The U.S. Department of Labor recently announced that it would rescind the standard implemented by the Obama Administration that determined when companies are considered “joint employers” of contract and franchise workers.

The decision marks the first major shift in labor policy during the Trump Administration. In its statement, the agency said it withdrew a 2016 interpretation of the Fair Labor Standards Act (FLSA) that expanded the set of circumstances in which a business may be liable for wage law violations by contractors, franchisees and staffing agencies.

In previous years, companies were classified as joint employers if they hired and fired workers and set wages. Under the Obama administration, Labor Department officials said a worker’s level of “economic dependence” on the company should also play a role in joint employer classification.

This broader definition sparked debate in the business community. Many employers said the guideline would threaten franchise businesses and would cause more lawsuits against companies, even if they were not responsible for establishing work conditions.

The rollbacks continue

The removal of the joint employment rules came on the same day the Department of Labor withdrew guidance from 2015 that said under the FLSA, many workers are improperly considered independent contractors when they are actual employees. This would make those workers eligible for overtime, minimum wage and various other legal protections afforded to employees.

These interpretations and guidelines set forth by federal agencies are not legally binding, but they do influence enforcement. It was widely expected that the new administration would shift some labor policies when President Trump took office, with most of the changes resulting in less regulation and enforcement.

Business groups and employer advocates have mostly praised the agency’s changes thus far, arguing that previous guidance on worker classification had too strong of an effect on all types of industries in the United States. They have opined that employers had to work extremely hard to be compliant with the FLSA and that most of the interpretations issued by the agency under the Obama administration were simply “enforcement traps,” hoping to lead to enforcement actions solely for the purpose of enforcement rather than creating a better business and employment environment.

Workers’ rights groups and unions, however, were troubled by the decision by the Labor Department. They believe the guidance made it easier for employers and workers alike to understand their rights and obligations.

Meanwhile, the National Labor Relations Board’s expansion of the definition of joint employment still exists, although it is under review by a federal appeals court. The NRLB standard has had more of an impact, as it is a legally binding definition.

For more information on the definition of joint employment and how it could affect your company, consult a knowledgeable employment law attorney in the U.S. Virgin Islands.

Ravinder S. Nagi is a shareholder of BoltNagi and Assistant Managing Attorney.  He is also Chair of the Labor and Employment Practice Group at BoltNagi, a widely respected and established labor law firm serving clients throughout the U.S. Virgin Islands.