,860,674 private establishments with paid employees.183 Of these, 5,976,761 firms and 6,512,802 establishments have fewer than 500 employees. Because the Department is unable to determine how many of these businesses have workers with one or more joint employers, this analysis assumes all businesses will undertake review. The per-entity cost for small business employers is the regulatory familiarization cost of $8.79, or the fully loaded mean hourly wage of a Compensation, Benefits, and Job Analysis Specialist ($52.65) multiplied by 1⁄6 hour (ten minutes). Because this cost is minimal for small business entities, and well below one percent of their gross annual revenues, which is typically at least $100,000 per year for the smallest businesses, the Department certifies that this rescission will not have a significant economic impact on a substantial number of small entities. 182 Annette Bernhardt et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities (2009), available at https://www.nelp.org/wp-content/ uploads/2015/03/BrokenLawsReport2009.pdf. 183 Census Bureau, Statistics of U.S. Businesses (2017), https://www.census.gov/data/tables/2017/ econ/susb/2017-susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry. E:\FR\FM\30JYR1.SGM 30JYR1 Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Rules and Regulations VI. Unfunded Mandates Reform Act of 1995 The Unfunded Mandates Reform Act of 1995 (UMRA) 184 requires agencies to prepare a written statement for rules with a Federal mandate that may result in increased expenditures by state, local, and tribal governments, in the aggregate, or by the private sector, of $165 million ($100 million in 1995 dollars adjusted for inflation) or more in at least one year.185 This statement must: (1) Identify the authorizing legislation; (2) present the estimated costs and benefits of the rule and, to the extent that such estimates are feasible and relevant, its estimated effects on the national economy; (3) summarize and evaluate state, local, and tribal government input; and (4) identify reasonable alternatives and select, or explain the non-selection, of the least costly, most cost-effective, or least burdensome alternative. regulation with a smaller aggregate effect is not likely to have a measurable effect in macroeconomic terms, unless it is highly focused on a particular geographic region or economic sector, which is not the case with this rule. Given OMB’s guidance, the Department has determined that a full macroeconomic analysis is not likely to show that these costs would have any measurable effect. Authorizing Legislation This final rule is issued pursuant to the Fair Labor Standards Act of 1938, 29 U.S.C. 201–219. VIII. Executive Order 13175, Indian Tribal Governments Assessment of Costs and Benefits For purposes of UMRA, this rescission is not expected to result in increased expenditures by the private sector or by state, local, and tribal governments of $165 million or more in at least one year. As discussed earlier, the Department believes that the rescission will not result in substantial costs for the regulated community because most courts apply a vertical joint employment analysis different from the analysis in the Joint Employer Rule and have not adopted the Rule’s analysis. More detailed analysis of impacts appears above. UMRA requires agencies to estimate the effect of a regulation on the national economy if such estimates are reasonably feasible and the effect is relevant and material.186 However, OMB guidance on this requirement notes that such macroeconomic effects tend to be measurable in nationwide econometric models only if the economic effect of the regulation reaches 0.25 percent to 0.5 percent of Gross Domestic Product (GDP), or in the range of $52.3 billion to $104.7 billion (using 2020 GDP).187 A lotter on DSK11XQN23PROD with RULES1 184 See 2 U.S.C. 1501. 185 Calculated using growth in the Gross Domestic Product deflator from 1995 to 2019. Bureau of Economic Analysis. Table 1.1.9. Implicit Price Deflators for Gross Domestic Product. 186 See 2 U.S.C. 1532(a)(4). 187 According to the Bureau of Economic Analysis, 2020 GDP was $20.9 trillion. https:// www.bea.gov/sites/default/files/2021-04/gdp1q21_ adv.pdf. VerDate Sep<11>2014 16:28 Jul 29, 2021 Jkt 253001 VII. Executive Order 13132, Federalism The Department has (1) reviewed this rescission in accordance with Executive Order 13132 regarding federalism and (2) determined that it does not have federalism implications. The rescission would not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. This rescission would not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. List of Subjects in 29 CFR Part 791 Wages. PART 791—[REMOVED AND RESERVED] For the reasons set forth in the preamble, and under the authority of the FLSA, 29 U.S.C. 201–219, the Department removes and reserves 29 CFR part 791. ■ Jessica Looman, Principal Deputy Administrator, Wage and Hour Division. [FR Doc. 2021–15316 Filed 7–29–21; 8:45 am] BILLING CODE 4510–27–P DEPARTMENT OF HOMELAND SECURITY Coast Guard [Docket No. USCG–2020–0034] RIN 1625–AA09 Drawbridge Operation Regulation; Chicago River, Chicago, IL Coast Guard, DHS. Final rule. AGENCY: PO 00000 Frm 00041 Fmt 4700 The Coast Guard is revising the operating schedule that governs the Amtrak Railroad Bridge, mile 3.77, across the South Branch of the Chicago River, at Chicago, Illinois to be operated remotely and establish an intermediate opening position. DATES: This rule is effective August 30, 2021. ADDRESSES: To view documents mentioned in this preamble as being available in the docket, go to https:// www.regulations.gov. Type USCG– 2020–0034 in the ‘‘SEARCH’’ box and click ‘‘SEARCH.’’ Click on Open Docket Folder on the line associated with this rule. FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call or email Mr. Lee D. Soule, Bridge Management Specialist, Ninth Coast Guard District; telephone 216–902– 6085, email Lee.D.Soule@uscg.mil. SUPPLEMENTARY INFORMATION: SUMMARY: I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register IGLD85 International Great Lakes Datum of 1985 LWD Low Water Datum based on IGLD85 NPRM Notice of Proposed Rulemaking (Advance, Supplemental) OMB Office of Management and Budget § Section TD Temporary Deviation with Request for comments U.S.C. United States Code II. Background Information and Regulatory History On April 8, 2020 the Coast Guard published a TD in the Federal Register (85 FR 19659) to test the proposed rule and allow mariners to provide comments from June 1, 2020 through September 1, 2020. We received one unrelated comment. On May 4, 2021, the Coast Guard published a NPRM in the Federal Register (86 FR 23639). There we stated why we issued the NPRM, and invited comments on proposed regulatory action. During the comment period that ended on June 3, 2021, we received zero (0) comments. III. Legal Authority and Need for Rule 33 CFR Part 117 ACTION: 40957 Sfmt 4700 The Coast Guard is issuing this rule under authority 33 U.S.C. 499. The Amtrak Railroad Bridge, mile 3.77, over the South Branch of the Chicago River provides a vertical clearance of 10 feet in the down position and 65 feet in the open position above LWD and a horizontal clearance of 156 feet. The bridge crosses the river on a slight skew on an ‘‘S’’ curve in the E:\FR\FM\30JYR1.SGM 30JYR1

Agencies

[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Rules and Regulations]
[Pages 40939-40957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15316]


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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 791

RIN 1235-AA37


Rescission of Joint Employer Status Under the Fair Labor 
Standards Act Rule

AGENCY: Wage and Hour Division (WHD), Department of Labor (DOL).

ACTION: Final rule; rescission.

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SUMMARY: This action finalizes the Department's proposal to rescind the 
final rule titled ``Joint Employer Status Under the Fair Labor 
Standards Act,'' which published on January 16, 2020, and took effect 
on March 16, 2020. This rescission removes the regulations established 
by that rule.

DATES: This final rule is effective on September 28, 2021.

FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this final rule may be obtained in alternative 
formats (Large Print, Braille, Audio Tape or Disc), upon request, by 
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD 
callers may dial toll-free 1-877-889-5627 to obtain information or 
request materials in alternative formats.
    Questions of interpretation and/or enforcement of the agency's 
regulations may be directed to the nearest WHD district office. Locate 
the nearest office by calling WHD's toll-free help line at (866) 4US-
WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time 
zone, or logging onto WHD's website for a nationwide listing of WHD 
district and area offices at http://www.dol.gov/whd/america2.htm.

SUPPLEMENTARY INFORMATION:

I. Background

    The Fair Labor Standards Act (FLSA or Act) requires all covered 
employers to pay nonexempt employees at least the Federal minimum wage 
for every hour worked in a non-overtime workweek.\1\ In an overtime 
workweek, for all hours worked in excess of 40 in a workweek, covered 
employers must pay a nonexempt employee at least one and one-half times 
the employee's regular rate.\2\ The FLSA also requires covered 
employers to make, keep, and preserve certain records regarding 
employees.\3\
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    \1\ See 29 U.S.C. 206(a).
    \2\ See 29 U.S.C. 207(a).
    \3\ See 29 U.S.C. 211(c).
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    The FLSA does not define ``joint employer'' or ``joint 
employment.'' However, section 3(d) of the Act defines ``employer'' to 
``include[ ] any person acting directly or indirectly in the interest 
of an employer in relation to an employee.'' \4\ Section 3(e) generally 
defines ``employee'' to mean ``any individual employed by an employer'' 
\5\ and identifies certain specific groups of workers who are not 
``employees'' for purposes of the Act.\6\ Section 3(g) defines 
``employ'' to ``include[ ] to suffer or permit to work.'' \7\
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    \4\ 29 U.S.C. 203(d).
    \5\ 29 U.S.C. 203(e)(1).
    \6\ See 29 U.S.C. 203(e)(2)-(5).
    \7\ 29 U.S.C. 203(g).
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A. Prior Guidance Regarding FLSA Joint Employment

    In 1939, a year after the FLSA's enactment, the Department's Wage 
and Hour Division (WHD) issued Interpretative Bulletin No. 13, 
addressing, among other topics, whether two or more companies may be 
jointly and severally liable for a single employee's hours worked under 
the FLSA.\8\ WHD recognized in the Bulletin that there is joint 
employment liability under the FLSA and provided examples of situations 
where two companies would or would not be joint employers of an 
employee.\9\ For situations where an employee works hours for one 
company and works separate hours for another company in the same 
workweek, WHD focused on whether the two companies ``are acting 
entirely independently of each other with respect to the employment of 
the particular employee'' (in which case they would not be joint 
employers) or, ``on the other hand, the employment by [the one company] 
is not completely disassociated from the employment by [the other 
company]'' (in which case they would be joint employers and the hours 
worked for both would be aggregated for purposes of the Act).\10\ WHD 
stated in the Bulletin that it ``will scrutinize all cases involving 
more than one employment and, at least in the following situations, an 
employer will be considered as acting in the interest of another 
employer in relation to an employee: If the employers make an 
arrangement for the interchange of employees or if one company 
controls, is controlled by, or is under common control with, directly 
or indirectly, the other company.'' \11\
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    \8\ See Interpretative Bulletin No. 13, ``Hours Worked: 
Determination of Hours for Which Employees are Entitled to 
Compensation Under the Fair Labor Standards Act of 1938,'' ]] 16-17. 
In October 1939 and October 1940, WHD revised other portions of the 
Bulletin that are not pertinent here.
    \9\ See id.
    \10\ Id. ] 17.
    \11\ Id.
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    In 1958, the Department published a rule introducing 29 CFR part 
791, titled ``Joint Employment Relationship under Fair Labor Standards 
Act of 1938.'' \12\ Section 791.2(a) reiterated that there is joint 
employment liability under the Act and stated that the determination 
``depends upon all the facts in the particular case.'' \13\ It further 
stated that two or more employers that ``are acting entirely 
independently of each other and are completely disassociated'' with 
respect to the employee's employment are not joint employers, but joint 
employment exists if ``employment by one employer is not completely 
disassociated from employment by the

[[Page 40940]]

other employer(s).'' \14\ Section 791.2(b) explained that, ``[w]here 
the employee performs work which simultaneously benefits two or more 
employers, or works for two or more employers at different times during 
the workweek, a joint employment relationship generally will be 
considered to exist in situations such as:
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    \12\ See 23 FR 5905 (Aug. 5, 1958).
    \13\ 29 CFR 791.2(a) (1958).
    \14\ Id.
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    (1) Where there is an arrangement between the employers to share 
the employee's services, as, for example, to interchange employees; or
    (2) Where one employer is acting directly or indirectly in the 
interest of the other employer (or employers) in relation to the 
employee; or
    (3) Where the employers are not completely disassociated with 
respect to the employment of a particular employee and may be deemed to 
share control of the employee, directly or indirectly, by reason of the 
fact that one employer controls, is controlled by, or is under common 
control with the other employer.'' \15\
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    \15\ 29 CFR 791.2(b) (1958) (footnotes omitted).
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    In 1961, the Department amended a footnote in Sec.  791.2(a) to 
clarify that a joint employer is also jointly liable for overtime 
pay.\16\ Over the next several decades, WHD issued various guidance 
documents including Fact Sheets, opinion letters, as well as legal 
briefs reiterating the Department's position concerning joint 
employment. See, e.g., WHD Opinion Letter FLSA2005-15, 2005 WL 2086804 
(Apr. 11, 2005) (addressing joint employment in a health care system 
comprised of hospitals, nursing homes, and parent holding company); WHD 
Opinion Letter, 1999 WL 1788146 (Aug. 24, 1999) (advising that private 
duty nurses were jointly employed by a hospital and individual 
patients); WHD Opinion Letter, 1998 WL 852621 (Jan. 27, 1998) 
(addressing the joint employment of grocery vendor employees stocking 
grocery shelves); WHD Opinion Letter FLSA-1089, 1989 WL 1632931 (Aug. 
9, 1989) (advising that workers participating in an enclave program 
would be jointly employed by a participating business and a supervising 
workshop).
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    \16\ See 26 FR 7730, 7732 (Aug. 18, 1961).
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    In 2014, WHD issued an Administrator's Interpretation (Home Care 
AI) addressing how joint employment under the FLSA applies to certain 
home care workers.\17\ The Home Care AI explained that the FLSA's 
definitions of ``employer,'' ``employee,'' and ``employ,'' ``and 
therefore the scope of employment relationships the Act covers, are 
exceedingly broad.'' \18\ The Home Care AI discussed application of 29 
CFR 791.2 and stated that its ``focus . . . is the degree to which the 
two possible joint employers share control with respect to the employee 
and the degree to which the employee is economically dependent on the 
purported joint employers.'' \19\ WHD recognized that, ``when making 
joint employment determinations in FLSA cases, the exact factors 
applied may vary,'' but also stated that ``a set of factors that 
addresses only control is not consistent with the breadth of employment 
under the FLSA'' because an analysis based solely on the potential 
employer's joint control `` `cannot be reconciled with [FLSA section 
3(g)'s ``suffer or permit'' language], which necessarily reaches beyond 
traditional agency law.' '' \20\ Accordingly, the Home Care AI applied 
a non-exclusive set of ``economic realities factors'' relating to the 
potential joint employer's control and other aspects of the 
relationship to provide guidance regarding the possibility of joint 
employment in numerous hypothetical scenarios specific to the home care 
industry.\21\ WHD withdrew the Home Care AI on March 10, 2020.
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    \17\ See Administrator's Interpretation No. 2014-2, ``Joint 
Employment of Home Care Workers in Consumer-Directed, Medicaid-
Funded Programs by Public Entities under the Fair Labor Standards 
Act'' (June 19, 2014), available at 2014 WL 2816951.
    \18\ Id. at *2.
    \19\ Id. at *2 n.4.
    \20\ Id. at *2 n.5 (quoting Zheng v. Liberty Apparel Co., 355 
F.3d 61, 69 (2d Cir. 2003)).
    \21\ See id. at *7-14; see also id. at *3 (``[A]ny assessment of 
whether a public entity is a joint employer necessarily involves a 
weighing of all the facts and circumstances, and there is no single 
factor that is determinative[.]'') (citing Rutherford Food Corp. v. 
McComb, 331 U.S. 722, 730 (1947)).
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    In 2016, WHD issued an Administrator's Interpretation (Joint 
Employment AI) addressing joint employment generally under the FLSA and 
the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), 
which uses the same definition of ``employ'' as the FLSA.\22\ Relying 
on the text and history of FLSA section 3(g) and case law interpreting 
it, the Joint Employment AI explained that joint employment, like 
employment generally, is expansive under the FLSA and ``notably broader 
than the common law concepts of employment and joint employment.'' \23\ 
The Joint Employment AI further explained that ``the expansive 
definition of `employ' as including `to suffer or permit to work' 
rejected the common law control standard and ensures that the scope of 
employment relationships and joint employment under the FLSA and MSPA 
is as broad as possible.'' \24\ The AI described how ``suffer or 
permit'' or ``similar phrasing was commonly used in state laws 
regulating child labor and was `designed to reach businesses that used 
middlemen to illegally hire and supervise children.' '' \25\ The AI 
thus concluded that ``the `suffer or permit to work' standard was 
designed to expand child labor laws' coverage beyond those who 
controlled the child laborer,'' ``prevent employers from using 
`middlemen' to evade the laws' requirements,'' and ensure joint 
liability in a type of vertical joint employment situation (explained 
below).\26\
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    \22\ See Administrator's Interpretation No. 2016-1, ``Joint 
Employment Under the Fair Labor Standards Act and Migrant and 
Seasonal Agricultural Worker Protection Act'' (Jan. 20, 2016), 
available at 2016 WL 284582; see also 29 U.S.C. 1802(5) (``The term 
`employ' [under MSPA] has the meaning given such term under section 
3(g) of the [FLSA].'').
    \23\ Id. at *3 (citing, inter alia, Torres-Lopez v. May, 111 
F.3d 633, 639 (9th Cir. 1997); Antenor v. D & S Farms, 88 F.3d 925, 
929 (11th Cir. 1996)).
    \24\ Id.
    \25\ Id. (quoting Antenor, 88 F.3d at 929 n.5).
    \26\ Id.
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    The Joint Employment AI described and discussed two types of joint 
employment. It discussed horizontal joint employment, which exists 
where an employee is separately employed by, and works separate hours 
in a workweek for, more than one employer, and the employers ``are 
sufficiently associated with or related to each other with respect to 
the employee'' such that they are joint employers.\27\ The Joint 
Employment AI explained that ``the focus of a horizontal joint 
employment analysis is the relationship between the two (or more) 
employers'' and that 29 CFR 791.2 provided guidance on analyzing that 
type of joint employment, and the AI provided some additional guidance 
on applying Sec.  791.2.\28\ The Joint Employment AI also discussed 
vertical joint employment, which exists where an ``employee has an 
employment relationship with one employer (typically a staffing agency, 
subcontractor, labor provider, or other intermediary employer),'' 
another employer is ``receiv[ing] the benefit of the employee's 
labor,'' and ``the economic realities show that [the employee] is 
economically dependent on, and thus employed by,'' the other 
employer.\29\ The Joint Employment AI explained that the vertical joint 
employment analysis does not focus on examining the relationship 
between the two employers but instead ``examines the economic 
realities'' of the relationship between the employee and the other 
employer that is benefitting

