[Federal Register Volume 86, Number 47 (Friday, March 12, 2021)]
[Proposed Rules]
[Pages 14038-14048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04867]


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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 791

RIN 1235-AA37


Rescission of Joint Employer Status Under the Fair Labor 
Standards Act Rule

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: This notice of proposed rulemaking (NPRM) proposes to rescind 
the final rule entitled ``Joint Employer Status Under the Fair Labor 
Standards Act,'' which published on January 16, 2020 and took effect on 
March 16, 2020. The proposed rescission would remove the regulations 
established by that rule.

DATES: Submit written comments on or before April 12, 2021.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number (RIN) 1235-AA37 by either of the following methods: 
Electronic Comments: Submit comments through the Federal eRulemaking 
Portal at http://www.regulations.gov. Follow the instructions for 
submitting comments. Mail: Address written submissions to Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210. Instructions: Please submit only one copy of your 
comments by only one method. Commenters submitting file attachments on 
www.regulations.gov are advised that uploading text-recognized 
documents--i.e., documents in a native file format or documents which 
have undergone optical character recognition (OCR)--enable staff at the 
Department to more easily search and retrieve specific content included 
in your comment for consideration. Anyone who submits a comment 
(including duplicate comments) should understand and expect that the 
comment will become a matter of public record and will be posted 
without change to https://www.regulations.gov, including any personal 
information provided. The Department will post comments gathered and 
submitted by a third-party organization as a group under a single 
document ID number on https://www.regulations.gov. All comments must be 
received by 11:59 p.m. EST on April 12, 2021 for consideration. The 
Department strongly recommends that commenters submit their comments 
electronically via http://www.regulations.gov to ensure timely receipt 
prior to the close of the comment period, as the Department continues 
to experience delays in the receipt of mail. Submit only one copy of 
your comments by only one method. Docket: For access to the docket to 
read background documents or comments, go to the Federal eRulemaking 
Portal at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of 
Regulations, Legislation, and Interpretation, Wage and Hour Division, 
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, 
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this NPRM may be obtained in alternative 
formats (Large Print, Braille, Audio Tape or Disc), upon request, by 
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD 
callers may dial toll-free 1-877-889-5627 to obtain information or 
request materials in alternative formats.

SUPPLEMENTARY INFORMATION:

I. Background

    The Fair Labor Standards Act (FLSA or Act) requires all covered 
employers to pay nonexempt employees at least the federal minimum wage 
for every hour worked in a non-overtime workweek.\1\ In an overtime 
workweek, for all hours worked in excess of 40 in a workweek, covered 
employers must pay a nonexempt employee at least one and one-half times 
the employee's regular

[[Page 14039]]

rate.\2\ The FLSA also requires covered employers to make, keep, and 
preserve certain records regarding employees.\3\
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    \1\ See 29 U.S.C. 206(a).
    \2\ See 29 U.S.C. 207(a).
    \3\ See 29 U.S.C. 211(c).
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    The FLSA does not define ``joint employer'' or ``joint 
employment.'' However, section 3(d) of the Act defines ``employer'' to 
``include[ ] any person acting directly or indirectly in the interest 
of an employer in relation to an employee.'' \4\ Section 3(e) generally 
defines ``employee'' to mean ``any individual employed by an employer'' 
\5\ and identifies certain specific groups of workers who are not 
``employees'' for purposes of the Act.\6\ Section 3(g) defines 
``employ'' to ``include[ ] to suffer or permit to work.'' \7\
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    \4\ 29 U.S.C. 203(d).
    \5\ 29 U.S.C. 203(e)(1).
    \6\ See 29 U.S.C. 203(e)(2)-(5).
    \7\ 29 U.S.C. 203(g).
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A. Prior Guidance Regarding FLSA Joint Employment

    In July 1939, a year after the FLSA's enactment, the Department's 
Wage and Hour Division (WHD) issued Interpretative Bulletin No. 13 
addressing, among other topics, whether two or more companies may be 
jointly and severally liable for a single employee's hours worked under 
the FLSA.\8\ WHD recognized in the Bulletin that there is joint 
employment liability under the FLSA and provided examples of situations 
where two companies are and are not joint employers of an employee.\9\ 
For situations where an employee works hours for one company and works 
separate hours for another company in the same workweek, WHD focused on 
whether the two companies were ``acting entirely independently of each 
other with respect to the employment of the particular employee'' (in 
which case they were not joint employers) or, ``on the other hand, the 
employment by [the one company] [wa]s not completely disassociated from 
the employment by [the other company]'' (in which case they were joint 
employers and the hours worked for both would be aggregated for 
purposes of the Act).\10\ WHD stated in the Bulletin that it ``will 
scrutinize all cases involving more than one employment and, at least 
in the following situations, an employer will be considered as acting 
in the interest of another employer in relation to an employee: If the 
employers make an arrangement for the interchange of employees or if 
one company controls, is controlled by, or is under common control 
with, directly or indirectly, the other company.'' \11\
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    \8\ See Interpretative Bulletin No. 13, ``Hours Worked: 
Determination of Hours for Which Employees are Entitled to 
Compensation Under the Fair Labor Standards Act of 1938,'' ]] 16-17. 
In October 1939 and October 1940, WHD revised other portions of the 
Bulletin that are not pertinent here.
    \9\ See id.
    \10\ Id. ] 17.
    \11\ Id.
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    In 1958, WHD published a rule introducing 29 CFR part 791, entitled 
``Joint Employment Relationship under Fair Labor Standards Act of 
1938.'' \12\ Section 791.2(a) reiterated that there is joint employment 
liability under the Act and stated that the determination ``depends 
upon all the facts in the particular case.'' \13\ It further stated 
that two or more employers that ``are acting entirely independently of 
each other and are completely disassociated'' with respect to the 
employee's employment are not joint employers, but joint employment 
exists if ``employment by one employer is not completely disassociated 
from employment by the other employer(s).'' \14\ Section 791.2(b) 
explained that, ``[w]here the employee performs work which 
simultaneously benefits two or more employers, or works for two or more 
employers at different times during the workweek, a joint employment 
relationship generally will be considered to exist in situations such 
as:
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    \12\ See 23 FR 5905 (Aug. 5, 1958).
    \13\ 29 CFR 791.2(a) (1958).
    \14\ Id.
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    (1) Where there is an arrangement between the employers to share 
the employee's services, as, for example, to interchange employees; or
    (2) Where one employer is acting directly or indirectly in the 
interest of the other employer (or employers) in relation to the 
employee; or
    (3) Where the employers are not completely disassociated with 
respect to the employment of a particular employee and may be deemed to 
share control of the employee, directly or indirectly, by reason of the 
fact that one employer controls, is controlled by, or is under common 
control with the other employer.'' \15\
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    \15\ 29 CFR 791.2(b) (1958) (footnotes omitted).
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    In 1961, WHD amended a footnote in Sec.  791.2(a) to clarify that a 
joint employer is also jointly liable for overtime pay.\16\ Over the 
next several decades, WHD issued various guidance documents including 
Fact Sheets, opinion letters, as well as legal briefs reiterating the 
Department's position concerning joint employment. See, e.g., Op. 
Letter, FLSA (Dep't of Labor Apr. 11, 2005), 2005 WL 2086804 (employees 
of health care system comprised of hospitals, nursing homes, and parent 
holding company); Op. Letter, FLSA (Dep't of Labor Aug. 24, 1999), 1999 
WL 1788146 (private duty nurses); Op. Letter, FLSA (Dep't of Labor Jan. 
27, 1998), 1998 WL 852621 (grocery vendor employees stocking grocery 
shelves); Op. Letter, FLSA (Dep't of Labor Aug. 9, 1989), 1989 WL 
1632931 (enclave program).
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    \16\ See 26 FR 7730, 7732 (Aug. 18, 1961).
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    In 2014, WHD issued an Administrator's Interpretation (Home Care 
AI) addressing how joint employment under the FLSA applies to certain 
home care workers.\17\ The Home Care AI explained that the FLSA's 
definitions of ``employer,'' ``employee,'' and ``employ,'' ``and 
therefore the scope of employment relationships the Act covers, are 
exceedingly broad.'' \18\ The Home Care AI discussed application of 29 
CFR 791.2 and stated that its ``focus . . . is the degree to which the 
two possible joint employers share control with respect to the employee 
and the degree to which the employee is economically dependent on the 
purported joint employers.'' \19\ WHD recognized that, ``when making 
joint employment determinations in FLSA cases, the exact factors 
applied may vary,'' but also stated that ``a set of factors that 
addresses only control is not consistent with the breadth of employment 
under the FLSA'' because an analysis based solely on the potential 
employer's joint control `` `cannot be reconciled with [FLSA section 
3(g)'s ``suffer or permit'' language], which necessarily reaches beyond 
traditional agency law.' '' \20\ Accordingly, the Home Care AI applied 
a non-exclusive set of factors relating to the potential joint 
employer's control and other aspects of the relationship to provide 
guidance regarding the possibility of joint employment in numerous 
hypothetical scenarios specific to the home care industry.\21\ WHD 
withdrew the Home Care AI on March 10, 2020.
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    \17\ See Administrator's Interpretation No. 2014-2, ``Joint 
Employment of Home Care Workers in Consumer-Directed, Medicaid-
Funded Programs by Public Entities under the Fair Labor Standards 
Act'' (Jun. 19, 2014), available at 2014 WL 2816951.
    \18\ Id. at *2.
    \19\ Id. at *2 n.4.
    \20\ Id. at *2 n.5 (quoting Zheng v. Liberty Apparel Co., 355 
F.3d 61, 69 (2d Cir. 2003)).
    \21\ See id. at *7-14; see also id. at *3 (``[A]ny assessment of 
whether a public entity is a joint employer necessarily involves a 
weighing of all the facts and circumstances, and there is no single 
factor that is determinative[.]'') (citing Rutherford Food Corp. v. 
McComb, 331 U.S. 722, 730 (1947)).
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    In 2016, WHD issued an Administrator's Interpretation (Joint 
Employment AI) addressing joint employment generally under the FLSA and 
the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), 
which uses the same definition

