WASHINGTON (CN) – A coalition of attorneys general from Democrat-controlled states sued the Trump administration Wednesday to block the rollback of an Obama-era standard for determining whether workers are jointly employed by affiliated companies.
The complaint filed in the Southern District of New York challenges a new U.S. Department of Labor rule critics say undermines critical legal protections for workers and makes it more difficult for employees to take legal action against companies.
The attorneys general of 18 states, led by New York, claim in the 55-page filing that the rule illegally changes the joint employment standard of the Fair Labor Standards Act.
Under the old standard, companies that own franchises — like many fast-food chains, for example — can be held liable if the smaller, individual locations violate labor laws such as failing to pay overtime compensation to workers.
“The final rule would upend this legal landscape by providing a de facto exemption from joint employment liability for businesses that outsource certain employment responsibilities to third parties,” the complaint states.
The attorneys general argue that since the rule narrows the definition of joint employers, it makes workers more vulnerable to underpayment and wage theft, and is inconsistent with the purpose of the Fair Labor Standards Act.
To be a joint employer under the new rule, a business must “possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees,” according to the National Labor Relations Board.
The Democrat-led states argue in the lawsuit that the new rule gives incentive for businesses to “offload their employment responsibilities to smaller, less-sophisticated companies with fewer resources to track hours, keep payroll records, and train managers.”
The rule is estimated to cost workers, many of whom work for minimum wage, more than $1 billion each year, according to the complaint.
“The new rule, which would result in lower wages and additional wage theft targeting lower- and middle-income workers, demonstrates that the Trump administration does not care about the hardworking individuals that help this country run,” New York Attorney General Letitia James said in a statement.
If the court does not enjoin the rule, as the attorneys general have requested, it will take effect on April 27.
NLRB Chairman John F. Ring said in a statement that the rule “gives our joint-employer standard the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy.”
“Employers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective-bargaining relationship,” Ring said.
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