[[Page 40941]]

from the worker's labor.\30\ The AI noted that ``several Circuit Courts 
of Appeals have also adopted an economic realities analysis for 
evaluating vertical joint employment under the FLSA,'' and that, 
``[r]egardless of the exact factors, the FLSA and MSPA require 
application of the broader economic realities analysis, not a common 
law control analysis, in determining vertical joint employment.'' \31\ 
The AI advised that, ``because of the shared definition of employment 
and the coextensive scope of joint employment between the FLSA and 
MSPA,'' the non-exclusive, multi-factor economic realities analysis set 
forth by the Department in its MSPA joint employment regulation should 
be applied in FLSA vertical joint employment cases to analyze the 
relationship between the employee and the other employer, and that 
doing so ``is consistent with both statutes and regulations.'' \32\ The 
AI provided additional guidance on applying the analysis.\33\ WHD 
withdrew the Joint Employment AI on June 7, 2017.\34\
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    \27\ Id. at *4.
    \28\ Id. at *4-8.
    \29\ Id. at *2.
    \30\ Id. at *4.
    \31\ Id.
    \32\ Id. at *5 (citing WHD's multi-factor economic realities 
analysis for joint employment under MSPA set forth at 29 CFR 
500.20(h)(5)). The Department issued its current MSPA joint 
employment regulation in 1997 via a final rule following notice-and-
comment rulemaking. See 62 FR 11734 (Mar. 12, 1997).
    \33\ See 2016 WL 284582, at *8-12.
    \34\ See News Release 17-0807-NAT, ``US Secretary of Labor 
Withdraws Joint Employment, Independent Contractor Informal 
Guidance'' (June 7, 2017), available at https://www.dol.gov/newsroom/releases/opa/opa20170607.
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B. 2020 Joint Employer Rule

    In January 2020, the Department published a final rule titled 
``Joint Employer Status Under the Fair Labor Standards Act,'' which 
became effective on March 16, 2020 (Joint Employer Rule or Rule).\35\ 
The Joint Employer Rule revised 29 CFR part 791 so that: Sec.  791.1 
contained an introductory statement; Sec.  791.2 contained the 
substance of the Rule and addressed both vertical joint employment 
(which it referred to as ``the first joint employer scenario'') and 
horizontal joint employment (which it referred to as ``the second joint 
employer scenario''); and Sec.  791.3 contained a severability 
provision.\36\
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    \35\ See 85 FR 2820 (Jan. 16, 2020). The Department had 
published a notice of proposed rulemaking (NPRM) requesting comments 
on a proposed rule. See 84 FR 14043 (Apr. 9, 2019). The final rule 
adopted ``the analyses set forth in the NPRM largely as proposed.'' 
85 FR 2820.
    \36\ See 29 CFR 791.1, 791.2, and 791.3 (2020).
---------------------------------------------------------------------------

1. Joint Employer Rule's Vertical Joint Employment Standard
    For vertical joint employment, Sec.  791.2(a)(1) stated that 
``[t]he other person [that is benefitting from the employee's labor] is 
the employee's joint employer only if that person is acting directly or 
indirectly in the interest of the employer in relation to the 
employee,'' and then cited FLSA section 3(d)'s definition of 
``employer.'' \37\ The Joint Employer Rule provided that section 3(d) 
is the sole statutory provision in the FLSA for determining ``joint 
employer status'' under the Act--to the exclusion of sections 3(e) and 
3(g).\38\ The Joint Employer Rule further provided that the definitions 
of ``employee'' and ``employ'' in sections 3(e) and 3(g) ``determine 
whether an individual worker is an employee under the Act.'' \39\ 
Citing section 3(d)'s definition of ``employer'' as including ``any 
person acting directly or indirectly in the interest of an employer in 
relation to an employee,'' the Rule stated that ``only this language 
from section 3(d) contemplates the possibility of a person in addition 
to the employer who is also an employer and therefore jointly liable 
for the employee's hours worked.'' \40\ The Rule concluded that this 
language from section 3(d), ``by its plain terms, contemplates an 
employment relationship between an employer and an employee, as well as 
another person who may be an employer too--which exactly fits the 
[vertical] joint employer scenario under the Act.'' \41\ The Rule 
relied on the Supreme Court's decision in Falk v. Brennan \42\ and the 
Court of Appeals for the Ninth Circuit's decision in Bonnette v. 
California Health & Welfare Agency \43\ to ``support focusing on 
section 3(d) as determining joint employer status.'' \44\
---------------------------------------------------------------------------

    \37\ 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) 
(emphasis added).
    \38\ See generally 85 FR 2825-28.
    \39\ Id. at 2827.
    \40\ Id. (citing 29 U.S.C. 203(d)); see also id. (``This 
language from section 3(d) makes sense only if there is an employer 
and employee with an existing employment relationship and the issue 
is whether another person is an employer.'').
    \41\ Id.
    \42\ 414 U.S. 190 (1973).
    \43\ 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds, 
Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985).
    \44\ 85 FR 2827.
---------------------------------------------------------------------------

    Section 791.2(a)(1) of the Joint Employer Rule stated that ``four 
factors are relevant to the determination'' of whether the other 
employer is a joint employer in the vertical joint employment 
situation.\45\ Those four factors were whether the other employer: (1) 
Hires or fires the 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.\46\ The Joint Employer Rule stated 
that its four-factor test was ``derived from'' Bonnette.\47\ In 
Bonnette, the Ninth Circuit affirmed a finding of vertical joint 
employment after considering whether the other 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.\48\
---------------------------------------------------------------------------

    \45\ 29 CFR 791.2(a)(1) (2020).
    \46\ See 29 CFR 791.2(a)(1)(i)-(iv) (2020).
    \47\ 85 FR 2830.
    \48\ See 704 F.2d at 1469-1470.
---------------------------------------------------------------------------

    The Joint Employer Rule's four-factor analysis deviated from the 
analysis in Bonnette in several ways. First, the Rule articulated the 
first factor as whether the other employer ``[h]ires or fires the 
employee'' as opposed to whether it had ``the power'' to hire and 
fire.\49\ Section 791.2(a)(3)(i) stated that the ``potential joint 
employer must actually exercise . . . one or more of these indicia of 
control to be jointly liable under the Act,'' and that ``[t]he 
potential joint employer's ability, power, or reserved right to act in 
relation to the employee may be relevant for determining joint employer 
status, but such ability, power, or right alone does not demonstrate 
joint employer status without some actual exercise of control.'' \50\ 
Second, the Joint Employer Rule modified the Bonnette factor requiring 
consideration of whether the potential joint employer supervises and 
controls work schedules or conditions of employment by adding the 
phrase ``to a substantial degree.'' This phrase was absent from the 
test articulated in Bonnette (although Bonnette found that, on the 
factual record before it, the potential joint employers ``exercised 
considerable control'' in that area).\51\ Third, Sec.  791.2(a)(2) 
stated that ``[s]atisfaction of the maintenance of employment records 
factor alone will not lead to a finding of joint employer status,'' 
however, Bonnette did not include this limitation to a finding of joint 
employer status.\52\ Finally, Sec.  791.2(b) stated that ``[a]dditional 
factors may be relevant for determining joint employer status in this 
scenario, but only if they are indicia of whether

[[Page 40942]]

the potential joint employer exercises significant control over the 
terms and conditions of the employee's work.'' \53\ Bonnette, however, 
stated that its four factors ``provide a useful framework for analysis 
in this case,'' but ``are not etched in stone and will not be blindly 
applied,'' and that ``[t]he ultimate determination must be based `upon 
the circumstances of the whole activity.' '' \54\
---------------------------------------------------------------------------

    \49\ Compare 29 CFR 791.2(a)(1)(i) (2020) with Bonnette, 704 
F.2d at 1469-1470.
    \50\ 29 CFR 791.2(a)(3)(i) (2020) (citing 29 U.S.C. 203(d)).
    \51\ Compare 29 CFR 791.2(a)(1)(ii) (2020) with Bonnette, 704 
F.2d at 1469-1470.
    \52\ Compare 29 CFR 791.2(a)(2) (2020) with Bonnette, 704 F.2d 
at 1469-1470.
    \53\ 29 CFR 791.2(b) (2020).
    \54\ 704 F.2d at 1470 (quoting Rutherford Food, 331 U.S. at 
730).
---------------------------------------------------------------------------

    In addition to generally excluding factors that are not indicative 
of the potential joint employer's control over the employee's work, the 
Joint Employer Rule specifically excluded any consideration of the 
employee's economic dependence on the potential joint employer.\55\ The 
Rule asserted that ``[e]conomic dependence is relevant when applying 
section 3(g) and determining whether a worker is an employee under the 
Act; however, determining whether a worker who is an employee under the 
Act has a joint employer for his or her work is a different analysis 
that is based on section 3(d).'' \56\ The Rule further asserted that, 
``[b]ecause evaluating control of the employment relationship by the 
potential joint employer over the employee is the purpose of the 
Department's four-factor balancing test, it is sensible to limit the 
consideration of additional factors to those that indicate control.'' 
\57\
---------------------------------------------------------------------------

    \55\ 29 CFR 791.2(c) (2020) (``[T]o determine joint employer 
status, no factors should be used to assess economic dependence.'').
    \56\ 85 FR 2821.
    \57\ Id. at 2836.
---------------------------------------------------------------------------

2. Joint Employer Rule's Horizontal Joint Employment Standard
    To determine horizontal joint employment, the Joint Employer Rule 
adopted the longstanding standard articulated in the prior version of 
29 CFR 791.2 with ``non-substantive revisions.'' \58\ Section 
791.2(e)(2) stated that, in this ``second joint employer scenario,'' 
``if the employers are acting independently of each other and are 
disassociated with respect to the employment of the employee,'' they 
are not joint employers.\59\ It further stated that, ``if the employers 
are sufficiently associated with respect to the employment of the 
employee, they are joint employers and must aggregate the hours worked 
for each for purposes of determining compliance with the Act.'' \60\ It 
identified the same three general examples of horizontal joint 
employment provided in the prior version of 29 CFR 791.2.\61\
---------------------------------------------------------------------------

    \58\ Id. at 2823; see also id. at 2844-45.
    \59\ 29 CFR 791.2(e)(1)-(2) (2020).
    \60\ 29 CFR 791.2(e)(2) (2020).
    \61\ Compare 29 CFR 791.2(e)(2)(i)-(iii) (2020) with 29 CFR 
791.2(b)(1)-(3) (1958).
---------------------------------------------------------------------------

3. Joint Employer Rule's Additional Provisions
    The Joint Employer Rule adopted additional provisions that apply to 
both vertical and horizontal joint employment. Section 791.2(f) 
addresses the consequences of joint employment and provided that 
``[f]or each workweek that a person is a joint employer of an employee, 
that joint employer is jointly and severally liable with the employer 
and any other joint employers for compliance'' with the Act.\62\ 
Section 791.2(g) provided 11 ``illustrative examples'' of how the Rule 
may apply to specific factual situations implicating both vertical and 
horizontal joint employment.\63\
---------------------------------------------------------------------------

    \62\ 29 CFR 791.2(f) (2020).
    \63\ 29 CFR 791.2(g) (2020).
---------------------------------------------------------------------------

C. Decision Vacating Most of the Joint Employer Rule

    In February 2020, 17 States and the District of Columbia (the 
States) filed a lawsuit in the United States District Court for the 
Southern District of New York against the Department asserting that the 
Joint Employer Rule violated the Administrative Procedure Act 
(APA).\64\ The Department moved to dismiss the lawsuit on the grounds 
that the States did not have standing. The district court denied that 
motion on June 1, 2020.\65\ The district court issued an order on June 
29, 2020, permitting the International Franchise Association, the 
Chamber of Commerce of the United States of America, the National 
Retail Federation, the Associated Builders and Contractors, and the 
American Hotel and Lodging Association (Intervenors) to intervene as 
defendants in the case.\66\ The parties filed cross-motions for summary 
judgment, which the district court decided on September 8, 2020.\67\
---------------------------------------------------------------------------

    \64\ See New York v. Scalia, No. 1:20-cv-01689 (S.D.N.Y. filed 
Feb. 26, 2020). The APA requires courts to hold unlawful and set 
aside agency actions that are ``arbitrary, capricious, an abuse of 
discretion, or otherwise not in accordance with law.'' 5 U.S.C. 
706(2)(A).
    \65\ See 464 F. Supp. 3d 528.
    \66\ See 2020 WL 3498755.
    \67\ See 490 F. Supp. 3d 748.
---------------------------------------------------------------------------

    The district court vacated the Joint Employer Rule's ``novel 
standard for vertical joint employer liability'' because its 
``revisions to that scenario are flawed in just about every respect.'' 
\68\ The district court found that the Rule violated the APA because it 
was contrary to the law--specifically, it conflicted with the FLSA.\69\ 
The district court identified three conflicts: The Rule's reliance on 
the FLSA's definition of ``employer'' in section 3(d) as the sole 
textual basis for joint employment liability; its adoption of a 
control-based test for determining vertical joint employer liability; 
and its prohibition against considering additional factors beyond 
control, such as economic dependence.\70\ In addition, the district 
court found that the Rule was ``arbitrary and capricious'' in violation 
of the APA for three reasons: The Rule did not adequately explain why 
it departed from the Department's prior interpretations; the Rule did 
not consider the conflict between it and the Department's MSPA joint 
employment regulations; and the Rule did not adequately consider its 
cost to workers.\71\
---------------------------------------------------------------------------

    \68\ Id. at 795.
    \69\ See id. at 774.
    \70\ See id. at 774-92.
    \71\ See id. at 792-95.
---------------------------------------------------------------------------

    The district court concluded that the Joint Employer Rule's ``novel 
interpretation for vertical joint employer liability'' was unlawful 
under the APA and vacated all of Sec.  791.2 except for Sec.  
791.2(e).\72\ The court determined that, because the Rule's ``non-
substantive revisions to horizontal joint employer liability are 
severable,'' Sec.  791.2(e) ``remains in effect.'' \73\
---------------------------------------------------------------------------

    \72\ Id. at 795-96.
    \73\ Id.
---------------------------------------------------------------------------

    In November 2020, the Department and the Intervenors appealed the 
district court's decision vacating most of the Joint Employer Rule, and 
the appeal remains pending before the Court of Appeals for the Second 
Circuit, as discussed further below.\74\
---------------------------------------------------------------------------

    \74\ See New York v. Scalia, 490 F. Supp. 3d 748, appeal 
docketed, No. 20-3806 (2d Cir. Nov. 6, 2020).
---------------------------------------------------------------------------

D. Proposal To Rescind the Joint Employer Rule

    On March 12, 2021, the Department issued a notice of proposed 
rulemaking (NPRM) proposing to rescind the Joint Employer Rule.\75\ The 
NPRM explained that the Department was considering rescinding the Joint 
Employer Rule for several reasons.\76\ The Department decided to 
further consider the concerns raised by the district court in New York 
v. Scalia that the Rule's reliance on section 3(d) alone among the 
FLSA's provisions may be contrary to the FLSA's text and Congressional 
intent, particularly as the Department had never previously excluded 
FLSA sections 3(e) and (g) from the joint employment analysis and had 
instead

[[Page 40943]]

applied an economic realities framework that included the definitions 
of ``employ'' or ``employee'' when determining joint employer 
liability, consistent with the approach taken by courts.\77\ The 
Department was similarly concerned that the Rule's use of section 3(d) 
alone as the statutory basis for joint employment might not ``easily 
encompass all scenarios in which joint employment may arise; multiple 
employers may `suffer or permit' an employee to work and could thus be 
joint employers under section 3(g) without one [employer] working `in 
the interest of an employer' under section 3(d).'' \78\
---------------------------------------------------------------------------