[[Page 14040]]

of ``employ'' as the FLSA.\22\ Relying on the text and history of FLSA 
section 3(g) and case law interpreting it, the Joint Employment AI 
explained that joint employment, like employment generally, is 
expansive under the FLSA and ``notably broader than the common law 
concepts of employment and joint employment.'' \23\ The Joint 
Employment AI further explained that ``the expansive definition of 
`employ' as including `to suffer or permit to work' rejected the common 
law control standard and ensures that the scope of employment 
relationships and joint employment under the FLSA and MSPA is as broad 
as possible.'' \24\ The AI described how ``suffer or permit'' or 
``similar phrasing was commonly used in state laws regulating child 
labor and was `designed to reach businesses that used middlemen to 
illegally hire and supervise children.' '' \25\ The AI thus concluded 
that ``the `suffer or permit to work' standard was designed to expand 
child labor laws' coverage beyond those who controlled the child 
laborer,'' ``prevent employers from using `middlemen' to evade the 
laws' requirements,'' and ensure joint liability in a type of vertical 
joint employment situation (explained below).\26\
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    \22\ See Administrator's Interpretation No. 2016-1, ``Joint 
Employment under the Fair Labor Standards Act and Migrant and 
Seasonal Agricultural Worker Protection Act'' (Jan. 20, 2016), 
available at 2016 WL 284582; see also 29 U.S.C. 1802(5) (``employ'' 
under MSPA has ``the meaning given such term under section 3(g) of 
the [FLSA]'').
    \23\ Id. at *3 (citing, inter alia, Torres-Lopez v. May, 111 
F.3d 633, 639 (9th Cir. 1997); Antenor v. D & S Farms, 88 F.3d 925, 
929 (11th Cir. 1996)).
    \24\ Id.
    \25\ Id. (quoting Antenor, 88 F.3d at 929 n.5).
    \26\ Id.
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    The Joint Employment AI discussed two types of joint employment. It 
discussed horizontal joint employment, which exists where an employee 
is separately employed by, and works separate hours in a workweek for, 
more than one employer, and the employers ``are sufficiently associated 
with or related to each other with respect to the employee'' such that 
they are joint employers.\27\ The Joint Employment AI explained that 
``the focus of a horizontal joint employment analysis is the 
relationship between the two (or more) employers'' and that 29 CFR 
791.2 provided guidance on analyzing that type of joint employment, and 
the AI gave some additional guidance on applying Sec.  791.2.\28\ The 
Joint Employment AI also discussed vertical joint employment, which 
exists where an ``employee has an employment relationship with one 
employer (typically a staffing agency, subcontractor, labor provider, 
or other intermediary employer),'' another employer is ``receiv[ing] 
the benefit of the employee's labor,'' and ``the economic realities 
show that he or she is economically dependent on, and thus employed 
by,'' the other employer.\29\ The Joint Employment AI explained that 
the vertical joint employment analysis does not focus on examining the 
relationship between the two employers but instead ``examines the 
economic realities'' of the relationship between the employee and the 
other employer that is benefitting from his or her labor.\30\ The AI 
noted that ``several Circuit Courts of Appeals have also adopted an 
economic realities analysis for evaluating vertical joint employment 
under the FLSA,'' and that, ``[r]egardless of the exact factors, the 
FLSA and MSPA require application of the broader economic realities 
analysis, not a common law control analysis, in determining vertical 
joint employment.'' \31\ The AI advised that, ``because of the shared 
definition of employment and the coextensive scope of joint employment 
between the FLSA and MSPA,'' the non-exclusive, multi-factor economic 
realities analysis set forth by WHD in its MSPA joint employment 
regulation should be applied in FLSA vertical joint employment cases to 
analyze the relationship between the employee and the other employer, 
and that doing so ``is consistent with both statutes and regulations.'' 
\32\ The AI provided some additional guidance on applying the 
analysis.\33\ WHD withdrew the Joint Employment AI on June 7, 2017.\34\
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    \27\ Id. at *4.
    \28\ Id. at *4-8.
    \29\ Id. at *2.
    \30\ Id. at *4.
    \31\ Id.
    \32\ Id. at *5 (citing WHD's multi-factor economic realities 
analysis for joint employment under MSPA set forth at 29 CFR 
500.20(h)(5)). WHD issued its current MSPA joint employment 
regulation in 1997 via a final rule following notice-and-comment 
rulemaking. See 62 FR 11734 (Mar. 12, 1997).
    \33\ See 2016 WL 284582, at *8-12.
    \34\ See News Release 17-0807-NAT, ``US Secretary of Labor 
Withdraws Joint Employment, Independent Contractor Informal 
Guidance'' (Jun. 7, 2017), available at https://www.dol.gov/newsroom/releases/opa/opa20170607.
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B. 2020 Joint Employer Rule

