“Vertical” component of DOL Joint Employer rule struck

A New York court has struck the “vertical” component of the DOL’s recent Joint Employer rule, ruling it is invalid as “arbitrary and capricious.”

To be clear, the Department’s justifications for engaging in rulemaking are valid. Promoting uniformity and clarity given the (at least superficially) [parenthetical in original] widely divergent tests for joint employer liability in different circuits is a worthwhile objective. The Court is sympathetic to the Department’s concern that putative joint employers face uncertainty, and that this uncertainty is costly. This opinion does not imply that the Department cannot engage in rulemaking to try to harmonize joint employer standards.
But the Department must do better than this. Any future rulemaking must adhere to the text of the FLSA and Supreme Court precedent. If the Department departs from its prior interpretation, it must explain why. And it must make more than a perfunctory attempt to consider important costs, including costs to workers, and explain why the benefits of the new rule outweigh those costs. Because the Final Rule does none of these things, it is legally infirm.

An example of “vertical” joint employment is when a worker is an employee of one company — for example a staffing agency — that in turn is a contractor to another company. Vertical joint employment is distinguished from “horizontal” joint employment where the person is employed by one company to work for both it and, for example, its sister corporation. The court emphasized its ruling did not question the DOL’s final rule as far as it applied to horizontal employment.

Source: State of New York v. Scalia, case no. 1:20-cv-01689 (S.D.N.Y. Feb 26, 2020).