New Department of Labor Rule Makes Wage Claims Harder for Plaintiffs

Last week, the Trump administration finalized a rule that narrows the definition of “joint employer” under the Federal Labor Standards Act and will make it harder for millions of workers to combat wage theft. Under the Obama administration, the federal Department of Labor clarified that more than one company could be held liable for wage violations when they were “joint employers” of an employee; the critical question was the worker’s level of “economic dependence” on a company. That rule allowed courts to conduct a fact-specific inquiry that accounted for workplaces in which more than one company played a role in managing and directing work. The new rule rescinds that more flexible approach and replaces it with a more stringent standard. That means that if more than one company owns or manages your workplace, you now may face challenges in collecting unpaid wages because it will be harder to sue all responsible parties.

Over the past decades, low-wage labor has experienced a significant shift towards what former U.S. Department of Labor Wage and Hour Division Administrator David Weil calls “fissured employment”—the shifting of labor costs and liabilities to smaller, intermediate employers. It used to be that most people worked for one large company, and that company paid their wages, managed their workplace, and provided benefits. But that classic relationship is no longer the norm in many sectors of our economy. Millions of workers toil in these “alternative work arrangements,” including franchisees, gig workers, subcontractors, on-call workers, clients of staffing agencies, and workers reporting to third party managers. For example, 80% of hotel workers in this country work for hotel franchises, not the property owners of a hotel. Most are paid by a separate management company that formally manages their work even though they must conform to policies and procedures set by the company that hired them. Or take the rise of temporary staffing agencies: Many companies now rely on temporary staffing agencies which recruit and nominally employ workers, even though those workers report to a job site for a larger company, and only perform services for that larger company. This is the norm, for example, in warehouses that supply products to Amazon.

The Obama administration tried to account for that new reality by clarifying that several entities could each be held liable for a failure to pay a minimum wage and overtime to a single worker. The new rule makes that harder. Now, courts must examine four specific factors when determining whether an entity is responsible for wage theft. It must ask whether the company “can hire or fire the employee,” “supervises the employee’s work schedule,” “sets their pay,” and “maintains their employment records.” That presents challenges for workers in “fissured employment” relationships. Take, for example, the warehouse worker who works for a small temporary staffing agency that assigns people to shifts in a few warehouses for large, online retailers. Who “hires or fires” that employee—the staffing agency that assigns the shift or the large retailer that demands the labor? Who “sets the pay”—the agency that issues the check or the company that declares how much they are willing to pay per hour? Who is the employer if two companies split the roles listed above? Courts will have to grapple with these issues, but it’s possible that under the new rule both companies could avoid liability by slicing and dicing responsibility for work. That poses grave risks for many of our economy’s most vulnerable employees. A nominal “employer,” like, for example, a small temporary staffing agency might not have much cash on hand, and, thus may not be able to satisfy a judgment an employee wins against it in a wage act. It also allows large companies that control the terms of labor to avoid liability, giving them no incentive to ensure compliance with the law.

Fortunately, Massachusetts state law remains more flexible and more attuned to the realities of the modern workplace, as we have written about before. Under Massachusetts law, an employer is someone the employee provided services to, unless the purported employer can show that the plaintiff was: (a) controlled by another entity, (b) working outside the defendant’s usual course of business, and (c) truly “independent,” meaning she could perform services for anyone she chose. Under the Massachusetts law, multiple entities can be considered the employer for the same person doing a single job, and therefore can be liable for the same wage violation. In states with less employee-friendly rules, the new DOL rule may have a significant impact on employees’ abilities to fight for wages they are owed.

If you believe you have been the victim of wage theft and are seeking legal advice, we encourage you to contact us here, or call us at (617) 742-6020 to speak with an attorney.