    In January 2020, WHD published a final rule entitled ``Joint 
Employer Status Under the Fair Labor Standards Act,'' which became 
effective on March 16, 2020 (Joint Employer Rule or Rule).\35\ The 
Joint Employer Rule rewrote 29 CFR part 791. Currently, Sec.  791.1 
contains an introductory statement, Sec.  791.2 contains the substance 
of the Rule and addresses both vertical joint employment (which it 
refers to as ``the first joint employer scenario'') and horizontal 
joint employment (which it refers to as ``the second joint employer 
scenario''), and Sec.  791.3 contains a severability provision.\36\
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    \35\ See 85 FR 2820 (Jan. 16, 2020). WHD had published a notice 
of proposed rulemaking requesting comments on a proposal. See 84 FR 
14043 (Apr. 9, 2019). The final rule adopted ``the analyses set 
forth in the NPRM largely as proposed.'' 85 FR 2820.
    \36\ See 29 CFR 791.1, 791.2, and 791.3.
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1. Joint Employer Rule's Vertical Joint Employment Standard
    For vertical joint employment, Sec.  791.2(a)(1) states that 
``[t]he other person [that is benefitting from the employee's labor] is 
the employee's joint employer only if that person is acting directly or 
indirectly in the interest of the employer in relation to the 
employee'' and then cites FLSA section 3(d)'s definition of 
``employer.'' \37\ The Joint Employer Rule provided that section 3(d) 
is the sole statutory provision in the FLSA for determining ``joint 
employer status'' under the Act--to the exclusion of sections 3(e) and 
3(g).\38\ The Joint Employer Rule further provided that the definitions 
of ``employee'' and ``employ'' in sections 3(e) and 3(g) ``determine 
whether an individual worker is an employee under the Act.'' \39\ 
Citing section 3(d)'s definition of ``employer'' as including ``any 
person acting directly or indirectly in the interest of an employer in 
relation to an employee,'' the Rule stated that ``only this language 
from section 3(d) contemplates the possibility of a person in addition 
to the employer who is also an employer and therefore jointly liable 
for the employee's hours worked.'' \40\ The Rule concluded that this 
language from section 3(d), ``by its plain terms, contemplates an 
employment relationship between an employer and an employee, as well as 
another person who may be an employer too--which exactly fits the 
[vertical] joint employer scenario under the Act.'' \41\ The Rule 
relied on the Supreme Court's decision in Falk v. Brennan \42\ and the 
Court of Appeals for the Ninth Circuit's decision in Bonnette v. 
California Health &

[[Page 14041]]

Welfare Agency \43\ to ``support focusing on section 3(d) as 
determining joint employer status.'' \44\
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    \37\ 29 CFR 791.2(a)(1) (citing 29 U.S.C. 203(d)) (emphasis 
added).
    \38\ See generally 85 FR 2825-28.
    \39\ Id. at 2827.
    \40\ Id. (citing 29 U.S.C. 203(d)); see also id. (``This 
language from section 3(d) makes sense only if there is an employer 
and employee with an existing employment relationship and the issue 
is whether another person is an employer.'').
    \41\ Id.
    \42\ 414 U.S. 190 (1973).
    \43\ 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds, 
Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985).
    \44\ 85 FR 2827.
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    Section 791.2(a)(1) states that ``four factors are relevant to the 
determination'' of whether the other employer is a joint employer in 
the vertical joint employment situation.\45\ Those four factors are 
whether the other employer: (1) Hires or fires the employee; (2) 
supervises and controls the employee's work schedule or conditions of 
employment to a substantial degree; (3) determines the employee's rate 
and method of payment; and (4) maintains the employee's employment 
records.\46\ The Joint Employer Rule stated that its four-factor test 
was ``derived from'' Bonnette.\47\ In Bonnette, the Ninth Circuit 
affirmed a finding of vertical joint employment after considering 
whether the other employer: (1) Had the power to hire and fire the 
employees, (2) supervised and controlled employee work schedules or 
conditions of employment, (3) determined the rate and method of 
payment, and (4) maintained employment records.\48\
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    \45\ 29 CFR 791.2(a)(1).
    \46\ See 29 CFR 791.2(a)(1)(i)-(iv).
    \47\ 85 FR 2830.
    \48\ See 704 F.2d at 1469-1470.
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    The Joint Employer Rule's four-factor analysis deviated from 
Bonnette's analysis in several ways. First, the Rule articulates the 
first factor as whether the other employer ``[h]ires or fires the 
employee'' as opposed to whether it had ``the power'' to hire and 
fire.\49\ Section 791.2(a)(3)(i) states that the ``potential joint 
employer must actually exercise . . . one or more of these indicia of 
control to be jointly liable under the Act,'' and that ``[t]he 
potential joint employer's ability, power, or reserved right to act in 
relation to the employee may be relevant for determining joint employer 
status, but such ability, power, or right alone does not demonstrate 
joint employer status without some actual exercise of control.'' \50\ 
Second, the Joint Employer Rule changed the second factor to consider 
whether the potential joint employer supervises and controls work 
schedules or conditions of employment ``to a substantial degree.'' This 
phrase is absent from the test articulated in Bonnette (although 
Bonnette found that, on the factual record before it, the potential 
joint employers ``exercised considerable control'' in that area).\51\ 
Third, Sec.  791.2(a)(2) states that ``[s]atisfaction of the 
maintenance of employment records factor alone will not lead to a 
finding of joint employer status,'' but Bonnette did not provide that 
limitation.\52\ Finally, Sec.  791.2(b) states that ``[a]dditional 
factors may be relevant for determining joint employer status in this 
scenario, but only if they are indicia of whether the potential joint 
employer exercises significant control over the terms and conditions of 
the employee's work.'' \53\ Bonnette, however, stated that its four 
factors ``provide a useful framework for analysis in this case,'' but 
``are not etched in stone and will not be blindly applied,'' and that 
``[t]he ultimate determination must be based `upon the circumstances of 
the whole activity.' '' \54\
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    \49\ Compare 29 CFR 791.2(a)(1)(i) with Bonnette, 704 F.2d at 
1469-1470.
    \50\ 29 CFR 791.2(a)(3)(i) (citing 29 U.S.C. 203(d)).
    \51\ Compare 29 CFR 791.2(a)(1)(ii) with Bonnette, 704 F.2d at 
1469-1470.
    \52\ Compare 29 CFR 791.2(a)(2) with Bonnette, 704 F.2d at 1469-
1470.
    \53\ 29 CFR 791.2(b).
    \54\ 704 F.2d at 1470 (quoting Rutherford Food, 331 U.S. at 
730).
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    In addition to generally excluding factors that are not indicative 
of the potential joint employer's control over the employee's work, the 
Joint Employer Rule specifically excluded any consideration of the 
employee's economic dependence on the potential joint employer.\55\ The 
Rule asserted that ``economic dependence is relevant when applying 
section 3(g) and determining whether a worker is an employee under the 
Act; however, determining whether a worker who is an employee under the 
Act has a joint employer for his or her work is a different analysis 
that is based on section 3(d).'' \56\ The Rule further asserted that, 
``[b]ecause evaluating control of the employment relationship by the 
potential joint employer over the employee is the purpose of the 
Department's four-factor balancing test, it is sensible to limit the 
consideration of additional factors to those that indicate control.'' 
\57\
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    \55\ 29 CFR 791.2(c) (``[T]o determine joint employer status, no 
factors should be used to assess economic dependence.'').
    \56\ 85 FR 2821.
    \57\ Id. at 2836.
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2. Joint Employer Rule's Horizontal Joint Employment Standard
    To determine horizontal joint employment, the Joint Employer Rule 
adopted the standard in the prior version of 29 CFR 791.2 with non-
substantive revisions.\58\ Section 791.2(e)(2) states that, in this 
``second joint employer scenario'', ``if the employers are acting 
independently of each other and are disassociated with respect to the 
employment of the employee,'' they are not joint employers.\59\ It 
further states that, ``if the employers are sufficiently associated 
with respect to the employment of the employee, they are joint 
employers and must aggregate the hours worked for each for purposes of 
determining compliance with the Act.'' \60\ It identifies the same 
three general examples of sufficient association as the prior version 
of 29 CFR 791.2.\61\
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    \58\ Id. at 2844-45.
    \59\ 29 CFR 791.2(e)(2).
    \60\ Id.
    \61\ Compare 29 CFR 791.2(e)(2)(i)-(iii) with 29 CFR 
791.2(b)(1)-(3) (1958).
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3. Joint Employer Rule's Additional Provisions
    The Joint Employer Rule adopted additional provisions that apply to 
both vertical and horizontal joint employment. Section 791.2(f) 
addresses the consequences of joint employment and provides that 
``[f]or each workweek that a person is a joint employer of an employee, 
that joint employer is jointly and severally liable with the employer 
and any other joint employers for compliance'' with the Act.\62\ 
Section 791.2(g) provides 11 ``illustrative examples'' of how the Rule 
may apply to specific factual situations implicating both vertical and 
horizontal joint employment.\63\
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    \62\ 29 CFR 791.2(f).
    \63\ 29 CFR 791.2(g).
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C. Decision Vacating Most of the Joint Employer Rule