    \75\ See 86 FR 14038.
    \76\ See 86 FR 14042-46.
    \77\ See 86 FR 14042-43.
    \78\ See 86 FR 14043.
---------------------------------------------------------------------------

    The Department also believed that it should consider and address 
the district court's conclusion that the Joint Employer Rule 
``unlawfully limits the factors the Department will consider in the 
joint employer inquiry'' by focusing on a control-based test to the 
exclusion of economic dependence generally, certain economic dependence 
factors, and certain other considerations, as this approach is not 
consistent with the totality-of-the-circumstances economic realities 
standard that has generally been used by the courts.\79\ The Rule's 
approach was also different than the Department's prior guidance on 
joint employment, and the Department acknowledged in the NPRM the 
district court's concerns that the Rule did not adequately explain the 
reasons for the significant departure.\80\ Relatedly, the Department 
recognized in the NPRM that courts have generally declined to adopt the 
Rule's vertical joint employment analysis as a replacement for their 
existing analyses, indicating that the Rule had not provided the 
intended clarity and that rescinding the Rule would not be disruptive 
to stakeholders.\81\ Finally, the Department was concerned that the 
Rule may not have sufficiently considered the negative effect that it 
would have on employees by reducing the number of businesses who were 
FLSA joint employers from which employees may be able to collect back 
wages due to them under the FLSA.\82\ For all of these reasons, the 
Department proposed in the NPRM to rescind the entire Joint Employer 
Rule.\83\
---------------------------------------------------------------------------

    \79\ See 86 FR 14043-44 (quoting Scalia, 490 F. Supp. 3d at 
790).
    \80\ See 86 FR 14044.
    \81\ See 86 FR 14044-45.
    \82\ See 86 FR 14045.
    \83\ See 86 FR 14045-46.
---------------------------------------------------------------------------

E. Status of Pending Appeal of Decision Vacating Most of the Joint 
Employer Rule

    Although its filing deadline was not until February 19, 2021, the 
Department filed an opening brief in support of the Rule on January 15, 
2021. The Intervenors filed their opening brief on the same day. On 
March 31, 2021, the Department filed a motion seeking to hold the 
appeal in abeyance in light of the published NPRM proposing to rescind 
the Joint Employer Rule. The Second Circuit denied the motion without 
explanation. The States filed their response brief on April 16, 2021. 
The Intervenors filed their reply brief on May 7, 2021. On May 28, 
2021, the Department filed a reply brief. In its reply brief, the 
Department explained that the rulemaking proposing to rescind the Joint 
Employer Rule may moot the States' challenge to the Rule, making any 
resolution of the appeal unnecessary. The Department took no position 
on the merits of the Rule in its reply brief. The Department argued 
that if the Second Circuit resolves the appeal, it should reverse the 
district court's decision on the grounds that the States had no 
standing to challenge the Rule.

II. Comments and Decision

    The Department received over 290 comments in response to the NPRM. 
State officials, members of Congress, labor unions, social justice 
organizations, worker advocacy groups, and individual commenters wrote 
in support of the Department's proposal to rescind the Joint Employer 
Rule, including a number of commenters who submitted comments with 
similar template language. These commenters supported rescission of the 
Rule predominantly on the basis that, in their view, the Rule 
improperly narrowed the test for joint employer status and conflicted 
with decades of Department interpretation, the text of the FLSA, and 
Congressional intent. Some suggested that the Rule did not align with 
the Supreme Court's observation that the FLSA's conception of 
employment is of ``striking breadth.'' \84\ Commenters also noted 
detrimental effects of the Rule on vulnerable workers employed by 
contractors. Others pointed out that a court had vacated the Rule's 
vertical joint employment analysis and asserted that the horizontal 
joint employment test was intertwined with the vacated vertical joint 
employment provisions. Commenters also raised numerous other legal and 
policy criticisms of the Rule, discussed in greater detail below.
---------------------------------------------------------------------------

    \84\ Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 
(1992).
---------------------------------------------------------------------------

    Various trade associations, business advocacy organizations, law 
firms, and individual commenters submitted comments opposing the 
Department's proposal to rescind the Joint Employer Rule. These 
commenters generally supported the Rule for, in their view, providing a 
clearer, common-sense standard for determining joint employer status. 
Several expressed the view that the Department was relying too much on 
a district court decision which the commenters believe to be erroneous, 
and encouraged the Department to stay this rulemaking pending the 
outcome of the appeal to the Second Circuit. They raised numerous other 
legal and policy arguments in defense of the Rule (or in objection to 
the proposed rescission), discussed in greater detail below.\85\
---------------------------------------------------------------------------

    \85\ In addition, some commenters provided political or 
ideological statements that did not specifically support or oppose 
the proposed rescission. For example, some comments were limited to 
offering support for working people without suggesting how best to 
do so in the context of this rulemaking. A few other commenters 
appeared to confuse the proposed rescission of the Joint Employer 
Rule with the proposed withdrawal of the Department's rule related 
to independent contractors. See 86 FR 14027 (Mar. 12, 2021) 
(proposing withdrawal of the final rule, ``Independent Contractor 
Status under the Fair Labor Standards Act,'' previously published on 
January 7, 2021 at 86 FR 1168). The Department finalized withdrawal 
of the Independent Contractor Rule on May 6, 2021. See 86 FR 24303.
---------------------------------------------------------------------------

    Having considered the comments submitted in response to the NPRM, 
the Department has decided to finalize the rescission of the Joint 
Employer Rule. The Rule was inconsistent with the FLSA's text and 
purpose. The Rule's vertical joint employment analysis had never before 
been applied by WHD, was different from the analyses applied by every 
court to have considered the issue prior to the Rule's issuance, and 
has generally not been adopted by courts. The Rule's horizontal joint 
employment analysis, although consistent with prior guidance, was 
intertwined with the vertical joint employment analysis, and thus the 
Department is rescinding the entire Rule as explained below. The 
Department's response to commenter feedback on specific aspects of the 
proposed rescission is also provided below.

A. Statutory Analysis and Control-Based Test for Vertical Joint 
Employment

    The NPRM observed that the statutory analysis and control-based 
test for vertical joint employment set forth in the Joint Employer Rule 
was different, to varying degrees, from the analyses and tests applied 
by every court to have considered joint employer questions

[[Page 40944]]

prior to the Rule's issuance, as well as WHD's previous enforcement 
approach. The NPRM further noted that the Rule may have been 
impermissibly narrow due to its exclusive focus on control.
1. The Rule's Reliance on Section 3(d) as the Sole Textual Basis for 
Determining Joint Employer Status
    In the Rule, the Department stated that section 3(d) of the FLSA, 
which contains the definition of employer, is the sole statutory basis 
for determining joint employer status under the Act, and asserted that 
sections 3(e) and 3(g), which define ``employee'' and ``employ,'' 
respectively, are not relevant to determining joint employer 
status.\86\ In the NPRM, the Department explained its concern that, 
upon further consideration, the text of section 3(d) alone may not 
easily encompass all scenarios in which joint employment may arise 
under the Act.\87\
---------------------------------------------------------------------------

    \86\ 85 FR 2825, 2827-28.
    \87\ 86 FR 14042.
---------------------------------------------------------------------------

    Multiple commenters representing employees agreed that by limiting 
the statutory basis of the vertical joint employment analysis to 
section 3(d) and ignoring the ``suffer or permit'' language of section 
3(g)'s definition of ``employ,'' the Joint Employer Rule's test for 
vertical joint employment was unduly narrow and contrary to law and the 
Act. See, e.g., National Employment Lawyers Association. The North 
Carolina Justice Center, for example, stated that the ``rule's narrow 
definition of who is responsible as an employer is contrary to the 
plain language of the statute's definition of `employ' contained in 
section 203(g) of the Act.'' The International Brotherhood of Teamsters 
noted that the Rule impermissibly ignored the statutory definitions of 
``employ'' and ``employee,'' which they asserted ``are integral to the 
`employer' definition.'' The Northwest Workers' Justice Project 
commented on the Rule's ``novel'' interpretation and asserted that 
``the Secretary is unable to point to a single authority for its 
unusual assertion that this section [3(d)] is the sole source of joint 
employment.'' The Project's comment further criticized the Rule's 
statutory interpretation, observing that ``[t]he word `joint' does not 
appear in Sec.  203(d)'' and opining that ``the word `includes' in 29 
U.S.C. 203(d) would suggest that there are other types of employers 
under the FLSA than those that meet the statutory definition of Sec.  
203(d).'' Texas RioGrande Legal Aid noted that the Rule ``grew from the 
belief that section 3(d) of the FLSA `is the touchstone for joint 
employer status' '' \88\ but section 3(d) ``is circular and provides 
little or no guidance as to the extent of employer-employee 
relationships.'' A coalition of State Attorneys General (State AGs) 
commented that the Rule's vertical joint employment test ``conflicted 
with the statutory text of the FLSA'' because its ``narrow 
interpretation of the term `employer' and its assertion that the 
definition of `employer' is the sole textual basis to determine joint 
employment were not faithful to the Act's definitions and Congress' 
intent in enacting them.''
---------------------------------------------------------------------------

    \88\ Quoting 85 FR 2857.
---------------------------------------------------------------------------

    Employers and trade associations generally commented that the Joint 
Employer Rule was consistent with the FLSA and case law and should be 
upheld. See, e.g., U.S. Chamber of Commerce, Littler Workplace Policy 
Institute (WPI). The Associated Builders and Contractors, for example, 
stated that it ``strongly supports the [D]epartment's clarification [in 
the Rule] that only the definition of an `employer' in section 3(d) of 
the FLSA, 29 U.S.C. 203(d), determines joint employer status, not the 
definition of `employee' in section 3(e)(1) or the definition of 
`employ' as `to suffer or permit work' in section 3(g) of the FLSA, 29 
U.S.C. 203(e)(1), (g).'' This commenter further stated that ``Section 
3(d) of the FLSA is the sole section that defines `employer' (as a 
person `acting directly or indirectly in the interest of an employer in 
relation to an employee'), while Section 3(g)'s separate definition of 
`employ' (to `suffer or permit' to work) has been improperly cited by 
some courts as a basis for finding joint employer status.'' The Society 
for Human Resource Management (SHRM) supported the Rule's statutory 
analysis, and commented that ``by distancing itself from prior 
pronouncements espousing `economic dependence' as the hallmark for 
joint employment (or suggesting that certain business models are 
inherently joint employment), the Department appropriately returned the 
focus of the joint employment inquiry to the FLSA's statutory 
language.'' Similarly, the Center for Workplace Compliance stated that 
``[w]hile sections 3(e)(1) and 3(g) would be relevant for determining 
whether an individual was an employee or independent contractor, they 
do not appear to be relevant to [the] determination of whether a second 
employer should be jointly liable under the FLSA.'' The U.S. Chamber of 
Commerce supported the focus on section 3(d) and stated that ``[u]nlike 
the broad definition of `employ', the definition of `employer' contains 
an active requirement that an entity be `acting directly or indirectly 
in the interest of an employer in relation to an employee.' ''
    Having reviewed the comments and considered the issue further, the 
Department has concluded that the Rule's interpretation that section 
3(d) is the ``sole'' textual basis for determining joint employer 
status in vertical joint employment scenarios \89\ potentially excluded 
important aspects of joint employment arrangements.
---------------------------------------------------------------------------

    \89\ 85 FR 2825.
---------------------------------------------------------------------------

    As an initial matter, the statutory language of section 3(d) itself 
raises concerns as to whether relying on that provision as the sole 
textual basis encompasses all scenarios in which joint employment may 
arise. Section 3(d) uses the word ``includes'' rather than the word 
``means.'' \90\ Under the Act, an ``employer'' ``includes any person 
acting directly or indirectly in the interest of an employer in 
relation to an employee,'' ``includes a public agency,'' but ``does not 
include any labor organization (other than when acting as an employer) 
or anyone acting in the capacity of officer or agent of such labor 
organization.'' \91\ Thus, by its own terms, section 3(d) is not 
exhaustive. Throughout section 3--the ``definitions'' section of the 
FLSA--Congress chose to vary its language for each definition between 
``means'' and ``includes,'' and its use of ``includes'' when defining 
``employer'' indicates that the definition that follows ``includes'' is 
not an exhaustive definition of ``employer.'' \92\
---------------------------------------------------------------------------

    \90\ 29 U.S.C. 203(d).
    \91\ Id. (emphases added).
    \92\ Compare, for example, sections 203(a), 203(b), and 203(e), 
which use the word ``means'' to define ``person,'' ``commerce,'' and 
``employee,'' respectively, with sections 203(d) and 203(g), which 
use the word ``includes'' to define ``employer'' and ``employ,'' 
respectively. ``It is a well-established canon of statutory 
interpretation that the use of different words or terms within a 
statute demonstrates that Congress intended to convey a different 
meaning for those words.'' SEC v. McCarthy, 322 F.3d 650, 656 (9th 
Cir. 2003); see also Race Tires Am., Inc. v. Hoosier Racing Tire 
Corp., 674 F.3d 158, 165 (3d Cir. 2012) (``If possible, we must give 
effect to every clause and word of a statute, . . . and be reluctant 
to treat statutory terms as surplusage.'') (internal quotation marks 
omitted).
---------------------------------------------------------------------------

    Furthermore, the Joint Employer Rule limited joint employment in 
the vertical context to persons ``acting directly or indirectly in the 
interest of the employer in relation to the employee,'' confining joint 
employment to persons acting in the interest of a single employer.\93\ 
In other words, the Rule assumed that an employee had one employer and 
that any other person that was liable was a

[[Page 40945]]

joint employer. However, section 3(d) of the Act specifically defines a 
person ``acting directly or indirectly in the interest of an employer 
in relation to the employee'' as an ``employer'' itself.\94\ Thus, 
while the Rule allowed only a single employer--``the employer''--to 
``suffer[ ], permit[ ], or otherwise employ[ ] the employee to work'' 
in the vertical scenario,\95\ section 3(d) itself provides for any 
number of other employers that can suffer, permit, or otherwise employ 
employees.\96\ In light of this, the Joint Employer Rule did not even 
adhere to the statutory text--section 3(d)--which was its cited basis.
---------------------------------------------------------------------------

    \93\ 29 CFR 791.2(a)(1) (2020) (citing 29 U.S.C. 203(d)) 
(emphasis added).
    \94\ 29 U.S.C. 203(d) (emphasis added).
    \95\ 29 CFR 791.2(a)(1) (2020). The Joint Employer Rule preamble 
acknowledged the possibility that ``multiple employers [may] suffer, 
permit, or otherwise employ an employee to work,'' but only in the 
horizontal scenario involving ``separate sets of hours.'' 85 FR 
2823.
    \96\ 29 U.S.C. 203(d).
---------------------------------------------------------------------------

    Additionally, there is case law indicating that section 3(d) was 
intended for the purpose of imposing responsibility upon the agents of 
employers, rather than to provide an exhaustive definition of joint 
employers under the Act.\97\ The Rule acknowledged commenter arguments 
regarding this distinction within the Act's ``definitions'' section, as 
well as the import of section 3(d)'s ``includes'' language,\98\ but did 
not address these arguments. Confining the analysis to only the Act's 
definition of ``employer'' resulted in an incomplete analysis of some 
potential joint employment scenarios.
---------------------------------------------------------------------------

    \97\ See Greenberg v. Arsenal Bldg. Corp., 144 F.2d 292, 294 (2d 
Cir. 1944) (explaining that ``the section would have little meaning 
or effect if such were not the case''). The Supreme Court reversed 
an unrelated part of the Second Circuit's holding in Greenberg. See 
324 U.S. 697, 714-16 (1945). Greenberg is not alone in concluding 
that section 3(d)'s ``includes'' language was intended to impose 
liability on an employer's agents. See, e.g., Donovan v. Agnew, 712 
F.2d 1509, 1513 (1st Cir. 1983) (noting that section 3(d) was 
``intended to prevent employers from shielding themselves from 
responsibility for the acts of their agents''); Dole v. Elliott 
Travel & Tours, Inc., 942 F.2d 962, 965-66 (6th Cir. 1991) (relying 
on section 3(d) to hold individually liable the owner/officer who 
exercised operational control of the employer); Arias v. Raimondo, 
860 F.3d 1185, 1191-92 (9th Cir. 2017) (observing that section 3(d) 
``clearly means to extend [the FLSA's] reach beyond actual 
employers.), cert. denied, 138 S. Ct. 673 (2018); see also Thompson 
v. Real Estate Mortg. Network, 748 F.3d 142, 153-54 (3d Cir. 2014) 
(holding that ``a company's owners, officers, or supervisory 
personnel may also constitute `joint employers' '' with the company 
under 3(d)).
    \98\ 85 FR 2826.
---------------------------------------------------------------------------

