Coming on the heels of a lawsuit led by 18 state Attorneys General against the Trump Administration's Department of Labor's (DOL) proposed rule related to the "joint employer" standard, a coalition of business groups moved to intervene in the lawsuit yesterday in support of the new rule.

This fight over employee classification in the modern economy is sure to play out in the next 12 months with both the outcome of this lawsuit and the possibility of a new administration rescinding the DOL rule sure to influence economic growth and the "gig" economy in 2021. But the big news is the continuing and influential role that AGs are playing in the economy as a whole.

The current litigation led by the New York Attorney General has its genesis in 2016 guidance that was issued by the DOL under President Obama which broadened liability under the Fair Labor Standards Act and due to a proposal by the National Labor Relations Board (NLRB) that was panned by a coalition of AGs. President Trump's DOL rescinded the 2016 guidance upon taking office. However, the issue of joint employment and the legal standard that certain federal agencies use to analyze it has been a priority for both the DOL and the business community for several years. In addition, the NLRB finalized its own version of a joint employer rule this week and narrowed the standard it uses under the National Labor Relations Act. Similarly, the U.S. Equal Employment Opportunity Commission indicated that it will clarify its approach to joint employment under the laws it enforces.

In January, the DOL published the new joint employer rule which set forth a four-part test in a scenario where an employee performs work for the employer that simultaneously benefits another individual or entity. The final rule adopts a four-factor balancing test, assessing whether the potential joint employer:

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

Whether a person is a joint employer will depend on all the facts in a particular case, and the appropriate weight to give each factor will vary depending on the circumstances. However, the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status. The final rule notes that additional factors may also be relevant but only when they show whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.

The final rule also identifies factors that are not relevant to the determination of FLSA joint employer status. These include:

  • operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;
  • the potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public;
  • the potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation; and
  • the potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

The lawsuit contends that the new rule is invalid on a number of grounds, including an argument that it violated the Administrative Procedures Act.

In light of state Attorneys General activity during the pandemic related to worker protection issues, price-gouging, lending, telecommunications and utilization of public-private partnerships, this lawsuit is another data point showing the critical role that state AGs will play on our country's post-COVID economic recovery and the landscape for labor relations going forward.