    In February 2020, 17 States and the District of Columbia (the 
States) filed a lawsuit in the United States District Court for the 
Southern District of New York against the Department asserting that the 
Joint Employer Rule violated the Administrative Procedure Act 
(APA).\64\ The Department moved to dismiss the lawsuit on the grounds 
that the States did not have standing. The district court denied that 
motion on June 1, 2020.\65\ The district court issued an order on June 
29, 2020 permitting the International Franchise Association, the 
Chamber of Commerce of the United States of America, the National 
Retail Federation, the Associated Builders and Contractors, and the 
American Hotel and Lodging Association (Intervenors) to intervene as 
defendants in the case.\66\

[[Page 14042]]

The parties filed cross-motions for summary judgment, which the 
district court decided on September 8, 2020.\67\
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    \64\ See New York, et al. v. Scalia, No. 1:20-cv-01689 (S.D.N.Y. 
complaint filed Feb. 26, 2020). The APA requires courts to hold 
unlawful and set aside agency actions that are ``arbitrary, 
capricious, an abuse of discretion, or otherwise not in accordance 
with law.'' 5 U.S.C. 706(2)(A).
    \65\ See 464 F. Supp.3d 528.
    \66\ See 2020 WL 3498755.
    \67\ See 2020 WL 5370871.
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    The district court vacated the Joint Employer Rule's ``novel 
standard for vertical joint employer liability'' because its 
``revisions to that scenario are flawed in just about every respect.'' 
\68\ The district court found that the Rule violated the APA because it 
was contrary to the law--specifically, it conflicted with the FLSA.\69\ 
The district court identified three conflicts: The Rule's reliance on 
the FLSA's definition of ``employer'' in section 3(d) as the sole 
textual basis for joint employment liability; its adoption of a 
control-based test for determining vertical joint employer liability; 
and its prohibition against considering additional factors beyond 
control, such as economic dependence.\70\ In addition, the district 
court found that the Rule was ``arbitrary and capricious'' in violation 
of the APA for three reasons: The Rule did not adequately explain why 
it departed from WHD's prior interpretations; the Rule did not consider 
the conflict between it and WHD's MSPA joint employment regulations; 
and the Rule did not adequately consider its cost to workers.\71\
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    \68\ Id. at *34.
    \69\ See id. at *15.
    \70\ See id. at *16-31.
    \71\ See id. at *31-34.
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    The district court concluded that the Joint Employer Rule's ``novel 
interpretation for vertical joint employer liability'' was unlawful 
under the APA and vacated all of Sec.  791.2 except for Sec.  
791.2(e).\72\ The court determined that, because the Rule's ``non-
substantive revisions to horizontal joint employer liability are 
severable,'' Sec.  791.2(e) ``remains in effect.'' \73\ The Department 
and the Intervenors appealed the district court's decision, and the 
appeal is pending before the Court of Appeals for the Second 
Circuit.\74\ The Department and the Intervenors each filed an opening 
brief with the Second Circuit on January 15, 2021 in support of the 
Rule; the States' response brief is due on April 16, 2021.
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    \72\ Id. at *34.
    \73\ Id.
    \74\ See New York, et al. v. Scalia, No. 20-3806 (2d Cir. appeal 
docketed Nov. 6, 2020).
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II. Proposal To Rescind

    The Department proposes to rescind the Joint Employer Rule. 
Although the Rule went into effect on March 16, 2020, the U.S. District 
Court for the Southern District of New York vacated most of the Rule in 
a September 8, 2020 decision.\75\ The Department's reasons for 
proposing to rescind the Joint Employer Rule are explained below, and 
the Department requests comments on its proposal.
---------------------------------------------------------------------------

    \75\ See 2020 WL 5370871, at *34.
---------------------------------------------------------------------------