    The Department has also evaluated the Rule's singular focus on 
section 3(d) against the backdrop of the history and purpose of the 
``suffer or permit'' language in section 3(g). As the Rule 
acknowledged, the Act's definition of ``employ'' was a rejection of the 
common law standard for determining who is an employee under the Act in 
favor of a broader scope of coverage. See Nationwide Mut. Ins. Co. v. 
Darden, 503 U.S. 318, 326 (1992) (``[T]he FLSA . . . defines the verb 
`employ' expansively to mean `suffer or permit to work.' This . . . 
definition, whose striking breadth we have previously noted, stretches 
the meaning of `employee' to cover some parties who might not qualify 
as such under a strict application of traditional agency law 
principles.'') (citations omitted); Walling v. Portland Terminal Co., 
330 U.S. 148, 150-51 (1947) (``But in determining who are `employees' 
under the Act, common law employee categories or employer-employee 
classifications under other statutes are not of controlling 
significance. This Act contains its own definitions, 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.'') (citations omitted).
    Section 3(g)'s ``suffer or permit'' language was intended to 
include as employers entities that used intermediaries to shield 
themselves from liability.\99\ Rather than being derived from the 
common law of agency, the FLSA's definition of ``employ'' and its 
``suffer or permit'' language originally came from state laws 
regulating child labor.\100\ This language was ``designed to reach 
businesses that used middlemen to illegally hire and supervise 
children.'' Antenor v. D & S Farms, 88 F.3d 925, 929 n.5 (11th Cir. 
1996). This standard was intended to expand coverage beyond employers 
who control the means and manner of performance to include entities who 
``suffer'' or ``permit'' work.\101\ Accordingly, the Rule's reliance 
solely on section 3(d), to the exclusion of section 3(g), was in 
tension with Congress' well-understood intent in enacting those 
provisions.
---------------------------------------------------------------------------

    \99\ See Rutherford Food, 331 U.S. at 728; Salinas v. Commercial 
Interiors, Inc., 848 F.3d 125, 136-140 (4th Cir. 2017). When 
Congress enacted the Migrant and Seasonal Agricultural Worker 
Protection Act, 29 U.S.C. 1801 et. seq., it provided that ``[t]he 
term `employ' has the meaning given such term under section 3(g) of 
the Fair Labor Standards Act of 1938 (29 U.S.C. 203(g)) for the 
purposes of implementing the requirements of that Act.'' 29 U.S.C. 
1802(5). The committee report provides that ``the Committee's use of 
[section 3(g)] was deliberate and done with the clear intent of 
adopting the `joint employer' doctrine as a central foundation of 
this new statute.'' H.R. Rep. No. 97-885, at 6 (1982).
    \100\ See Rutherford Food, 331 U.S. at 728 & n.7.
    \101\ See generally People ex rel. Price v. Sheffield Farms-
Slawson-Decker Co., 225 N.Y. 25, 29-31 (1918).
---------------------------------------------------------------------------

    Moreover, the Joint Employer Rule's textual analysis needlessly 
bifurcated the statutory terms ``employ'' and ``employer'' in the 
vertical context. Specifically, it interpreted section 3(g) as defining 
who is an ``employer'' (person A is an employer of person B because 
person A suffers, permits, or otherwise employs person B to work), and 
section 3(d) as defining someone who is a ``joint employer'' (person C 
is a joint employer of employee B because person C acts directly or 
indirectly in the interest of employer A in relation to employee B). 
The Rule thus applied a different analytical framework to different 
employers. This bifurcated approach has not been used by any court nor 
is this stratification of employers supported by the text of the Act. 
Instead, all employers under the Act--joint employers or otherwise--are 
jointly and severally liable for wages owed. If anything, the Rule's 
section 3(d) analysis was backwards to the extent that it inquired 
whether entities which are higher in the ``vertical'' structure of a 
particular industry (such as a general contractor or staffing agency 
client) are ``acting . . . in the interests of'' acknowledged employers 
which are lower in the structure (such as a subcontractor or staffing 
agency). This bifurcation also makes it unclear which standard--
``suffer or permit'' under section 3(g) or the control-based standard 
under section 3(d)--should apply to which entity if, for example, both 
potential employers deny any employment relationship with a worker.
    The Joint Employer Rule discussed the Supreme Court's decision in 
Falk v. Brennan \102\ at length, relying on it to buttress its 
statutory interpretation argument. Upon further consideration, while 
the Court did address a joint employment situation in Falk v. Brennan, 
the Department now believes that the case's utility is limited. In its 
four-sentence discussion of joint employment, the Court explicitly 
noted the Act's definitions in both section 3(d) (``employer'') and 
section 3(e) (``employee''), and based its conclusion that a management 
company was a joint employer ``[i]n view of the expansiveness of the 
Act's definition of `employer' and the extent of the [purported joint 
employer's] managerial

[[Page 40946]]

responsibilities at each of the buildings, which gave it substantial 
control of the terms and conditions of the work of these employees.'' 
\103\ Moreover, Falk was an affirmance of a Fourth Circuit case, which 
noted that the Act's definitions (both 3(d) and 3(g)) were ``very 
broadly cast'' and that ``courts have accordingly found an employment 
relationship for purposes of the Act far more readily than would be 
dictated by common law doctrines.'' \104\ The Court commented favorably 
on the Fourth Circuit's holding, stating that ``the Court of Appeals 
was unquestionably correct in holding that [the management company] is 
also an employer . . . . '' \105\ The Department's brief before the 
Supreme Court in Falk v. Brennan also argued that the petitioner 
building management company was a joint employer of the building's 
maintenance workers based on both section 3(d) and section 3(g).\106\ 
The brief further stated that ``[s]ince petitioners do the hiring and 
firing, they `employ' the workers within the plain meaning of this 
statutory definition.'' \107\ The Department's brief thus concluded 
that it is preferable to read the relevant statutory provisions of 
section 3(d) and section 3(g) together because, among other reasons, 
section 3(g) defined ``employ'' as it did with the intent of including 
as an employer entities that used intermediaries that employed workers 
but disclaimed that they themselves were employers of the workers.\108\
---------------------------------------------------------------------------

    \102\ Notably, the district court in New York v. Scalia 
concluded that ``Falk cuts against the Department's argument that 
section 3(d) is the sole textual basis for joint employer 
liability'' because Falk cited to the statutory definition of 
``employee'' as well as ``employer'' and observed that the FLSA's 
definition of employer is expansive. See 490 F. Supp. 3d at 783-84.
    \103\ 414 U.S. at 195.
    \104\ Shultz v. Falk, 439 F.2d 340, 344 (4th Cir. 1971).
    \105\ 414 U.S. at 195.
    \106\ Brief for Respondent Secretary of Labor, Falk v. Brennan, 
414 U.S. 190 (1973) (No. 72-844), 1973 WL 173856, at *10 (``The Act 
clearly defines an `employer' to include `any person acting directly 
or indirectly in the interest of an employer in relation to an 
employee * * *' (Section 3(d)), a description plainly applicable to 
petitioners in their relation to the building personnel. The 
definition of the term `employ' in Section 3(g) as including `to 
suffer or permit to work' confirms this conclusion, since it is 
petitioners, not the building owners, who have control over the 
hiring, job assignments, and discharge of the building workers.'').
    \107\ Id. at *26.
    \108\ Id.; see Rutherford Food, 331 U.S. at 728; Salinas, 848 
F.3d at 136-140.
---------------------------------------------------------------------------

    Similarly, all of the circuit courts of appeals to have considered 
joint employment under the FLSA have looked to the economic realities 
test as the proper framework, and none have explicitly identified 
section 3(d) as the sole textual basis for joint employment. In 
particular, the case law heavily relied upon in the Joint Employer Rule 
from the First, Third, and Fifth Circuits, as well as the Bonnette 
decision itself, all apply an economic realities analysis when 
determining joint employment under the FLSA.\109\ The Rule's approach 
also represented a significant shift from WHD's longstanding analysis; 
WHD had never excluded sections 3(e) and (g) from the joint employment 
analysis and had instead consistently applied an economic realities 
framework that did not exclude the definitions of ``employ'' or 
``employee'' when determining joint employer liability, as discussed 
above.
---------------------------------------------------------------------------

    \109\ See, e.g., Baystate Alternative Staffing, Inc. v. Herman, 
163 F.3d 668, 675 (1st Cir. 1998); In re Enterprise Rent-A-Car Wage 
& Hour Emp't Practices Litig., 683 F.3d 462, 469-470 (3d Cir. 2012); 
Gray v. Powers, 673 F.3d 352, 357 (5th Cir. 2012); Bonnette, 704 
F.2d at 1469.
---------------------------------------------------------------------------

    In view of the foregoing, limiting the statutory basis for joint 
employment analyses solely to section 3(d), to the exclusion of the 
other highly relevant definitions of ``employee'' in section 3(e) and 
``employ'' in section 3(g), was problematic and inhibited compliance 
with the Act.
2. The Vertical Joint Employment Test's Singular Emphasis on Control
    For vertical joint employment scenarios, the Joint Employer Rule 
adopted a four-factor test focused on the actual exercise of control. 
Generally, it excluded factors that were not indicative of a potential 
joint employer's control, directed that additional factors may be 
considered ``only if they are indicia of whether the potential joint 
employer exercises significant control over the terms and conditions of 
the employee's work,'' and specifically excluded any consideration of 
the employee's economic dependence on the potential joint 
employer.\110\ The NPRM questioned whether the four-factor test's 
emphasis on control was unduly narrow.\111\ While recognizing that the 
tests for vertical joint employment differ among the circuit courts of 
appeals, the NPRM observed that ``all courts consistently use a 
totality-of-the-circumstances economic realities approach to determine 
the scope of joint employment under the FLSA, rather than limiting the 
focus exclusively to control.'' \112\
---------------------------------------------------------------------------

    \110\ 29 CFR 791.2(b) and (c) (2020).
    \111\ 86 FR 14043.
    \112\ Id.
---------------------------------------------------------------------------

    Organizations representing employee interests generally opposed the 
four-factor test's emphasis on control and, in particular, criticized 
the Joint Employer Rule's requirement that actual control be exercised. 
The Shriver Center, for example, commented that ``[e]ven under the more 
restrictive common-law employment test, the [Department]'s rule is too 
narrow: it fails to consider the right to control, a cornerstone of 
common-law employment determinations under long-standing Supreme Court 
and FLSA law.'' See also Workplace Justice Project. The Construction 
Employers of America stated that the Rule's analysis ``replaced the 
historic focus on economic dependence for determining joint employment 
with a four-factor test for assessing the level of control the 
potential joint employer has over the workers at issue.'' The Northwest 
Workers' Justice Project noted that there is case law that presents a 
broader analysis than solely control, stating, ``[o]f course, both Real 
[v. Driscoll Strawberry Assocs., 603 F.2d 748 (9th Cir. 1979)] and 
Rutherford [Food Corp. v. McComb, 331 U.S. 722 (1947)] articulate 
broader factors beyond control to be considered in determining 
employment under the FLSA.'' The State AGs also commented that the 
control-based test for vertical joint employment set forth by the Rule 
was ``contrary to the FLSA's text and case law'' and that requiring the 
exercise of actual control was ``inconsistent with the `suffer or 
permit' language of the statute.''
    Organizations representing employers generally supported the Joint 
Employer Rule's four-factor test, and specifically commented that the 
requirement for an actual exercise of control would provide much-needed 
clarity for employers. The National Association of Home Builders, for 
instance, stated that the Rule ``provides a clearer methodology for 
determining joint employer status with the focus on the actual exercise 
of power.'' The U.S. Chamber of Commerce also supported the test's 
emphasis on the exercise of control, explaining that ``contractual 
reservations of control are not probative of the relationship between 
the employer and the putative employee--the touchstone of the joint 
employer analysis--if the putative employer never exercises such 
control.'' The National Restaurant Association and Restaurant Law 
Center also praised the test for similar reasons, commenting that the 
Rule ``created a more appropriate and reliable standard using a 
multifactor balancing test that focuses on the economic realities of 
the potential joint employer's exercise of control over the employee's 
terms and conditions of employment. Because this test focuses on the 
actual and direct control over the employee's terms and conditions of 
employment, there is greater predictability and uniformity in the joint 
employment analysis.'' See also Associated Builders and Contractors 
(``ABC therefore supports the

[[Page 40947]]

[D]epartment's rule codifying the Bonnette test, with an additional 
emphasis on `actual,' as opposed to reserved but unexercised control by 
one employer over another's employees, as the test that is most 
consistent with the statutory definition of `employer.' ''); SHRM 
(``Ultimately, by ensuring that the inquiry is directed [at] a putative 
joint employer's actual control over critical terms of employment, the 
[Joint Employer Rule] stands on solid ground statutorily, and is 
consistent with the relevant Supreme Court authority.'').
    Upon consideration of the comments received, the Department has 
concluded that the four-factor test's exclusive focus on control--and 
specifically, its mandate for an actual exercise of control--was not 
the most appropriate standard for vertical joint employment scenarios 
in view of the Act and case law. It is well-settled that in enacting 
the FLSA, Congress rejected the common law control standard for 
employment. In Darden, the Supreme Court stated that the FLSA defines 
``employ'' ``expansively'' and with ``striking breadth'' and 
``stretches the meaning of `employee' to cover some parties who might 
not qualify as such under a strict application of traditional agency 
law principles.'' \113\
---------------------------------------------------------------------------

    \113\ 503 U.S. at 326.
---------------------------------------------------------------------------

    Although the specific factors may vary, all courts consistently use 
a totality-of-the-circumstances economic realities approach to 
determine the scope of joint employment under the FLSA. In addition to 
Bonnette, upon which the Rule heavily relied, multiple other circuit 
court decisions relied upon by the Rule also ground their joint 
employment analyses in the overarching totality-of-the-circumstances 
economic realities standard.\114\ Court decisions that have not applied 
the Bonnette factors generally ground their joint employment analyses 
in the totality-of-the-circumstances economic realities standard as 
well.\115\ Although some courts have applied an analysis that addresses 
only, or primarily, the potential joint employer's control,\116\ these 
cases have nonetheless recognized that the control factors considered 
``do not constitute an exhaustive list of all potentially relevant 
facts'' and ``should not be `blindly applied' ''; rather, a joint 
employment determination must consider the employment situation in 
totality, including the economic realities of the working 
relationship.\117\ In contrast, the Rule provided that ``[a]dditional 
factors may be relevant for determining joint employer status in this 
scenario, but only if they are indicia of whether the potential joint 
employer exercises significant control over the terms and conditions of 
the employee's work.'' \118\ While the exercise of ``significant 
control'' may certainly establish joint employment under the Act, no 
court has set this standard as the requirement for a finding of joint 
employment.
---------------------------------------------------------------------------

    \114\ See, e.g., Baystate, 163 F.3d at 675; Enterprise, 683 F.3d 
at 469; Gray, 673 F.3d at 354-55.
    \115\ See, e.g., Zheng, 355 F.3d at 69-75; Salinas, 848 F.3d at 
142-43; Torres-Lopez, 111 F.3d at 639-644 (noting that an economic 
realities analysis applies when determining joint employment and 
that the concept of joint employment, like employment generally, 
``should be defined expansively'' under the FLSA).
    \116\ See Baystate, 163 F.3d at 675; Enterprise, 683 F.3d at 
468-69.
    \117\ Enterprise, 683 F.3d at 469 (emphasis in original) 
(quoting Bonnette, 704 F.2d at 1469-1470).
    \118\ 29 CFR 791.2(b) (emphasis added).
---------------------------------------------------------------------------

    Especially problematic was the Rule's requirement for the actual 
exercise of control, a standard adopted by no court. The Rule stated 
that it was ``not the Department's intent'' to promulgate a rule 
narrower than the common law.\119\ However, the Rule also plainly 
required an actual exercise of control, stating that ``the regulation 
now makes clear that an actual exercise of control, directly or 
indirectly, is required for at least one of the factors and is the 
clearer indication of joint employer status.'' \120\ Under the common 
law standard, the mere right to control indicates a common law 
employment relationship; in contrast, the Rule required an actual 
exercise of control for at least one factor.\121\ For this reason too, 
the Rule's test for vertical joint employment was in tension with the 
economic realities analysis used by courts across the country, which 
was intended to be more comprehensive than the common law 
standard.\122\
---------------------------------------------------------------------------

    \119\ 85 FR 2834.
    \120\ Id.
    \121\ See, e.g., Zheng, 355 F.3d at 69 (``Measured against the 
expansive language of the FLSA, the four-part test [based on 
Bonnette] employed by the District Court is unduly narrow, as it 
focuses solely on the formal right to control the physical 
performance of another's work. That right is central to the common-
law employment relationship, see Restatement of Agency section 
220(1) (1933) (`A servant is a person employed to perform service 
for another in his affairs and who, with respect to his physical 
conduct in the performance of the service, is subject to the other's 
control or right to control.')'').
    \122\ See Falk, 439 F.2d at 344 (observing that courts find 
employment under the FLSA ``far more readily than would be dictated 
by common law doctrines''); Portland Terminal Co., 330 U.S. at 150-
51 (noting that the FLSA's definitions are ``comprehensive enough to 
require its application'' to many working relationships which, under 
the common law control standard, may not be employer-employee 
relationships); Darden, 503 U.S. at 326 (stating that the FLSA's 
``suffer or permit'' standard for employment ``stretches the meaning 
of `employee' to cover some parties who might not qualify as such 
under a strict application of traditional agency law principles'').
---------------------------------------------------------------------------

    The Department appreciates employers' desire for clarity and 
certainty regarding compliance under the Act. The Rule's narrowing of 
the analysis of control, however, was contrary to the Act and 
longstanding case law and thus did not guarantee enhanced clarity. 
Because the Rule's test (including the requirement for the actual 
exercise of control) conflicted with the tests used from every circuit, 
there likely was more uncertainty under this new interpretation.

