Court blocks rule that stripped workers from Fair Labor Standards Act protections

A federal court has invalidated a large part of the U.S. Department of Labor’s rule that provided an incentive for businesses to offload employment responsibilities to smaller companies, shielding the larger companies from federal protections, like wage and hour obligations under the Fair Labor Standards Act.

In February, Attorney General Mark Herring and a coalition of 18 attorneys general filed suit challenging the USDOL’s new rule.

“This is a huge win for Virginia workers who could have experienced wage theft or even loss of income because of this unlawful, reckless rule,” Herring said. “Millions of Virginia workers rely on these workplace protections to make sure they are paid fairly, and these protections are even more critical now as we face the negative economic impacts brought on by COVID-19. I will continue to fight any illegal policy changes that the Trump Administration tries to make that will allow employers to take advantage of their hardworking employees.”

The lawsuit challenged a USDOL rule that sought to unlawfully narrow the joint employment standard under the Fair Labor Standards Act. The FLSA is the federal law establishing a baseline of critical workplace protections, such as minimum wage and overtime, for workers across the country.

The joint employment standard determines when more than one employer is responsible under FLSA because both exert sufficient influence over a worker’s employment. This change would undermine critical workplace protections for the country’s low-and middle-income workers and could lead to increased wage theft and other labor law violations.

In the lawsuit, the AGs asserted that the rule would have directly undermined Congress’ intent for the FLSA, and that the USDOL violated the rulemaking process requirements. Further, they argued that the rule impacted significant regulatory burdens on states and harm states’ economies and residents. The coalition urged the court to declare the rule unlawful and invalidate the rule.

Over the past few decades, businesses have increasingly outsourced and subcontracted many of their core responsibilities to intermediary entities, instead of hiring workers directly.

Because these intermediary entities tend to be less stable, less well funded, and subject to less scrutiny, they are more likely to violate wage and hour laws. In the suit, the coalition argued that USDOL’s new rule provided an incentive for businesses to offload employment responsibilities to smaller companies, which, under the new rule, would have shielded them from federal liability for wage and hour obligations under the FLSA.

This would have resulted in lower wages and increased wage theft for workers, especially for workers in low-wage jobs. Further, the new rule would have made it more difficult to collect unpaid back wages for workers.