A. Further Consideration of the Statutory Analysis and Whether the Test 
for Vertical Joint Employment Is Unduly Narrow

    The statutory analysis and test for vertical joint employment set 
forth in the Joint Employer Rule is different from the analyses and 
tests applied by every court to have considered joint employer 
questions prior to the Rule's issuance, as well as WHD's previous 
enforcement approach. In reviewing the Rule, the Southern District of 
New York concluded that it was contrary to law and arbitrary and 
capricious. Further consideration is needed in order to fully analyze 
and possibly address the concerns raised by the court. As such, the 
Department proposes to rescind the Rule to allow it to engage in 
further legal analysis, in order to ensure that lawful and clear 
guidance is being provided to the regulated community.
1. Statutory Basis of the Rule
    In New York, et al. v. Scalia, the district court found that the 
Rule conflicts with the FLSA and was thus contrary to law in violation 
of the APA. The court raised several issues regarding the Rule's 
statutory analysis of the Act. First, the district court rejected the 
Rule's assertion that the FLSA's definition of ``employer'' in section 
3(d) is the sole textual basis under the FLSA for determining joint 
employment. Because section 3(d) defines ``employer'' by referencing 
employees, and section 3(e)(1) in turn defines ``employee'' by 
referencing ``employ'' (defined in section 3(g)), ``all three 
definitions are relevant to determining joint employer status under the 
FLSA.'' \76\ The district court faulted the Rule for bifurcating the 
statutory definitions and using ``different tests for `primary' and 
`joint' employment.'' \77\ According to the district court, ``[t]here 
is . . . no independent test for joint employment under the FLSA,'' 
``[a]n entity is an employer if it meets the FLSA's definition,'' and 
``[i]t is a joint employer if it meets the definition and another 
entity also meets the definition.'' \78\ The district court concluded 
that the Rule's ``novel interpretation that section 3(d) is the sole 
textual basis for joint employer liability conflicts with the FLSA'' 
and ``is reason enough to conclude that the [Rule] must be set aside.'' 
\79\
---------------------------------------------------------------------------

    \76\ Id. at *16.
    \77\ Id. at *17.
    \78\ Id.
    \79\ Id. at *25.
---------------------------------------------------------------------------

    Looking to the language of the statute itself, WHD is concerned 
that the text of section 3(d) alone may not easily encompass all 
scenarios in which joint employment may arise; multiple employers may 
``suffer or permit'' an employee to work and could thus be joint 
employers under section 3(g) without one working ``in the interest of 
an employer'' under section 3(d).\80\ Moreover, the district court in 
New York v. Scalia noted that the Rule ``disregarded'' the operative 
language of section 3(d) which begins with ``includes'' instead of 
``means.'' \81\ The court explained that under principles of statutory 
construction, it is sufficient to prove employer status by showing that 
the entity acted directly or indirectly in the interest of an employer 
in relation to an employee, but the Rule wrongly converted this into a 
necessary condition for proving employer status.\82\ WHD recognizes 
that under the FLSA, an ``employer'' ``includes any person acting 
directly or indirectly in the interest of an employer in relation to an 
employee,'' ``includes a public agency,'' but ``does not include any 
labor organization (other than when acting as an employer) or anyone 
acting in the capacity of officer or agent of such labor 
organization''; by its own terms, section 3(d) is not exhaustive.\83\ 
Additionally, there is case law indicating that section 3(d) was 
written for the purpose of imposing responsibility upon the agents of 
employers, as the court observed in Greenberg v. Arsenal Building 
Corp., 144 F. 2d 292, 294 (2d Cir. 1944) (explaining that ``the section 
would have little meaning or effect if such were not the case'').\84\
---------------------------------------------------------------------------

    \80\ For example, specific to the context of vertical joint 
employment, it may make littles sense to conceive of joint employers 
that are typically located higher in a hierarchical business 
structure (e.g., general contractors and staffing agency clients) as 
``acting directly or indirectly in the interest of'' acknowledged 
employers lower in the structure, such as subcontractors or staffing 
agencies.
    \81\ 2020 WL 5370871, at *18.
    \82\ Id.
    \83\ 29 U.S.C. 203(d) (emphasis added).
    \84\ The Supreme Court reversed an unrelated part of the Second 
Circuit's holding in Greenberg. See 324 U.S. 697, 714-16 (1945). 
Greenberg is not alone in concluding that section 3(d)'s ``includes 
any person acting directly or indirectly in the interest of an 
employer in relation to an employee'' language was intended to 
impose liability on an employer's agents. See, e.g., Donovan v. 
Agnew, 712 F.3d 1509, 1513 (1st Cir. 1983) (section 3(d) was 
``intended to prevent employers from shielding themselves from 
responsibility for the acts of their agents''); Dole v. Elliott 
Travel & Tours, Inc., 942 F.2d 962, 965-66 (6th Cir. 1991) (relying 
on section 3(d) to hold individually liable the owner/officer who 
exercised operational control of the employer); Arias v. Raimondo, 
860 F.3d 1185, 1191-92 (9th Cir. 2017) (Through section 3(d), 
``Congress clearly means to extend [the FLSA's] reach beyond actual 
employers. [The attorney's] activity in this case on behalf of his 
clients illustrates the wisdom of this extension.''), cert. denied, 
138 S. Ct. 673 (2018).

---------------------------------------------------------------------------

[[Page 14043]]

    According to the district court, the Rule also ignored the history 
and purpose of the ``suffer or permit'' language in section 3(g), which 
Congress adopted ``to expand joint employer liability.'' \85\ The 
district court found that the Rule ``defies congressional intent'' by 
ignoring section 3(g).\86\ Section 3(g)'s ``suffer or permit'' language 
was intended to include as an employer entities that used 
intermediaries to shield themselves from liability as employers.\87\ 
Accordingly, the Rule's use of 3(d) to the exclusion of 3(g) may not be 
faithful to the Act's definitions or Congress' intent in enacting them.
---------------------------------------------------------------------------

    \85\ 2020 WL 5370871, at *20; see also 29 U.S.C. 203(g).
    \86\ 2020 WL 5370871, at *20.
    \87\ See Rutherford Food, 331 U.S. at 728; Salinas v. Commercial 
Interiors, Inc., 848 F.3d 125, 136-140 (4th Cir. 2017).
---------------------------------------------------------------------------

    WHD also notes that the Rule set forth a statutory basis for 
vertical joint employment, based on section 3(d), that applied a 
different analytical framework to different employers (i.e., 
``substantial control'' for ``joint employers'' vs. ``economic 
realities'' for ``employers''), and this approach has not been utilized 
by any court. Rather, all of the circuit courts of appeals to have 
considered joint employment under the FLSA have looked to the economic 
realities test as the proper framework, and have not identified section 
3(d) as the sole textual basis for joint employment. In particular, the 
case law heavily relied upon in the Rule from the First, Third, and 
Fifth Circuits, as well as the Bonnette decision itself, all apply an 
economic realities analysis when determining joint employment under the 
FLSA.\88\ Additionally, the Rule discussed the Supreme Court's decision 
in Falk v. Brennan at length, relying on it to buttress its statutory 
interpretation argument.\89\ The district court, however, concluded 
that ``Falk cuts against the Department's argument that section 3(d) is 
the sole textual basis for joint employer liability'' because Falk 
cited to the statutory definition of ``employee'' as well as 
``employer'' and observed that the FLSA's definition of employer is 
expansive.\90\ The Rule's approach also represented a significant shift 
from WHD's longstanding analysis; WHD had never excluded sections 3(e) 
and (g) from the joint employment analysis and had instead consistently 
applied an economic realities framework that did not exclude the 
definitions of ``employ'' or ``employee'' when determining joint 
employer liability, as discussed above.
---------------------------------------------------------------------------