B. Taking Into Account Prior WHD Guidance

    The Department's NPRM noted that the Joint Employer Rule's vertical 
joint employment analysis, in addition to having never before been 
applied by a court, had never before been applied by WHD.\123\ The 
Department indicated that it tentatively shared the concern that the 
Rule did not sufficiently take into account and explain departures from 
WHD's prior joint employment guidance, including its MSPA joint 
employment regulation and the withdrawn Home Care AI and Joint 
Employment AI.\124\ The Department further indicated that this concern 
provided additional support for rescinding the Rule.\125\
---------------------------------------------------------------------------

    \123\ See 86 FR 14044.
    \124\ See id.
    \125\ See id.
---------------------------------------------------------------------------

    Texas RioGrande Legal Aid commented that the Joint Employer Rule 
conflicted with the MSPA joint employment regulation and that, ``under 
the Rule, many agricultural employers could have been deemed joint 
employers under the MSPA but not under the FLSA,'' causing ``immense 
confusion'' in its view ``among the regulated community in the 
agricultural sector.'' The State AGs stated that the Joint Employer 
Rule ``departed from decades of agency interpretation of and guidance 
on [the] joint employer analysis,'' including the Department 's 
vertical joint employment standard in its MSPA regulation, its Home 
Care AI, and its Joint Employment AI. According to the AGs, WHD's prior 
guidance had ``rejected a `control-based test' like the one adopted by 
the Rule,'' and the Rule did not adequately explain its departure from 
WHD's prior interpretations. The National Women's Law Center added that 
the Rule ``set forth a new joint employment standard'' that was 
different from WHD's previous enforcement approach and ``departed from 
longstanding . . . [WHD] interpretations of covered employment and 
employer under the FLSA.''

[[Page 40948]]

    Other commenters disputed the concerns raised by the Department in 
the NPRM. The Texas Public Policy Foundation, for example, asserted 
that it was ``arbitrary for WHD to point to `inconsistencies' between 
the old agency guidance and the new agency guidance and assert that 
those inconsistencies, by themselves, justify rescission'' because 
``[o]therwise, an agency would never be able to offer new or updated 
regulatory guidance.'' Noting that the Department had described its 
concern as tentative in the NPRM, this commenter added that ``[i]t is 
impermissible for WHD to withdraw the Joint Employer Rule based on 
WHD's `tentative' concern.''
    Some commenters contrasted the Department's brief before the Second 
Circuit with the NPRM. The National Association of Home Builders 
commented that the Department's ``rationale [in the NPRM] is contrary 
to the arguments'' that the Department made in its opening brief to the 
Second Circuit in the appeal of the district court's decision vacating 
most of the Rule. Associated Builders and Contractors stated that the 
NPRM's reliance on the district court's decision ``is arbitrary in 
light of the fact that, less than three months ago, the [D]epartment 
filed a brief to the court of appeals declaring that each of the same 
aspects of the district court decision was wrong and should be 
reversed.'' It added that, ``[i]n light of the pending nature of the 
appeal from the district court decision, at a minimum the NPRM should 
be held in abeyance pending the outcome of the appeal.'' The 
International Franchise Association agreed, stating that 
``[n]otwithstanding the [Department's] own pending appeal from the 
district court's decision, the [Department] has proposed to rescind its 
[Joint Employer] Rule by relying on the same district court's opinion 
that it seeks to challenge on appeal at the Second Circuit.'' It added 
that the Department's proposal to withdraw the Rule ``should be 
withdrawn, or at the very least, held in abeyance until a final ruling 
in the pending Second Circuit appeal.'' WPI also agreed, stating that 
``[e]ach aspect of the district court decision on which [the 
Department] now relies in proposing to rescind the [R]ule is refuted by 
[the Department]'s own brief to the Second Circuit.'' It asserted that 
it was ``arbitrary and capricious for [the Department] to rely on a 
court decision which it has only recently declared to be wrong, while 
that decision remains pending on appeal'' and suggested that the 
Department ``hold its NPRM in abeyance pending the appeal's outcome.'' 
\126\
---------------------------------------------------------------------------

    \126\ The International Franchise Association described the 
``30-day window for public comment'' on the NPRM proposing to 
withdraw the Joint Employer Rule as ``insufficient.'' WPI agreed, 
stating that ``30 days is insufficient time to comment on the 
proposal.'' The comment period was 31 days and was, in any event, a 
similar duration as the comment periods for some other recent 
Department rulemakings. See, e.g., 85 FR 60600 (Sept. 25, 2020); 86 
FR 14027. Additionally, because the NPRM was published only a little 
over one year after the Rule was published, interested stakeholders 
should have been familiar with the Rule that was proposed for 
rescission as well as the implications of any rescission.
---------------------------------------------------------------------------

    In response, the Department agrees that ``[a]gencies are free to 
change their existing policies as long as they provide a reasoned 
explanation for the change.'' \127\ When an agency changes its 
position, ``it need not demonstrate . . . that the reasons for the new 
policy are better than the reasons for the old one.'' \128\ ``But the 
agency must at least `display awareness that it is changing position.' 
'' \129\ The agency's explanation is sufficient if ``the new policy is 
permissible under the statute, . . . there are good reasons for it, and 
. . . the agency believes it to be better, which the conscious change 
of course adequately indicates.'' \130\ When explaining a changed 
position, ``an agency must also be cognizant that longstanding policies 
may have `engendered serious reliance interests that must be taken into 
account.' '' \131\ In such cases, the policy change itself does not 
need ``further justification,'' but ``a reasoned explanation is needed 
for disregarding facts and circumstances that underlay or were 
engendered by the prior policy.'' \132\ For these reasons, `` `an 
unexplained inconsistency' in agency policy is `a reason for holding an 
interpretation to be an arbitrary and capricious change from agency 
practice.' '' \133\
---------------------------------------------------------------------------

    \127\ Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 
(2016) (citing Nat'l Cable & Telecomm. Ass'n v. Brand X internet 
Servs., 545 U.S. 967, 981-82 (2005); Chevron, U.S.A., Inc. v. 
Natural Resources Defense Council, Inc., 467 U.S. 837, 863-64 
(1984)).
    \128\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009).
    \129\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 
U.S. at 515, and removing emphasis).
    \130\ Fox Television, 556 U.S. at 515.
    \131\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 
U.S. at 515).
    \132\ Fox Television, 556 U.S. at 515-16.
    \133\ Encino, 136 S. Ct. at 2126 (quoting Brand X, 545 U.S. at 
981).
---------------------------------------------------------------------------

    Having considered the comments and reviewed the issue further, the 
Department believes that the Joint Employer Rule did not provide a 
reasoned explanation for the new FLSA vertical joint employment 
standard that it adopted. As explained above in Section II.A.1., there 
was not a reasonable basis for relying exclusively on section 3(d) and 
completely excluding sections 3(e) and (g) when interpreting who is a 
joint employer under the FLSA. As further explained in Section II.A.2., 
there was not a reasonable basis for adopting a narrow standard limited 
to control for determining who is a joint employer under the FLSA. The 
Rule's stated desire to provide a uniform vertical joint employment 
standard may have been valid,\134\ and the Department recognizes that 
there may be more than one permissible interpretive vertical joint 
employment standard under the FLSA; however, the standard that the Rule 
adopted was not permissible under the FLSA.
---------------------------------------------------------------------------

    \134\ See Scalia, 490 F. Supp. 3d at 795 (making clear that its 
decision to vacate most of the Rule did ``not imply that the 
Department cannot engage in rulemaking to try to harmonize joint 
employer standards'').
---------------------------------------------------------------------------

    The Department also believes that the Joint Employer Rule did not 
sufficiently take into account prior WHD guidance. The Department's 
MSPA joint employment regulation \135\ and its 1997 final rule \136\ 
implementing it have been in effect for about 24 years. In keeping with 
MSPA and its legislative history,\137\ the MSPA regulation expressly 
ties its joint employment analysis to the FLSA. The MSPA regulation 
provides that ``[j]oint employment under the Fair Labor Standards Act 
is joint employment under the MSPA'' \138\ and sets forth a multi-
factor analysis for determining vertical joint employment that is 
different than the Rule's analysis.\139\ The Joint Employer Rule, 
however, did not address or account for any differences between its new 
regulatory standard and MSPA's existing regulatory standard or any 
effects that it may have on joint employment under MSPA. In addition, 
the Department's interpretive guidance in the Home Care AI and the 
Joint Employment AI rejected a joint employment analysis that was 
limited to control, and those AIs relied on FLSA sections 3(e) and (g) 
in addition to section 3(d).\140\ Although the Home Care AI and the 
Joint Employment AI were withdrawn before the effective date of the 
Joint Employer Rule, the Department did not address or sufficiently 
account for its departures

[[Page 40949]]

from their analyses in the Rule. In summary, the Department was and is 
allowed to change its interpretation of joint employment under the 
FLSA; however, the Rule failed to account for and address 
inconsistences with WHD's prior and existing guidance, which is an 
additional reason to rescind the Rule.
---------------------------------------------------------------------------

    \135\ See 29 CFR 500.20(h)(5).
    \136\ See 62 FR 11745-46.
    \137\ See note 99, supra.
    \138\ See 29 CFR 500.20(h)(5)(i).
    \139\ See 29 CFR 500.20(h)(5)(iv).
    \140\ See 2016 WL 284582, at *2-4 & 9; 2014 WL 2816951, at *2 & 
n.5.
---------------------------------------------------------------------------

    In response to comments asserting an inconsistency between the 
Department's opening brief to the Second Circuit in the appeal of the 
district court's decision vacating most of the Joint Employer Rule and 
its NPRM proposing to rescind the Rule, the Department's filings with 
the Second Circuit have been consistent with the status of this 
rescission rulemaking. The Department filed its opening brief with the 
Second Circuit on January 15, 2021--prior to any reconsideration of the 
Rule and well before the deadline for filing the brief. Following the 
Department's NPRM in March proposing to rescind the Rule, the 
Department requested that the Second Circuit hold the appeal in 
abeyance while this rulemaking progressed. Although the Second Circuit 
denied the request, asking it to hold the appeal in abeyance was 
consistent with this rulemaking.
    In addition, the Department filed a reply brief with the Second 
Circuit on May 28, 2021, in which it took ``no position'' regarding 
``the merits of the Joint Employer Rule'' in light of this pending 
rulemaking. In the reply brief, the Department noted that completion of 
this rulemaking may moot the States' challenge to the Rule and 
requested that the Second Circuit, if it resolves the appeal at all, 
reverse the district court's decision solely on the grounds that the 
States lacked standing to challenge the Rule. Accordingly, the 
Department's position in the pending Second Circuit appeal has been 
consistent with the status of this rescission rulemaking; the 
Department stopped defending the merits of the Rule before the Second 
Circuit consistent with its concerns with the Rule as set forth in the 
NPRM proposing to rescind the Rule. Finally, issuing this final rule 
now rather than waiting for the Second Circuit to resolve the appeal is 
consistent with the Department's position in its reply brief. Although 
the district court's decision vacating the Rule's vertical joint 
employment analysis was a primary consideration for proposing 
rescission as noted in the NPRM, the Department's decision to rescind 
the Rule as set forth herein is independent from the district court's 
decision and represents its reasoned interpretation of the FLSA as 
supported by case law, regardless of the Second Circuit's ultimate 
resolution of the appeal.

C. The Joint Employer Rule's Vertical Joint Employment Analysis Did Not 
Significantly Impact Judicial Analysis of FLSA Cases

    The NPRM stated that courts have generally declined to adopt the 
Joint Employer Rule's vertical joint employment analysis since its 
promulgation.\141\ The NPRM further stated that, in light of this 
judicial landscape, rescinding the Joint Employer Rule would not be 
disruptive.\142\ The NPRM added that WHD does not believe that it would 
be difficult or burdensome to educate and reorient its enforcement 
staff if the Rule is rescinded.\143\
---------------------------------------------------------------------------

    \141\ See 86 FR 14044-45 (citing cases, including two 
exceptions).
    \142\ See 86 FR 14045.
    \143\ See id.
---------------------------------------------------------------------------

    The State AGs agreed in their comment that, ``based on the judicial 
landscape,'' rescinding the Joint Employer Rule ``would not be 
disruptive.'' They added that it was ``not surprising'' that only two 
district court decisions had adopted the Rule's vertical joint 
employment analysis given that, in their view, the Rule's analysis 
``runs counter to Supreme Court precedent'' and ``conflicts with 
numerous court of appeals decisions interpreting joint employment.'' 
Texas RioGrande Legal Aid added that, ``aware of the Rule's mismatch 
with the FLSA's text and purpose, courts would have been likely to 
continue to eschew the Rule's framing in favor of their established 
formulations of the multi-factor analysis.''
    Having considered the comments and reviewed the issue further, the 
Department believes that courts' general non-adoption of the Joint 
Employer Rule's vertical joint employment analysis provides additional 
support for rescinding the Rule. As a general matter, courts have 
declined to adopt the Joint Employer Rule's analysis. In addition to 
the Southern District of New York's decision to vacate the Rule's 
vertical joint employment analysis, other courts have declined to adopt 
the Rule's analysis for similar reasons.\144\ The Department is aware 
of two FLSA cases in which a court has adopted and applied the Rule's 
vertical joint employment analysis.\145\ Both cases were district court 
decisions from the Tenth Circuit, which has not issued a definitive 
decision regarding the analysis to apply in FLSA vertical joint 
employment cases. Neither case applied the rule in a uniform manner, 
relying on additional factors or stating them differently.
---------------------------------------------------------------------------

    \144\ See Reyes-Trujillo v. Four Star Greenhouse, Inc., No. 20-
11692, -- F. Supp. 3d --, 2021 WL 103636, at *6-9 (E.D. Mich. Jan. 
12, 2021) (agreeing that the Joint Employer Rule's exclusive focus 
on the potential joint employer's control runs counter to the FLSA's 
expansive definition of ``employer'' and thus declining to adopt the 
Rule's analysis); Elsayed v. Family Fare LLC, No. 1:18-cv-1045, 2020 
WL 4586788, at *4 (M.D.N.C. Aug. 10, 2020) (finding ``it unnecessary 
to wade into whether the DOL's [Joint Employer] Rule is entitled to 
Brand X deference or whether the [Rule] is lawful under the APA'' 
and instead ``rely[ing] on established Fourth Circuit precedent'' 
regarding joint employment).
    \145\ See Clyde v. My Buddy The Plumber Heating & Air, LLC, No. 
2:19-cv-00756-JNP-CMR, 2021 WL 778532 (D. Utah Mar. 1, 2021); 
Sanders v. Glendale Rest. Concepts, LP, No. 19-cv-01850-NYW, 2020 WL 
5569786 (D. Colo. Sept. 17, 2020). In Clyde, the district court 
found it ``appropriate to rely upon the factors listed in the 
federal regulations interpreting the FLSA for guidance.'' 2021 WL 
778532, at *2 (citing Skidmore v. Swift & Co., 323 U.S. 134, 139-40 
(1944)). It also relied on additional joint employment factors from 
the Fourth Circuit's decision in Salinas. See id. at *3. In Sanders, 
the district court actually articulated the four factors as Bonnette 
did but applied them as a result of the Joint Employer Rule and the 
parties' agreement that those four factors applied instead of the 
factors from the Fourth Circuit's decision in Salinas, which some of 
the courts in that district ``favored.'' 2020 WL 5569786, at *3-4. 
In addition to these two district court decisions, there is the 
Sixth Circuit's decision in Rhea v. West Tennessee Violent Crime & 
Drug Task Force, 825 F. App'x 272 (6th Cir. 2020). In that case, the 
Sixth Circuit, after applying the Bonnette factors to determine that 
one defendant was not the employee's employer under the FLSA, listed 
the Rule's vertical joint employment factors in a footnote, asserted 
that the Rule's factors ``focus[] on the same factors as that of 
determining employer status,'' and stated that ``[n]either would 
[the defendant] be a `joint employer' under the FLSA.'' Id. at 275-
77 & n.4. However, the Sixth Circuit did not engage in any 
substantial analysis of the Rule's factors or meaningfully apply 
them. See id. at 277 n.4.
---------------------------------------------------------------------------

    Moreover, as the Joint Employer Rule acknowledged, a number of 
circuit courts of appeals had previously established analytical 
frameworks for vertical joint employment cases, and all of these 
analyses are different from the analysis in the Joint Employer 
Rule.\146\ Notwithstanding the Rule, district courts in those circuits 
have generally continued to apply binding precedent from their circuit 
courts of appeals when deciding FLSA vertical joint employment issues--
often with little, if any, meaningful discussion of the Rule's 
analysis.\147\ In sum, despite the Joint

[[Page 40950]]

Employer Rule's stated purpose of ``promot[ing] greater uniformity in 
court decisions,'' \148\ there has been no widespread adoption of the 
Rule's vertical joint employment analysis, and the Rule has not 
significantly affected judicial analysis of FLSA joint employment 
cases.
---------------------------------------------------------------------------

    \146\ See 85 FR 2831 (comparing the Rule's four-factor analysis 
to the various analyses adopted by circuit courts of appeals).
    \147\ See, e.g., Hamm v. Acadia Healthcare Co., No. 20-1515, 
2021 WL 1212539, at *5-6 (E.D. La. Mar. 31, 2021) (reciting Fifth 
Circuit's vertical joint employment analysis); Zhao v. Ke Zhang 
Inc., No. 18-CV-6452 (EK) (VMS), 2021 WL 1210369, at *4-6 (E.D.N.Y. 
Mar. 31, 2021) (applying Second Circuit's vertical joint employment 
analysis); Gil v. Pizzarotti LLC, No. 1:19-cv-03497-MKV, 2021 WL 
1178027, at *4-13 & n.2 (S.D.N.Y. Mar. 29, 2021) (applying Second 
Circuit's vertical joint employment analysis although noting in 
footnote in response to employer's argument that it would have 
reached the same result had it applied the Rule's analysis); Blan v. 
Classic Limousine Transp., LLC, No. 19-807, 2021 WL 1176063, at *8 
(W.D. Pa. Mar. 29, 2021) (applying Third Circuit's vertical joint 
employment analysis); Yela v. Trending Media Grp., Inc., No. 19-
21712-CIV, 2020 WL 6271047, at *5-7 (S.D. Fla. Sept. 18, 2020) 
(applying Eleventh Circuit's vertical joint employment analysis); 
Tombros v. Cycloware, LLC, No. 8:19-cv-03548-PX, 2020 WL 4748458, at 
*2-3 (D. Md. Aug. 17, 2020); Williams v. Bob Evans Restaurants, LLC, 
No. 2:18-cv-01353, 2020 WL 4692504, at *4-6 (W.D. Pa. Aug. 13, 2020) 
(applying Third Circuit's vertical joint employment analysis); 
Elsayed, 2020 WL 4586788, at *4-8 (applying Fourth Circuit's 
vertical joint employment analysis). Cf. Pontones v. Los Tres 
Magueyes, Inc., No. 5:18-CV-87-FL, 2021 WL 1430793, at *3-10 
(E.D.N.C. Apr. 15, 2021) (applying Fourth Circuit's vertical joint 
employment analysis and then the Rule's analysis in the 
alternative); id. at *8 n.18 (noting that because both analyses 
reached the same result and the Department had issued a proposal to 
rescind the Rule, ``the court does not definitively resolve here the 
level of deference merited for the interpretative guidance in the 
[Joint Employer Rule]'').
    \148\ 85 FR 2823.
---------------------------------------------------------------------------

    Additionally, rescinding the Joint Employer Rule would not be 
disruptive for WHD. WHD has not issued subregulatory guidance that 
would need to be withdrawn or modified as a result of the rescission. 
For all of these reasons, rescission of the Rule will have little 
effect on courts' and WHD's analyses in FLSA vertical joint employment 
cases.

D. Effects on Employees of the Vertical Joint Employment Analysis

    The Joint Employer Rule acknowledged that, although it would not 
change the wages due an employee under the FLSA in the vertical joint 
employment scenario, ``it may reduce the number of businesses currently 
found to be joint employers from which employees may be able to collect 
back wages due to them under the Act.'' \149\ The Rule further 
acknowledged that, ``[t]his, in turn, may reduce the amount of back 
wages that employees are able to collect when their employer does not 
comply with the Act and, for example, their employer is or becomes 
insolvent.'' \150\ One commenter, the Economic Policy Institute (EPI), 
submitted a quantitative analysis of the monetary amount that it 
estimated would transfer from employees to employers as a result of the 
Rule.\151\ In response, the Rule stated that, although it ``appreciates 
EPI's quantitative analysis,'' it ``does not believe there are data to 
accurately quantify the impact of this [R]ule.'' \152\ The Rule added 
that it ``lacks data on the current number of businesses that are in a 
joint employment relationship, or to estimate the financial 
capabilities (or lack thereof) of these businesses and therefore is 
unable to estimate the magnitude of a decrease in the number of 
employers liable as joint employers.'' \153\ The Rule discussed in a 
qualitative manner some potential benefits to employees, such as 
``promot[ing] innovation and certainty in business relationships'' and 
encouraging businesses to engage in certain practices with an employer 
that ``could benefit the employer's employees.'' \154\ The Rule did not 
otherwise consider any potential costs to workers.
---------------------------------------------------------------------------

    \149\ 85 FR 2853.
    \150\ Id.
    \151\ See id.
    \152\ Id.
    \153\ Id.
    \154\ Id.
---------------------------------------------------------------------------

    Many commenters expressed concerns that the Joint Employer Rule 
would incentivize companies to expand their use of temporary staffing 
agencies, contractors, and subcontractors rather than employing workers 
directly, which is a concern that the Department shares. Congressman 
Bobby Scott and 78 other Members of Congress wrote that the Rule 
``promotes business models that rely on subcontracting with businesses 
that pay lower wages to cut costs or with thinly capitalized lower 
level businesses that cut corners on FLSA compliance.'' As several 
commenters stated in comments that used template language, the number 
of workers employed through temporary staffing agencies ``has increased 
dramatically in recent years,'' especially in ``low-wage, `blue-collar' 
occupations.'' The National Employment Law Project (NELP) stated that 
``[t]emporary and staffing agency work hours have grown 3.9 times 
faster than overall work hours, and temporary and staffing agency jobs 
have grown 4.3 times faster than jobs overall.'' Several commenters 
identified particular industries that have experienced especially high 
growth in outsourcing and subcontracting, including janitorial 
services, construction, agriculture, manufacturing, warehousing and 
logistics, hospitality, and waste management. In particular, NELP noted 
that outsourcing of janitorial services ``has grown dramatically over 
the past two decades, resulting in an estimated 37 percent of 
janitorial workers hired through labor contractors rather than directly 
by the company at which they work.'' NELP also reported that 58 percent 
of security guard positions are outsourced.
    Several commenters asserted that the increase in temporary, 
staffing agency, and subcontracting jobs is detrimental to workers, 
because on average, ``temporary help agency workers earn 41 percent 
less'' than workers in ``standard work arrangements,'' they 
``experience large benefit penalties relative to their counterparts in 
standard work arrangements,'' and although their jobs tend to be more 
hazardous than those of ``permanent, direct hires,'' ``they often 
receive insufficient safety training and are more vulnerable to 
retaliation for reporting injuries than workers in traditional 
employment relationships.'' Some commenters, including the Public 
Justice Center and NELP, noted that temporary staffing agencies must 
compete with each other ``on the one major cost they can control--labor 
costs,'' and this ``competitive pressure drives down wages and 
incentivizes cutting corners through violating labor standards like 
minimum wage and health and safety laws.'' NELP also stated that 
``[t]emporary staffing agencies consistently rank among the worst large 
industries for the rate of wage and hour violations.'' The Public 
Justice Center described the industry's frequent use of a ``triangular 
employment relationship through which the staffing agency acts as temp 
workers' employer even though the worksite company determines the 
assignments and working conditions,'' thus allowing the worksite 
company to gain the benefits of employing workers while avoiding many 
of the legal responsibilities. In addition, several commenters, 
including the Communications Workers of America, the Kentucky Equal 
Justice Center, and the Workplace Justice Project, stated that 
individuals who work for staffing agencies or subcontractors often have 
trouble identifying their actual employer when a dispute over payment 
or working conditions arises. Other commenters, such as the National 
Employment Lawyers Association, wrote that holding a company 
responsible as a joint employer incentivizes that company to ``provide 
better oversight of working conditions, to ensure that child labor, 
minimum wage and overtime rules are followed.''
    Many commenters also stated that the increased use of temporary 
staffing agencies disproportionately impacts people of color and women. 
NELP, the Public Justice Center, and the State AGs reported that Black 
workers comprise 12.1 percent of the overall workforce, but 25.9 
percent of temporary help agency workers, while Latino workers make up 
16.6 percent of the total

[[Page 40951]]

workforce, but 25.4 percent of temporary help agency workers. NELP and 
the Public Justice Center explained that, because temporary workers 
``are especially vulnerable to illegal conduct such as wage theft, 
unsafe working conditions, and discrimination,'' an increase in 
temporary work can ``exacerbate occupational segregation, income 
inequality, and the wealth gap for people of color.'' In addition, the 
National Women's Law Center commented that women are ``broadly 
overrepresented in low-paid jobs,'' and noted that women working for 
``contract firms in full-time jobs typically earn 17 percent less than 
women in traditional employment arrangements and 42 percent less than 
full-time male workers provided by contract firms.'' In addition, 
Congressman Bobby Scott and 78 other members of Congress noted that 
``because the Equal Pay Act of 1963 shares the FLSA's definitions of 
employment, the [Joint Employer Rule] would make it harder for women to 
hold all responsible employers accountable when bringing equal pay 
claims.'' The National Women's Law Center also pointed out that the 
FLSA requires employers to provide breastfeeding workers with adequate 
time and safe space to pump at work, but in the case of temporary or 
subcontracted workers, the worksite is often controlled by a 
contracting entity, thus creating a potential barrier to the worker's 
ability to pump.
    Numerous organizations that provide legal representation to workers 
shared accounts of particular cases where, in their view, their clients 
would not have been able to recover back wages owed but for the fact 
that courts applied broader joint employer liability principles than 
those set forth in the Joint Employer Rule. For example, the Equal 
Justice Center represented approximately 30 individuals who worked for 
a small cleaning company to provide janitorial services at outlets of a 
big-box store in the Austin area. The workers sued for unpaid wages and 
overtime premiums, but the cleaning company went out of business. 
However, the workers succeeded in establishing that the big-box store 
was a joint employer based on the economic realities test derived from 
Rutherford and defined by the Fifth Circuit in Wirtz v. Dr. Pepper 
Bottling Co.\155\ According to the commenter, the workers successfully 
asserted that because they ``consistently and exclusively cleaned the 
[big box] company's stores, at hours dictated by the stores' schedules 
and according to standards set by the company's management, the [big 
box] company could be a joint employer under the FLSA.'' In contrast, 
the commenter believed that the big box store likely would not have 
been a joint employer under the Joint Employer Rule. In another case, 
the North Carolina Justice Center represented ``hundreds of janitorial 
workers'' who cleaned public school buildings through a subcontractor 
that went bankrupt, failing to pay several weeks of wages. According to 
the Center, the workers were able to recover back wages from the school 
district and the contractor as joint employers. The Center asserted 
that under the Joint Employer Rule, however, ``it is highly unlikely 
either the contractor or the district would be liable for the failure 
to pay minimum wage and overtime.'' In addition, NELP discussed a case 
involving warehouses owned by Wal-Mart, which contracted with Schneider 
Logistics to operate the warehouses, which in turn contracted with two 
staffing companies to provide labor. After the warehouse workers sued 
for violations of the FLSA, Wal-Mart moved for summary judgment that it 
was not a joint employer. The district court, applying the Bonnette and 
Torres-Lopez factors, determined that several factors in addition to 
Wal-Mart's control over the plaintiffs' working conditions suggested 
that Wal-Mart could be found to be a joint employer, including that the 
plaintiffs performed piecework that did not require initiative, 
judgment, or foresight; there was permanence in the plaintiffs' work 
for Wal-Mart; and the service performed by the plaintiffs was an 
integral part of Wal-Mart's business.\156\ Thus, the court denied Wal-
Mart's motion.\157\ According to NELP, the case eventually settled, but 
the staffing companies could afford to pay only 7.5 percent of the 
settlement amount. However, ``because the court took into account the 
realities of the workers' relationship with Schneider and Wal-Mart, the 
workers were able to obtain damages from these parties.''
---------------------------------------------------------------------------

    \155\ See Rutherford, 331 U.S. at 726; Wirtz v. Dr. Pepper 
Bottling Co., 374 F.2d 5, 8 (5th Cir. 1967).
    \156\ Carrillo v. Schneider Logistics Trans-Loading & Distrib., 
Inc., No. 2:11-CV-8557-CAS, 2014 WL 183956, at *6-15 (C.D. Cal. Jan. 
14, 2014) (applying Bonnette, 704 F.2d at 1470 and Torres-Lopez, 111 
F.3d at 639-40). The court rejected Wal-Mart's attempt to analogize 
the case to decisions applying only the Bonnette factors, explaining 
that ``the Torres-Lopez factors form an important component of the 
joint employer analysis.'' Id. at *10.
    \157\ Id. at *6, 16.
---------------------------------------------------------------------------

    Other commenters also emphasized the importance that joint 
employment liability plays in the recovery of back wages. For example, 
the Northwest Workers' Justice Project described a case in which 
workers who were employed by a contractor to cut, bag, and stock fruit 
at H-E-B grocery stores in Texas and who sued for minimum wage and 
overtime violations. According to the Project, the workers, mostly 
immigrants and women, worked on location only at H-E-B stores, often 
for 50 hours or more per week, and were paid per bag of produce sold, 
which never amounted to minimum wage. The case was apparently brought 
in the U.S. District Court for the District of Texas, which applies the 
Fifth Circuit's ``economic realities'' test requiring the consideration 
of several factors to determine joint employer liability.\158\ H-E-B 
initially denied responsibility as a joint employer, but ultimately 
settled, which the Project reported would not have been possible 
``[w]ithout joint employment.'' In addition, Justice at Work 
(Massachusetts), the Legal Aid Society, the Public Justice Center, the 
United Brotherhood of Carpenters and Joiners, and the Worker Justice 
Center of New York reported that they have brought or observed numerous 
cases in the construction industry where a subcontractor labor broker 
disappears or refuses to pay, and the next tier contractor denies 
responsibility, leaving workers without pay.
---------------------------------------------------------------------------

    \158\ The case appears to be Silva v. Pastranas Produce Inc., 
No. 4:12-CV-00470 (S.D. Tex. filed Feb. 16, 2012); see also Gray, 
673 F.3d at 354-55; Wirtz v. Lone Star Steel Co., 405 F.2d 668, 669-
70 (5th Cir. 1968).
---------------------------------------------------------------------------

    Some organizations that provide legal assistance to agricultural 
workers commented that joint employment is particularly important in 
the agricultural industry. Texas RioGrande Legal Aid reported that 
``[j]oint employer issues arise frequently in the agricultural sector 
because the sector is riddled with middlemen: Undercapitalized farm 
labor contractors who pay the workers while furnishing their labor to 
fixed-site farm operators.'' The organization has found that 
``farmworkers' attempts to seek unpaid wages from farm labor 
contractors, as opposed to fixed-site agricultural employers, are 
frequently futile,'' in part because ``[f]arm labor contractors are 
often undercapitalized and unable to meet their wage obligations 
because of disadvantageous deals made with growers.'' NELP pointed to a 
study conducted by EPI that found that from 2005 to 2019, farm labor 
contractors accounted for 14 percent of agricultural jobs, but 24 
percent of all employment law violations in agriculture. Texas 
RioGrande Legal Aid noted that DOL's H-2A regulations require farm 
labor contractors petitioning for temporary labor certification to post 
bonds as a

[[Page 40952]]