    \88\ See, e.g., Baystate Alternative Staffing, Inc. v. Herman, 
163 F.3d 668, 675 (1st Cir. 1998); In re Enterprise Rent-A-Car Wage 
& Hour Emp't Practices Litig., 683 F.3d 462, 469-470 (3d Cir. 2012); 
Gray v. Powers, 673 F.3d 352, 357 (5th Cir. 2012); Bonnette, 704 
F.2d at 1469.
    \89\ See 85 FR 2822, 2827.
    \90\ 2020 WL 5370871, at *23.
---------------------------------------------------------------------------

    In view of the foregoing, WHD believes that further consideration 
is needed in order to ensure that its joint employment analysis is 
grounded in all relevant statutory definitions, and it tentatively 
questions whether the Rule's approach falls short of doing so in a 
supportable way. A textual analysis based only on section 3(d) may 
ignore the Act's other relevant statutory definitions and may 
needlessly bifurcate the analysis. Additionally, as a textual matter 
and as indicated above, section 3(d) may not easily encompass all 
scenarios in which joint employment may arise; multiple employers may 
simultaneously ``suffer or permit'' an employee to work and could thus 
be joint employers under section 3(g) without one working ``in the 
interest of an employer'' under section 3(d). Section 3(g) defined 
``employ'' as it did with the intent of including as an employer 
entities that used intermediaries that employed workers but disclaimed 
that they themselves were employers of the workers.\91\ WHD believes 
further analysis is needed in order to evaluate whether using 3(d) to 
the exclusion of 3(e) and 3(g) to determine joint employment is 
faithful to the Act's definitions and Congress' intent in enacting 
them.
---------------------------------------------------------------------------

    \91\ See Rutherford Food, 331 U.S. at 728; Salinas, 848 F.3d at 
113.
---------------------------------------------------------------------------

2. Whether the Rule's Test Is Impermissibly Narrow Because It Is 
Control-Based
    For vertical joint employment, the Rule adopted a four-factor test 
focused on control.\92\ It generally excluded factors that were not 
indicative of a potential joint employer's control, noting that 
additional factors may be considered ``but only if they are indicia of 
whether the potential joint employer exercises significant control over 
the terms and conditions of the employee's work,'' \93\ and 
specifically excluded any consideration of the employee's economic 
dependence on the potential joint employer.\94\
---------------------------------------------------------------------------

    \92\ See 29 CFR 791.2(a)(1)(i-iv).
    \93\ 29 CFR 791.2(b) (emphasis added).
    \94\ See 29 CFR 791.2(c) (``[T]o determine joint employer 
status, no factors should be used to assess economic dependence.'').
---------------------------------------------------------------------------

    The district court found that the test adopted by the Rule is 
``impermissibly narrow'' because it ``unabashedly adopts a control-
based test'' and is thus contrary to the FLSA's text and case law.\95\ 
The district court cited Nationwide Mutual Insurance Co. v. Darden \96\ 
and circuit courts of appeals decisions for the proposition that the 
FLSA rejects the common law control standard for employment.\97\ The 
district court particularly relied on Zheng v. Liberty Apparel to 
explain that, although control can be sufficient to establish joint 
employer status, control is not necessary and cannot be the sole 
inquiry.\98\ According to the district court, the ``Rule's emphasis on 
control as the touchstone of joint employer liability flows from [its] 
interpretive error'' of ``separating section 3(d) from sections 3(g) 
and 3(e).'' \99\ The district court concluded that ``[b]ecause a 
control-based test for joint employer liability is unduly narrow, the 
[Rule] must be set aside.'' \100\ The district court added that the 
``Rule must also be vacated because it unlawfully limits the factors 
the Department will consider in the joint employer inquiry.'' \101\ 
According to the district court, excluding economic dependence 
generally, certain economic dependence factors, and certain other 
considerations (such as allowing the operation of a store on one's 
premises) from the joint employer inquiry contradicts case law and 
WHD's prior views.\102\
---------------------------------------------------------------------------

    \95\ See 2020 WL 5370871, at *27.
    \96\ 503 U.S. 318 (1992). In Darden, the Court stated that the 
FLSA defines ``employ'' ``expansively'' and with ``striking 
breadth'' and ``stretches the meaning of `employee' to cover some 
parties who might not qualify as such under a strict application of 
traditional agency law principles.'' Id. at 326.
    \97\ See 2020 WL 5370871, at *26 (citing cases).
    \98\ See id. (citing 355 F.3d at 69).
    \99\ Id. at *29.
    \100\ Id.
    \101\ Id.
    \102\ See id. at *29-30 (explaining that the ``Rule's 
enumeration of specific economic dependence factors as irrelevant 
also contravenes Rutherford'').
---------------------------------------------------------------------------

    As another reason for rescission, WHD believes it is necessary to 
consider and address these concerns that the Rule is unduly narrow. WHD 
recognizes that while tests differ among the circuit courts of appeals, 
all courts consistently use a totality-of-the-circumstances economic 
realities approach to determine the scope of joint employment under the 
FLSA, rather than limiting the focus exclusively to control. In 
addition to Bonnette, upon which the Rule heavily relied, multiple 
other circuit court decisions relied upon by the Rule ground their 
joint employment analyses in the overarching totality-of-the-
circumstances economic

[[Page 14044]]

realities standard.\103\ Likewise, the decisions that have not applied 
the Bonnette factors generally ground their joint employment analyses 
in the totality-of-the-circumstances economic realities standard 
too.\104\
---------------------------------------------------------------------------

    \103\ See, e.g., Baystate, 163 F.3d at 675; Enterprise, 683 F.3d 
at 469; Gray, 673 F.3d at 354-55.
    \104\ See, e.g., Zheng, 355 F.3d at 69-75; Salinas, 848 F.3d at 
142-43; Torres-Lopez, 111 F.3d at 639-644 (noting that an economic 
realities analysis applies when determining joint employment and 
that the concept of joint employment, like employment generally, 
``should be defined expansively'' under the FLSA).
---------------------------------------------------------------------------

    In view of the foregoing, WHD proposes to rescind the Rule and 
reserve part 791 for further consideration because WHD believes that it 
is vitally important to ensure that its interpretation of the FLSA 
regarding joint employment is wholly consistent with the statutory 
language, purpose, and Congressional intent, as well as aligned with 
longstanding legal principles.