`` ` necessary compliance mechanism' to ensure that the labor 
contractor pays the H-2A workers their wages,'' because many of these 
contractors are unreliable. In addition, the Centro de los Derechos del 
Migrante explained that, while MSPA ``protects many farmworkers above 
and beyond the FLSA floor, nearly half a million migrant agricultural 
workers in the H-2A program are excluded from'' the protections of 
MSPA, ``and rely instead on the FLSA.'' The organization asserted, 
however, that ``[b]y opening loopholes in the FLSA not found in [MSPA], 
the 2020 Rule would incentivize employers to sidestep . . . [MSPA]'s 
protections by hiring workers to whom only the FLSA applies, driving 
down standards across the entire agricultural industry.'' It further 
noted the history of diminished legal protections for agricultural 
workers, which was ``born of a dark history of racial discrimination,'' 
and argued that reducing protections for these workers would perpetuate 
that legacy, as 92 percent of H-2A workers are Mexican.
    In contrast, several commenters who oppose rescinding the Joint 
Employer Rule asserted that the Rule promotes job growth. WPI stated 
that, ``[d]uring the `period in which [the Department] consistently 
applied the `right of control' factors identified with the Bonnette 
test of the Ninth Circuit, significant job growth took place in the 
industries represented by WPI,'' including temporary staffing, 
construction, retail, and hospitality. It is not clear what period of 
time WPI is referring to, as all of the statistics cited by WPI predate 
the effective date of the Joint Employer Rule. Moreover, the Joint 
Employer Rule was in effect for only a brief period of time, and WPI 
did not present any direct evidence that job growth during that short 
window of time was driven, in whole or in part, by the adoption of the 
Rule. Given data limitations, it would not be possible to determine 
whether job growth in these industries was related to the Joint 
Employer Rule. Further, as the comments discussed above indicate, to 
the extent that jobs with temporary staffing agencies or thinly 
capitalized subcontractors have replaced standard employment 
arrangements, such a trend is disadvantageous to workers in many 
respects, and could have a particularly negative effect on people of 
color and women. The Washington Legal Foundation also generally 
asserted that the Joint Employer Rule fosters job growth, and contended 
that logically, allowing the Rule to remain in place would result in 
increased job creation, higher salaries, and no wage theft. However, 
the Department does not believe that allowing the Rule to remain in 
effect would have clearly lead to the creation of more, higher-paying 
jobs free of wage theft, for the reasons discussed by the commenters 
above. Instead, the Department agrees with the commenters who stated 
that the Rule would have further incentivized companies to source labor 
through temporary staffing firms or subcontractors, rather than hiring 
employees directly, which tends to result in lower pay and fewer 
benefits, and can leave employees without recourse for unpaid wages 
when the staffing firm or subcontractor is unable or unwilling to pay.
    Upon consideration of the comments, the Department concludes that 
the Joint Employer Rule did not satisfactorily consider the costs to 
employees. This conclusion is premised in part on WHD's role as the 
agency responsible for enforcing the FLSA and for collecting back wages 
due to employees when it finds violations, as well as a recent 
Presidential Memorandum instructing the Director of the Office of 
Management and Budget to recommend new procedures for regulatory review 
that better ``take into account the distributional consequences of 
regulations.'' \159\ As noted in the economic analysis, rescinding the 
Joint Employer Rule could help protect the well-being and economic 
security of workers in low-wage industries, many of whom are 
immigrants, people of color, and women, because FLSA violations are 
more severe and widespread in low-wage labor markets.\160\ The 
Department believes that the Joint Employer Rule would have made it 
more difficult for workers to collect back wages owed and incentivized 
workplace fissuring,\161\ which are serious concerns that may have a 
disproportionate impact on low-wage and vulnerable workers. The Rule's 
failure to weigh these concerns is an additional reason for its 
rescission.
---------------------------------------------------------------------------

    \159\ Modernizing Regulatory Review: Memorandum for the Heads of 
Executive Departments and Agencies (Jan. 20, 2021), published at 86 
FR 7223 (Jan. 26, 2021).
    \160\ Annette Bernhardt et al., Broken Laws, Unprotected 
Workers: Violations of Employment and Labor Laws in America's Cities 
(2009), available at https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf.
    \161\ The Joint Employer Rule described workplace fissuring as 
the ``increased reliance by employers on subcontractors, temporary 
help agencies, and labor brokers rather than hiring employees 
directly.'' 85 FR 2853 n.100.
---------------------------------------------------------------------------

E. Effects on Other Stakeholders of the Vertical Joint Employment 
Analysis

    In addition to discussing the issues identified in the NPRM, 
commenters also noted other ways in which rescission of the Joint 
Employer Rule would affect various stakeholders. In particular, most 
commenters opposed to rescission of the Rule emphasized the importance 
of clarity and predictability to the business community. However, the 
Department generally believes that the impact of rescission on the 
business community and other stakeholders will not be substantial 
because the Rule has not been widely adopted by the courts. 
Furthermore, for the reasons set forth above, the Department believes 
that the Rule should be rescinded because it was inconsistent with the 
text and purpose of the FLSA.
    Many commenters asserted that the Joint Employer Rule provided 
clarity and predictability to the regulated community, and argued that 
rescinding the Rule would lead to confusion and uncertainty. The U.S. 
Chamber of Commerce stated that the Rule ``brought needed clarity and 
consistency to a key issue that had long vexed employers and the WHD.'' 
The FreedomWorks Foundation wrote that a ``lack of clarity surrounding 
issues of joint employment [is] especially harmful to small businesses, 
which employ almost half of Americans and often do not have the 
resources to secure top-notch legal advice,'' a concern echoed by the 
National Federation of Independent Businesses (NFIB). However, the 
Department does not agree that leaving the Joint Employer Rule in place 
would have provided increased clarity and certainty to the regulated 
community. As discussed above, the Rule conflicted with the text and 
purposes of the FLSA and was not widely adopted by the courts.\162\ 
Thus, even if the Second Circuit Court of Appeals were to reverse the 
district court decision vacating the Rule on standing grounds, it is 
likely that many courts would still reject the Rule and continue to 
rely on prior precedent. As such, leaving the Joint Employer Rule in 
place would not have established a uniform standard consistently 
applied by all courts across the country. Because it conflicted with

[[Page 40953]]

established precedent in the circuits, the Rule presented employers 
with the difficult choice of conducting their business in a manner 
consistent with circuit precedent or with the Rule. Furthermore, 
because employers had to consider circuit precedent as no circuit had 
adopted the Rule, the Rule likely provided little clarity. Accordingly, 
the Department does not agree that rescinding the Rule will result in 
significantly less clarity and uncertainty for the regulated community. 
More fundamentally, because the regulation conflicted with the text and 
purpose of the FLSA, it should be rescinded.
---------------------------------------------------------------------------

    \162\ See, e.g., Reyes-Trujillo, 2021 WL 103636, at *6-9 
(agreeing that the Joint Employer Rule's exclusive focus on the 
potential joint employer's control runs counter to the FLSA's 
expansive definition of ``employer'' and thus declining to adopt the 
Rule's analysis); Elsayed, 2020 WL 4586788, at *4 (finding ``it 
unnecessary to wade into whether the DOL's [Joint Employer] Rule is 
entitled to Brand X deference or whether the [Rule] is lawful under 
the APA'' and instead ``rely[ing] on established Fourth Circuit 
precedent'' regarding joint employment).
---------------------------------------------------------------------------

    Other commenters expressed concerns that rescinding the Joint 
Employer Rule could impose additional costs on businesses. The Texas 
Public Policy Foundation asserted generally that rescission would 
``result in more employers being deemed to be joint employers, raising 
operating expenses for those employers.'' Again, because the Rule was 
not widely adopted by courts, the Department does not expect that the 
Rule's rescission will substantially increase prospective joint 
employers' costs. In addition, the Department believes that the Rule's 
rescission will continue to incentivize businesses at the top of a 
vertical industry structure to ensure that labor suppliers and other 
potential joint employers comply with the FLSA; as long as they do so, 
businesses at the top will not incur the additional cost of paying the 
joint employer's employees. Other commenters, such as the National 
Retail Federation, expressed concern that rescinding the Rule would 
discourage businesses ``from entering into beneficial contractual 
relationships with third-party business parties, inhibiting business-
to-business collaboration.'' Commenters like the National Restaurant 
Association and Restaurant Law Center stated that rescinding the Rule 
could negatively impact businesses that use a franchising model. But 
the vast majority of these businesses operate in jurisdictions that 
have not adopted the Joint Employer Rule, so their calculation of 
potential liability will not change. Furthermore, the current law 
governing joint employment allows businesses to enter into beneficial 
relationships without creating joint employment liability. In fact, as 
commenters both supporting and opposing rescission noted, the growth of 
temporary staffing, independent contractors, and franchise 
relationships outpaced standard employment in many respects in the 
years before the Joint Employer Rule was introduced. See, e.g., 
International Franchise Association (asserting that after the financial 
crisis, from 2009-12, ``employment in the franchise sector grew 7.4%, 
versus 1.8% growth in total U.S. employment''); NELP (asserting that 
since 2009, ``[t]emporary and staffing agency work hours have grown 3.9 
times faster than overall work hours, and temporary and staffing agency 
jobs have grown 4.3 times faster than jobs overall;'' and noting that 
``staffing and temporary help services provided 11.3 percent of all 
manufacturing employment in 2015, up from just 2.3 percent in 1989''). 
This indicates that the prior legal landscape did not pose a 
significant hindrance to the formation of these types of 
relationships.\163\
---------------------------------------------------------------------------

    \163\ Other commenters expressed concerns about the imposition 
of additional costs on particular industries in the wake of the 
COVID-19 pandemic. For example, the American Hotel and Lodging 
Association stated that ``[l]eisure and hospitality account for 37% 
of all jobs lost since the onset of the pandemic,'' and ``hotels are 
not projected to return to pre-pandemic levels until 2024 at the 
earliest,'' and asserted that rescinding the Rule would impose new 
costs that are particularly unwelcome now. However, for the reasons 
discussed in this paragraph, the Department does not believe that 
rescission of the Rule will impose substantial new costs on 
businesses. Moreover, workers in industries experiencing financial 
stress (as a result of the pandemic or otherwise) are particularly 
at risk of losing the wages they are owed to the extent that 
liability is confined to smaller businesses at the bottom of the 
industry.
---------------------------------------------------------------------------

    Commenters who support the Rule also asserted that rescinding the 
Rule would make companies less likely to offer assistance to related 
companies, such as a franchisor offering sexual harassment training 
materials to a franchisee, for fear of becoming a joint employer. These 
commenters pointed out that this type of assistance can benefit workers 
by, for example, reducing sexual harassment in the workplace or 
improving workplace safety.\164\ However, the commenters did not cite 
any court decision finding that a company is a joint employer primarily 
on this basis, while at least some courts have not regarded the 
provision of training assistance as strong evidence of a joint employer 
relationship.\165\ Furthermore, to the extent that a court might 
consider this type of assistance as part of the joint employer 
analysis, it would be merely one aspect of one factor among many that 
the courts use to assess whether a joint employer relationship exists, 
and no one factor is dispositive. Moreover, as the comments discussed 
above noted, the prospect of joint employer liability can incentivize a 
company to ``provide better oversight of working conditions, to ensure 
that child labor, minimum wage and overtime rules are followed.'' See, 
e.g., National Employment Lawyers Association. The Department agrees 
with this assessment.
---------------------------------------------------------------------------

    \164\ Commenters provided various examples of the types of 
assistance that a company might offer a related company. The U.S. 
Chamber of Commerce discussed model handbooks, apprenticeship 
programs, and association health plans. The Washington Legal 
Foundation and the American Hotel and Lodging Association cited 
training employees to detect human trafficking. SHRM mentioned the 
provision of face coverings and protective personal equipment during 
the COVID-19 pandemic. The discussion of whether companies will be 
more or less likely to assist other companies after the Rule is 
rescinded applies equally to the various types of assistance noted 
by the commenters.
    \165\ See, e.g., Moreau v. Air France, 356 F.3d 942, 950-53 (9th 
Cir. 2004) (holding that Air France was not joint employer with 
ground service operations companies, even though it provided some 
training to those companies' employees, in an FMLA case applying 
FLSA case law); Martin v. Sprint United Mgmt. Co., 273 F. Supp. 3d 
404, 427, 434 (S.D.N.Y. 2017) (finding that Sprint was not joint 
employer with subcontractor despite the fact that it trained 
subcontractor's employees).
---------------------------------------------------------------------------

    Some commenters expressed particular concern as to how rescinding 
the Joint Employer Rule would affect the construction industry. The 
Associated Builders and Contractors wrote that the construction 
industry consists ``primarily of specialized, separate employers who 
come together [to work] on specific construction projects,'' and 
``standard construction methods require project owners and/or prime 
contractors to exercise routine control over the [work] site in ways 
that indirectly affect many employees' terms and conditions of 
employment,'' thus potentially leading to joint employer liability. The 
National Association of Home Builders asserted that the uncertainty 
faced by home builders due to their reliance on subcontractors could 
make costs less predictable, which could increase the cost of new 
homes. However, as noted previously, because the Joint Employer Rule 
was not adopted in most jurisdictions, the Department does not expect 
that the Rule's rescission will significantly increase uncertainty or 
impose substantial new costs, including in the construction industry. 
In addition, current court precedent requires consideration of a 
variety of factors before a company can be held liable as a joint 
employer; a single factor standing alone, like supervision of a work 
site, would likely not be enough to establish joint employer liability. 
Furthermore, as discussed above, many commenters have noted that 
subcontractors' failure to pay wages owed is a particular problem in 
the construction industry; rescinding the Joint Employer Rule will 
further incentivize project managers to select and monitor 
subcontractors with an emphasis on ensuring compliance with the FLSA. 
Such a result is

[[Page 40954]]

beneficial to workers and promotes compliance with the FLSA, helping to 
ensure a level playing field for responsible employers.

F. Horizontal Joint Employment Analysis

    As described in the NPRM, horizontal joint employment may be 
present where one employer employs an employee for one set of hours in 
a workweek, and one or more other employers employs the same employee 
for separate hours in the same workweek. If the two (or more) employers 
jointly employ the employee, the hours worked by that employee for all 
of the employers must be aggregated for the workweek and all of the 
employers are jointly and severally liable.\166\
---------------------------------------------------------------------------

    \166\ See 86 FR 14045.
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    For horizontal joint employment, the Joint Employer Rule adopted 
the standard in the prior version of 29 CFR 791.2 with non-substantive 
revisions and set forth that standard in 29 CFR 791.2(e).\167\ The 
Joint Employer Rule's horizontal joint employment standard focused on 
the degree of the employers' association with respect to the employment 
of the employee, reflected the Department's historical approach to the 
issue, and was consistent with the relevant case law. The NPRM stated 
that the Department was not considering revising its longstanding 
horizontal joint employment standard but proposed to rescind the entire 
Joint Employer Rule (including 29 CFR 791.2(e)) because the structure 
of the Joint Employer Rule made it impractical for the horizontal joint 
employment provisions to stand on their own.\168\
---------------------------------------------------------------------------

    \167\ See 85 FR 2844-45.
    \168\ See 86 FR 14045-46.
---------------------------------------------------------------------------

    Few commenters addressed horizontal joint employment. The U.S. 
Chamber of Commerce noted that horizontal joint employment 
``relationships do not create the same level of uncertainty, or present 
the same level of exposure, as vertical joint employment relationships, 
and the provisions in the [Joint Employer Rule] addressing horizontal 
joint employment relationships have not been questioned.'' The 
Washington Legal Foundation stated that, although the Joint Employer 
Rule made only non-substantive revisions to the horizontal joint 
employment standard, ``it was still important to issue the Final Rule 
about horizontal joint employment'' because, in its view, the 
Department ``provided regulatory certainty by codifying long-standing 
practices.'' It further stated that if the Department rescinds the 
Joint Employer Rule, the Department ``will inject uncertainty,'' and 
``[i]n these trying times the regulated community needs certainty,'' 
which ``[e]xperts say . . . is important to economic growth.'' The 
State AGs commented that the Joint Employer Rule's ``provisions 
relating to the horizontal joint employment test should be rescinded 
because they are inextricably intertwined with the now-vacated vertical 
joint employment provisions.'' They further commented that 
``[r]escinding the provisions relating to horizontal joint employment 
makes practical sense,'' ``the horizontal joint employment standard has 
long been established,'' and thus ``stakeholders can easily refer to 
DOL's earlier interpretations and relevant case law to understand their 
obligations.''
    Having considered the comments and the issue further, the 
Department is rescinding the Joint Employer Rule in its entirety (i.e., 
all of 29 CFR part 791, including the horizontal joint employment 
standard in Sec.  791.2(e)). The Joint Employer Rule intertwined the 
horizontal joint employment provisions with the vertical joint 
employment provisions in 29 CFR 791.2. For example, Sec.  791.2(f) 
addressed the consequences of joint employment for both the vertical 
and horizontal scenarios, and Sec.  791.2(g) provided 11 ``illustrative 
examples'' of how the Rule may apply to specific factual situations 
implicating both vertical and horizontal joint employment.\169\ 
Accordingly, it would be difficult and impractical for Sec.  791.2(e) 
to remain alone. In addition, Sec.  791.2(e) would lack context alone 
and potentially be confusing as its references to the ``second'' joint 
employment scenario would not make sense without the rest of Sec.  
791.2 and the discussion of the ``first'' joint employment scenario 
therein.
---------------------------------------------------------------------------

    \169\ See 85 FR 2860-62 (29 CFR 791.2(f), (g)) (2020)).
---------------------------------------------------------------------------

    Although the Department is rescinding the Joint Employer Rule in 
its entirety, it did not reconsider the substance of its longstanding 
horizontal joint employment analysis. The focus of a horizontal joint 
employment analysis will continue to be the degree of association 
between the potential joint employers, as it was in the Joint Employer 
Rule and the prior version of part 791.\170\ As has been the 
Department's position for decades, the association will be sufficient 
to demonstrate joint employment in the following situations, among 
others: (1) There is an arrangement between the employers to share the 
employee's services; (2) one employer is acting directly or indirectly 
in the interest of the other employer in relation to the employee; or 
(3) the employers share control of the employee, directly or 
indirectly, because one employer controls, is controlled by, or is 
under common control with the other employer.\171\
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    \170\ See 85 FR 2859-60 (29 CFR 791.2(e) (2020)); 23 FR 5906 (29 
CFR 791.2) (1958).
    \171\ 23 FR 5906 (29 CFR 791.2) (1958).
---------------------------------------------------------------------------

G. Effect of Rescission

    The NPRM stated that, if the Joint Employer Rule is rescinded as 
proposed, part 791 of title 29 of the Code of Federal Regulations would 
be removed in its entirety and reserved.\172\ The NPRM also noted that 
the Department was not proposing regulatory guidance to replace the 
guidance located in part 791.\173\ Because this final rule adopts and 
finalizes the rescission of the Joint Employer Rule, part 791 is 
removed in its entirety and reserved. As stated in the NPRM, the 
Department will continue to consider legal and policy issues relating 
to FLSA joint employment before determining whether alternative 
regulatory or subregulatory guidance is appropriate. \174\
---------------------------------------------------------------------------

    \172\ See 86 FR 14046.
    \173\ See id.
    \174\ See id.
---------------------------------------------------------------------------

III. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., 
and its attendant regulations, 5 CFR part 1320, require the Department 
to consider the agency's need for its information collections, their 
practical utility, as well as the impact of paperwork and other 
information collection burdens imposed on the public, and how to 
minimize those burdens. This final rule does not contain a collection 
of information subject to Office of Management and Budget (OMB) 
approval under the Paperwork Reduction Act.