B. Taking Into Account Prior WHD Guidance

    Not only is the vertical joint employment analysis set forth in the 
Joint Employer Rule different from the analyses applied by every court 
to have considered the issue prior to the Rule's issuance, but WHD had 
never before applied the Rule's analysis. Upon initial further review 
of the Joint Employer Rule, WHD understands the concern that the Rule 
did not sufficiently take into account and explain departures from 
WHD's prior joint employment guidance. This concern provides additional 
support for proposing to rescind the Rule.
    It is well-settled that ``[a]gencies are free to change their 
existing policies as long as they provide a reasoned explanation for 
the change.'' \105\ When an agency changes its position, ``it need not 
demonstrate . . . that the reasons for the new policy are better than 
the reasons for the old one.'' \106\ ``But the agency must at least 
`display awareness that it is changing position.' '' \107\ The agency's 
explanation is sufficient if ``the new policy is permissible under the 
statute, . . . there are good reasons for it, and . . . the agency 
believes it to be better, which the conscious change of course 
adequately indicates.'' \108\ And when explaining a changed position, 
``an agency must also be cognizant that longstanding policies may have 
`engendered serious reliance interests that must be taken into 
account.' '' \109\ In such cases, the policy change itself does not 
need ``further justification,'' but ``a reasoned explanation is needed 
for disregarding facts and circumstances that underlay or were 
engendered by the prior policy.'' \110\ For these reasons, an 
unexplained inconsistency ``in agency policy is `a reason for holding 
an interpretation to be an arbitrary and capricious change from agency 
practice.' '' \111\
---------------------------------------------------------------------------

    \105\ Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 
(2016) (citing Nat'l Cable & Telecomm. Ass'n v. Brand X internet 
Servs., 545 U.S. 967, 981-82 (2005); Chevron, U.S.A., Inc. v. 
Natural Resources Defense Council, Inc., 467 U.S. 837, 863-64 
(1984)).
    \106\ F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009).
    \107\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 
U.S. at 515, and removing emphasis).
    \108\ Fox Television, 556 U.S. at 515.
    \109\ Encino, 136 S. Ct. at 2126 (quoting Fox Television, 556 
U.S. at 515).
    \110\ Fox Television, 556 U.S. at 515-16.
    \111\ Encino, 136 S. Ct. at 2126 (quoting Brand X, 545 U.S. at 
981).
---------------------------------------------------------------------------

    In the case of the Joint Employer Rule, the district court 
acknowledged that the Rule's ``justifications for engaging in 
rulemaking are valid'' and that ``[p]romoting uniformity and clarity 
given the (at least superficially) widely divergent tests for joint 
employer liability in different circuits is a worthwhile objective.'' 
\112\ The court added that it was ``sympathetic to the [Rule's] concern 
that putative joint employers face uncertainty, and that this 
uncertainty is costly,'' and it made clear that its decision to vacate 
most of the Rule did ``not imply that the Department cannot engage in 
rulemaking to try to harmonize joint employer standards.'' \113\
---------------------------------------------------------------------------

    \112\ 2020 WL 5370871, at *33.
    \113\ Id.
---------------------------------------------------------------------------

    The district court concluded, however, that the Joint Employer Rule 
``did not adequately explain why it departed from its prior 
interpretations.'' \114\ The district court described the Rule as ``a 
volte-face'' from WHD's MSPA joint employment regulation ``in multiple 
respects.'' \115\ The court noted that WHD's 1997 MSPA final rule 
explained that MSPA joint employment rests on its statutory definition 
of ``employ,'' which is the same as the FLSA's definition of 
``employ,'' and that WHD said then that the FLSA's definition of 
``employ'' rejects the traditional common law control test.\116\ The 
district court explained that the Joint Employer Rule ``failed to 
acknowledge that it had shifted its position from the [MSPA joint 
employment regulation], much less explain why'' even though it quoted a 
commenter who identified this change in position.\117\ The court also 
concluded that the Joint Employer Rule did not ``satisfactorily explain 
why it departed from'' the Home Care AI and the Joint Employment AI, 
both of which, in contrast to the Rule, stated that the FLSA joint 
employment analysis cannot be limited to control.\118\ The court 
determined that this ``inconsistency demands an explanation'' but the 
Rule ``did not acknowledge that it was departing from'' the Home Care 
AI and the Joint Employment AI nor ``explain why it now believes [that 
they] were wrong.'' \119\
---------------------------------------------------------------------------

    \114\ Id. at 31.
    \115\ Id.
    \116\ See id. (citing 62 FR 11734 & 11745).
    \117\ Id. (citing 85 FR 2833).
    \118\ Id. (citing 2014 WL 2816951, at *2 n.5 and 2016 WL 284582, 
at *9 and comparing them to 85 FR 2821).
    \119\ Id.
---------------------------------------------------------------------------

    Having initially considered the Joint Employer Rule in comparison 
to prior and existing guidance, WHD tentatively shares the concern that 
the Rule did not adequately account for inconsistencies with its 
previous guidance. WHD's MSPA joint employment regulation \120\ and its 
1997 final rule \121\ implementing it remain in effect. And although 
the Home Care AI and the Joint Employment AI were withdrawn before the 
effective date of the Joint Employer Rule, WHD has not provided 
substantive reasons for withdrawing them in relation to the contrary 
guidance in the Rule. WHD believes that these circumstances are an 
additional reason for proposing to rescind the Joint Employer Rule.
---------------------------------------------------------------------------

    \120\ See 29 CFR 500.20(h)(5).
    \121\ See 62 FR 11745-46.
---------------------------------------------------------------------------

C. The Joint Employer Rule's Vertical Joint Employment Analysis Has Not 
Been Widely Adopted by Courts

    Since promulgation of the Joint Employer Rule, courts (including 
the Southern District of New York's decision vacating the analysis in 
New York v. Scalia) have declined to adopt the Rule's vertical joint 
employment analysis.\122\ Indeed, WHD is aware of only two cases in 
which a court has adopted the Rule's vertical joint employment 
analysis.\123\ Moreover, a

[[Page 14045]]

number of circuit courts of appeals previously established an 
analytical framework for vertical joint employment cases, and all of 
these analyses are different from the analysis in the Joint Employer 
Rule.\124\ This judicial landscape suggests that withdrawing the Rule 
would not be disruptive. Among other things, the Rule has not 
significantly affected judicial analysis of FLSA joint employment 
cases, and rescinding the Rule could potentially alleviate any 
confusion over the joint employment standard applied by courts. In 
addition, WHD does not believe that it will be difficult or burdensome 
to educate and reorient its enforcement staff if the Joint Employer 
Rule is rescinded.
---------------------------------------------------------------------------

    \122\ See Reyes-Trujillo v. Four Star Greenhouse, Inc., No. 20-
11692, 2021 WL 103636, at *7-9 (E.D. Mich. Jan. 12, 2021) (agreeing 
that the Joint Employer Rule's ``exclusive focus on the purported 
joint employer's control runs counter to the FLSA's expansive 
definition of `employer' '' and thus declining to adopt the Rule's 
analysis); Elsayed v. Family Fare LLC, No. 1:18-cv-1045, 2020 WL 
4586788, at *4 (M.D.N.C. Aug. 10, 2020) (finding ``it unnecessary to 
wade into whether the DOL's [Joint Employer] Rule is entitled to 
Brand X deference or whether the [Rule] is lawful under the APA'' 
and instead ``rely[ing] on established Fourth Circuit precedent'' 
regarding joint employment).
    \123\ See Clyde v. My Buddy The Plumber Heating & Air, LLC, No. 
2:19-cv-00756-JNP-CMR, 2021 WL 778532 (D. Utah Mar. 1, 2021); 
Sanders v. Glendale Rest. Concepts, LP, No. 19-cv-01850-NYW, 2020 WL 
5569786 (D. Colo. Sept. 17, 2020).
    \124\ See 85 FR 2831 (comparing the Rule's four-factor analysis 
to the various analyses adopted by circuit courts of appeals).
---------------------------------------------------------------------------