IV. Executive Order 12866, Regulatory Planning and Review; and 
Executive Order 13563, Improved Regulation and Regulatory Review

A. Introduction

    Under Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs (OIRA) determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\175\ Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as a regulatory 
action that is likely to result in a rule that may: (1) Have an annual 
effect on the

[[Page 40955]]

economy of $100 million or more, or adversely affect in a material way 
a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local or tribal 
governments or communities (also referred to as economically 
significant); (2) create serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
order. OIRA has determined that this rescission is economically 
significant under section 3(f) of Executive Order 12866. Pursuant to 
the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA has also 
designated this rule as a major rule, as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \175\ See 58 FR 51735, 51741 (Oct. 4, 1993).
---------------------------------------------------------------------------

    Executive Order 13563 directs agencies to, among other things, 
propose or adopt a regulation only upon a reasoned determination that 
its benefits justify its costs; that it is tailored to impose the least 
burden on society, consistent with obtaining the regulatory objectives; 
and that, in choosing among alternative regulatory approaches, the 
agency has selected those approaches that maximize net benefits. 
Executive Order 13563 recognizes that some costs and benefits are 
difficult to quantify and provides that, when appropriate and permitted 
by law, agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts. The analysis below outlines the 
impacts that the Department anticipates may result from this rescission 
and was prepared pursuant to the above-mentioned Executive orders.

B. Costs

1. Rule Familiarization Costs
    Rescinding the Joint Employer Rule will impose direct costs on 
businesses that will need to review the rescission. To estimate these 
regulatory familiarization costs, the Department determined: (1) The 
number of potentially affected entities, (2) the average hourly wage 
rate of the employees reviewing the rescission, and (3) the amount of 
time required to review the rescission. It is uncertain whether these 
entities would incur regulatory familiarization costs at the firm or 
the establishment level. For example, in smaller businesses there might 
be just one specialist reviewing the rescission, while larger 
businesses might review it at corporate headquarters and determine 
policy for all establishments owned by the business. To avoid 
underestimating the costs of this rescission, the Department uses both 
the number of establishments and the number of firms to estimate a 
potential range for regulatory familiarization costs. The lower bound 
of the range is calculated assuming that one specialist per firm will 
review the rescission, and the upper bound of the range assumes one 
specialist per establishment.
    The most recent data on private sector entities at the time this 
final rule was drafted are from the 2017 Statistics of U.S. Businesses 
(SUSB), which reports 5,996,900 private firms and 7,860,674 private 
establishments with paid employees.\176\ Because the Department is 
unable to determine how many of these businesses have workers with one 
or more joint employers, this analysis assumes all businesses will 
undertake review.
---------------------------------------------------------------------------

    \176\ Census Bureau, Statistics of U.S. Businesses (2017), 
https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry.
---------------------------------------------------------------------------

    The Department believes ten minutes per entity, on average, to be 
an appropriate review time here. This rulemaking is a rescission and 
will not set forth any new regulations or guidance regarding joint 
employment. Additionally, as it believed when it issued the Joint 
Employer Rule, the Department believes that many entities are not joint 
employers and thus would not spend any time reviewing the rescission. 
Therefore, the ten-minute review time represents an average of no time 
for the majority of entities that are not joint employers, and 
potentially more than ten minutes for review by some entities that 
might be joint employers.
    The Department's analysis assumes that the rescission would be 
reviewed by Compensation, Benefits, and Job Analysis Specialists (SOC 
13-1141) or employees of similar status and comparable pay. The median 
hourly wage for these workers was $32.30 per hour in 2020, the most 
recent year of data available.\177\ The Department also assumes that 
benefits are paid at a rate of 46 percent \178\ and overhead costs are 
paid at a rate of 17 percent of the base wage, resulting in a fully 
loaded hourly rate of $52.65.
---------------------------------------------------------------------------

    \177\ Bureau of Labor Statistics, Occupational Employment and 
Wages (May 2020), https://www.bls.gov/oes/current/oes131141.htm.
    \178\ The benefits-earnings ratio is derived from the Bureau of 
Labor Statistics' Employer Costs for Employee Compensation data 
using variables CMU1020000000000D and CMU1030000000000D.
---------------------------------------------------------------------------

    The Department estimates that the lower bound of regulatory 
familiarization cost range would be $52,728,043 (5,996,900 firms x 
$52.65 x 0.167 hours), and the upper bound, $69,115,369 (7,860,674 
establishments x $52.65 x 0.167 hours). The Department estimates that 
all regulatory familiarization costs would occur in Year 1.
    Additionally, the Department estimated average annualized costs of 
regulatory familiarization with this rescission over 10 years. Over 10 
years, it would have an average annual cost of $7.0 million to $9.2 
million, calculated at a 7 percent discount rate ($5.8 million to $7.6 
million calculated at a 3 percent discount rate). All costs are in 2020 
dollars.
2. Other Costs
    As discussed above, some commenters asserted that there may be 
other potential costs to the regulated community, such as reduced 
clarity from the lack of the Rule's regulatory guidance. Because it 
lacks data on the number of businesses that are in a joint employment 
relationship or those that changed their policies as a result of the 
Joint Employer Rule, the Department has not quantified these potential 
costs, which are expected to be de minimis. Although the rescission 
removes the regulations at 29 CFR part 791, the Department believes 
that this will not result in substantial costs or decreased clarity for 
the regulated community because, as discussed above, most courts apply 
a vertical joint employment analysis different from the analysis in the 
Joint Employer Rule and have not adopted the Rule's analysis. The State 
AGs agree with this assertion in their comment. Texas RioGrande Legal 
Aid asserts that the Joint Employer Rule would not have created clarity 
for the agricultural sector, because employers would face conflicting 
obligations under the different regulatory regimes of FLSA and MSPA.
    WPI asserted that using an ``expanded'' joint employment standard 
instead of the standard put forth in the Joint Employer Rule would 
result in a loss of output of $17.2 billion to $33.3 billion annually 
for the franchise business sector. WPI cites a comment provided by the 
International Franchise Association to the 2019 Joint Employer NPRM. In 
this comment, the International Franchise Association discusses a study 
by Dr. Ron Bird, looking at the effects of the National Labor Relations 
Board's re-articulation of its joint employer standard in the Browning-
Ferris case. The National Labor Relations Board is responsible for

[[Page 40956]]

enforcing the National Labor Relations Act (NLRA), which differs from 
the FLSA. The commenters, however, do not provide any data or 
information connecting this output loss to rescission of the Joint 
Employer Rule.

C. Transfers

    In the Joint Employer Rule's regulatory impact analysis, the 
Department acknowledged that the Rule could limit the ability of 
workers to collect wages due to them under the FLSA because when there 
is only one employer liable, there are fewer employers from which to 
collect those wages and no other options if that sole employer lacks 
sufficient assets to pay.\179\ Because the Joint Employer Rule provided 
new criteria for determining joint employer status under the FLSA and 
given the specifics of those criteria, it potentially reduced the 
number of businesses found to be joint employers from which employees 
may be able to collect back wages due to them under the Act. This, in 
turn, potentially reduced the amount of back wages that employees were 
able to collect when an employer did not comply with the Act and, for 
example, was or became insolvent.
---------------------------------------------------------------------------

    \179\ See 85 FR 2853.
---------------------------------------------------------------------------

    Like the Joint Employer Rule, this rescission will not change the 
amount of wages due any employee under the FLSA. However, rescinding 
the Joint Employer Rule could result in a transfer from employers to 
employees in the form of back wages owed that employees would 
thereafter be able to collect. The Department lacks data on the current 
number of businesses that are in a joint employment relationship, or to 
estimate the financial capabilities (or lack thereof) of these 
businesses and therefore is unable to estimate the magnitude of an 
increase in the number of employers liable as joint employers.
    Although the Rule would not have changed the amount of wages due to 
an employee, the narrower standard for joint employment in the Rule 
could have incentivized ``workplace fissuring.'' Research has shown 
that this type of domestic outsourcing can suppress workers' wages, 
especially for low-wage occupations.\180\ The State AGs asserted, 
``[f]issured workplaces result in lower wages, greater wage theft, and 
less job security, especially for immigrants or people of color who 
make up a disproportionate share of low-wage workers in nonstandard 
work arrangements.''
---------------------------------------------------------------------------

    \180\ Arindrajit Dube & Ethan Kaplan, Does Outsourcing Reduce 
Wages in the Low-Wage Service Occupations? Evidence from Janitors 
and Guards, ILR Review 63, no. 2, 287-306 (2010).
---------------------------------------------------------------------------

    In 2019, the Economic Policy Institute (EPI) submitted a comment in 
response to the Joint Employer NPRM in which they calculated that the 
Rule would result in transfers from employees to employers of over $1 
billion.\181\ They again referenced this analysis in their comment on 
the proposed rescission. EPI explained that these transfers would 
result from both an increase in workplace ``fissuring'' as well as from 
an increase in wage theft by employers. Rescinding this standard could 
help mitigate any increased workplace fissuring and wage theft that 
would have resulted. The Department is unable to determine to what 
extent these transfers occurred while the Joint Employer Rule was in 
effect, and therefore has not provided a quantitative estimate of 
transfers from employers to employees because of this rescission. The 
Department is also unable to estimate the increase in back wages that 
employees will be able to collect because of this change.
---------------------------------------------------------------------------

    \181\ Celine McNicholas & Heidi Shierholz, EPI comments 
regarding the Department of Labor's proposed joint-employer 
standard, June 25, 2019, available at https://www.epi.org/publication/epi-comments-regarding-the-department-of-labors-proposed-joint-employer-standard/.
---------------------------------------------------------------------------

    This rescission could also benefit some small businesses, because 
the Joint Employer Rule's narrowing of the joint employment standard 
could have made them solely liable and responsible for complying with 
the FLSA without relying on the resources of a larger business in 
certain situations.
    The Texas Public Policy Foundation commented on the Department's 
economic analysis, saying that the Department did not make any specific 
findings of the Rule's effect on workers. The Department still believes 
that due to lack of data on the number of joint employment 
relationships, as well as how these relationships would have changed 
under the Joint Employer Rule, it is not possible to quantify the 
magnitude of transfers associated with the Rule or with its rescission. 
Likewise, the commenter does not provide any data or information about 
the impact of this rescission on workers.

D. Benefits

    The Department believes that rescinding the Joint Employer Rule 
will result in benefits to workers and will strengthen wage and hour 
protections for vulnerable workers. Removing a standard for joint 
employment that is narrower than the standard applied by courts and 
WHD's prior standards may enable more workers to collect back wages to 
which they would already be entitled under the FLSA. This could 
particularly improve the well-being and economic security of workers in 
low-wage industries, many of whom are immigrants and people of color, 
because FLSA violations are more severe and widespread in low-wage 
labor markets.\182\
---------------------------------------------------------------------------

    \182\ Annette Bernhardt et al., Broken Laws, Unprotected 
Workers: Violations of Employment and Labor Laws in America's Cities 
(2009), available at https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf.
---------------------------------------------------------------------------

V. Regulatory Flexibility Act (RFA) Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act of 
1996, Public Law 104-121 (1996), requires Federal agencies engaged in 
rulemaking to consider the impact of their proposals on small entities, 
consider alternatives to minimize that impact, and solicit public 
comment on their analyses. The RFA requires the assessment of the 
impact of a regulation on a wide range of small entities, including 
small businesses, not-for-profit organizations, and small governmental 
jurisdictions. Accordingly, the Department examined this rescission to 
determine whether it would have a significant economic impact on a 
substantial number of small entities. The most recent data on private 
sector entities at the time this final rule was drafted are from the 
2017 Statistics of U.S. Businesses (SUSB), which reports 5,996,900 
private firms and 7,860,674 private establishments with paid 
employees.\183\ Of these, 5,976,761 firms and 6,512,802 establishments 
have fewer than 500 employees. Because the Department is unable to 
determine how many of these businesses have workers with one or more 
joint employers, this analysis assumes all businesses will undertake 
review.
---------------------------------------------------------------------------

    \183\ Census Bureau, Statistics of U.S. Businesses (2017), 
https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 2016 SUSB Annual Data Tables by Establishment Industry.
---------------------------------------------------------------------------

    The per-entity cost for small business employers is the regulatory 
familiarization cost of $8.79, or the fully loaded mean hourly wage of 
a Compensation, Benefits, and Job Analysis Specialist ($52.65) 
multiplied by \1/6\ hour (ten minutes). Because this cost is minimal 
for small business entities, and well below one percent of their gross 
annual revenues, which is typically at least $100,000 per year for the 
smallest businesses, the Department certifies that this rescission will 
not have a significant economic impact on a substantial number of small 
entities.

[[Page 40957]]

VI. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (UMRA) \184\ requires 
agencies to prepare a written statement for rules with a Federal 
mandate that may result in increased expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $165 
million ($100 million in 1995 dollars adjusted for inflation) or more 
in at least one year.\185\ This statement must: (1) Identify the 
authorizing legislation; (2) present the estimated costs and benefits 
of the rule and, to the extent that such estimates are feasible and 
relevant, its estimated effects on the national economy; (3) summarize 
and evaluate state, local, and tribal government input; and (4) 
identify reasonable alternatives and select, or explain the non-
selection, of the least costly, most cost-effective, or least 
burdensome alternative.
---------------------------------------------------------------------------

    \184\ See 2 U.S.C. 1501.
    \185\ Calculated using growth in the Gross Domestic Product 
deflator from 1995 to 2019. Bureau of Economic Analysis. Table 
1.1.9. Implicit Price Deflators for Gross Domestic Product.
---------------------------------------------------------------------------

Authorizing Legislation

    This final rule is issued pursuant to the Fair Labor Standards Act 
of 1938, 29 U.S.C. 201-219.

Assessment of Costs and Benefits

    For purposes of UMRA, this rescission is not expected to result in 
increased expenditures by the private sector or by state, local, and 
tribal governments of $165 million or more in at least one year. As 
discussed earlier, the Department believes that the rescission will not 
result in substantial costs for the regulated community because most 
courts apply a vertical joint employment analysis different from the 
analysis in the Joint Employer Rule and have not adopted the Rule's 
analysis. More detailed analysis of impacts appears above.
    UMRA requires agencies to estimate the effect of a regulation on 
the national economy if such estimates are reasonably feasible and the 
effect is relevant and material.\186\ However, OMB guidance on this 
requirement notes that such macroeconomic effects tend to be measurable 
in nationwide econometric models only if the economic effect of the 
regulation reaches 0.25 percent to 0.5 percent of Gross Domestic 
Product (GDP), or in the range of $52.3 billion to $104.7 billion 
(using 2020 GDP).\187\ A regulation with a smaller aggregate effect is 
not likely to have a measurable effect in macroeconomic terms, unless 
it is highly focused on a particular geographic region or economic 
sector, which is not the case with this rule. Given OMB's guidance, the 
Department has determined that a full macroeconomic analysis is not 
likely to show that these costs would have any measurable effect.
---------------------------------------------------------------------------

    \186\ See 2 U.S.C. 1532(a)(4).
    \187\ According to the Bureau of Economic Analysis, 2020 GDP was 
$20.9 trillion. https://www.bea.gov/sites/default/files/2021-04/gdp1q21_adv.pdf.
---------------------------------------------------------------------------

VII. Executive Order 13132, Federalism

    The Department has (1) reviewed this rescission in accordance with 
Executive Order 13132 regarding federalism and (2) determined that it 
does not have federalism implications. The rescission would not have 
substantial direct effects on the States, on the relationship between 
the National Government and the States, or on the distribution of power 
and responsibilities among the various levels of government.

VIII. Executive Order 13175, Indian Tribal Governments

    This rescission would not have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.

List of Subjects in 29 CFR Part 791

    Wages.

PART 791--[REMOVED AND RESERVED]

0
For the reasons set forth in the preamble, and under the authority of 
the FLSA, 29 U.S.C. 201-219, the Department removes and reserves 29 CFR 
part 791.

Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-15316 Filed 7-29-21; 8:45 am]
BILLING CODE 4510-27-P