D. Effects on Employees of the Vertical Joint Employment Analysis

    The Joint Employer Rule acknowledged that, although it would not 
change the wages due an employee under the FLSA in the vertical joint 
employment scenario, ``it may reduce the number of businesses currently 
found to be joint employers from which employees may be able to collect 
back wages due to them under the Act.'' \125\ The Rule further 
acknowledged that, ``[t]his, in turn, may reduce the amount of back 
wages that employees are able to collect when their employer does not 
comply with the Act and, for example, their employer is or becomes 
insolvent.'' \126\ One commenter--the Economic Policy Institute (EPI)--
did submit a quantitative analysis of the monetary amount that would 
transfer from employees to employers as a result of the Rule.\127\ WHD 
responded that, although it ``appreciates EPI's quantitative 
analysis,'' it ``does not believe there are data to accurately quantify 
the impact of this [R]ule.'' \128\ WHD added that it ``lacks data on 
the current number of businesses that are in a joint employment 
relationship, or to estimate the financial capabilities (or lack 
thereof) of these businesses and therefore is unable to estimate the 
magnitude of a decrease in the number of employers liable as joint 
employers.'' \129\ The Rule discussed in a qualitative manner some 
potential benefits to employees, such as ``promot[ing] innovation and 
certainty in business relationships'' and encouraging business to 
engage in certain practices with an employer that ``could benefit the 
employer's employees.'' \130\
---------------------------------------------------------------------------

    \125\ Id. at 2853.
    \126\ Id.
    \127\ See id.
    \128\ Id.
    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    The district court determined that the Joint Employer Rule ``does 
not adequately consider [its] cost to workers'' or ``try to account for 
this effect'' and was arbitrary and capricious for that reason, among 
others.\131\ The district court stated that the Rule entirely 
disregarded its cost to workers and that its explanation for doing so--
its inability to quantify those costs--was unsatisfactory.\132\ The 
court noted that the Rule's ``inability-to-quantify rationale is 
especially unpersuasive'' because the Rule similarly failed to quantify 
its ``supposed benefits'' while taking those benefits into 
account.\133\ Although the court recognized that rules do not have to 
provide quantitative explanations or precisely parse costs and 
benefits, it determined that ignoring the cost to workers was not 
justified in the circumstances of the Joint Employer Rule.\134\
---------------------------------------------------------------------------

    \131\ 2020 WL 5370871, at *32; see also id. at *33 (The Rule 
``effectively assumed that [it] would cost workers nothing--an 
obviously unreasonable assumption.'').
    \132\ See id. at *32-33.
    \133\ Id. at *33.
    \134\ See id. at *33 (citing cases).
---------------------------------------------------------------------------

    WHD tentatively shares the concern that the Joint Employer Rule may 
not have adequately considered the costs for employees. This concern is 
premised in part on WHD's role as the agency responsible for enforcing 
the FLSA and for collecting back wages due to employees when it finds 
violations, as well as a recent Presidential Memorandum instructing the 
Director of the Office of Management and Budget to recommend new 
procedures for regulatory review that better ``take into account the 
distributional consequences of regulations.'' \135\ As noted in the 
economic analysis, this rescission could impact the well-being and 
economic security of workers in low-wage industries, many of whom are 
immigrants and people of color, because FLSA violations are more severe 
and widespread in low-wage labor markets.\136\ WHD also questions 
whether a rule that may result in employees being employed by fewer 
employers, as the Joint Employer Rule acknowledges may be its result, 
effectuates the FLSA's purpose, recognized repeatedly by the Supreme 
Court, to provide broad coverage to employees.\137\ WHD believes that 
these potential negative effects on employees, which may make it more 
difficult for workers to collect back wages owed and incentivize 
workplace fissuring,\138\ are serious concerns that may have a 
disproportionate impact on low-wage and vulnerable workers. These 
concerns are an additional reason for proposing to rescind the Joint 
Employer Rule.
---------------------------------------------------------------------------

    \135\ Modernizing Regulatory Review: Memorandum for the Heads of 
Executive Departments and Agencies (Jan. 20, 2021), published at 86 
FR 7223 (Jan. 26, 2021).
    \136\ Annette Bernhardt, Ruth Milkman, et al., Broken Laws, 
Unprotected Workers: Violations of Employment and Labor Laws in 
America's Cities, 2009, available at https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf.
    \137\ See, e.g., Rutherford Food, 331 U.S. at 729 (`` `This Act 
contains its own definitions, comprehensive enough to require its 
application to many persons and working relationships, which prior 
to this Act, were not deemed to fall within an employer-employee 
category.' '') (quoting Walling v. Portland Terminal Co., 330 U.S. 
148, 150 (1947)); United States v. Rosenwasser, 323 U.S. 360, 362-63 
(1945) (``A broader or more comprehensive coverage of employees 
[than that of the FLSA] . . . would be difficult to frame.'').
    \138\ The Joint Employer Rule described workplace fissuring as 
the increased reliance by employers on subcontractors, temporary 
help agencies, and labor brokers rather than hiring employees 
directly. See 85 FR 2853 n.100.
---------------------------------------------------------------------------

E. Horizontal Joint Employment

    In the horizontal joint employment scenario, one employer employs 
an employee for one set of hours in a workweek, and one or more other 
employers employs the same employee for separate hours in the same 
workweek. If the two (or more) employers jointly employ the employee, 
the hours worked by that employee for all of the employers must be 
aggregated for the workweek and all of the employers are jointly and 
severally liable.\139\
---------------------------------------------------------------------------

    \139\ See 29 CFR 791.2(e)(1).
---------------------------------------------------------------------------

    For horizontal joint employment, the Joint Employer Rule adopted 
the standard in the prior version of 29 CFR 791.2 with non-substantive 
revisions, reflecting the Department's historical position, which is 
also consistent with the relevant case law.\140\ This analysis focuses 
on the degree of the employers' association with respect to the 
employment of the employee. Although this NPRM proposes to rescind the 
entire Rule, including the horizontal joint employment provisions for 
reasons discussed below, WHD is not considering revising its 
longstanding horizontal joint employment analysis.
---------------------------------------------------------------------------

    \140\ See 85 FR 2844-45.
---------------------------------------------------------------------------

    The Rule structured 29 CFR 791.2 such that the horizontal joint 
employment provisions are intertwined with the vertical joint 
employment provisions, and it would be difficult, as a practical 
matter, for the horizontal joint employment provisions to stand alone. 
For example, the Rule's horizontal joint employment analysis is

[[Page 14046]]

located in subsection (e) of 29 CFR 791.2.\141\ Section 791.2(f) 
addresses the consequences of joint employment for both the vertical 
and horizontal scenarios, and section 791.2(g) provides 11 
``illustrative examples'' of how the Rule may apply to specific factual 
situations implicating both vertical and horizontal joint 
employment.\142\ Accordingly, because of the interconnected nature of 
section 791.2's provisions, WHD believes that simply retaining section 
791.2(e) or some portions of part 791 would be unworkable and 
potentially confusing, and thus proposes to rescind the entire Rule. 
Nonetheless, the Department is not reconsidering the substance of its 
longstanding horizontal joint employment analysis.
---------------------------------------------------------------------------

    \141\ See 29 CFR 791.2(e).
    \142\ See 29 CFR 791.2(f), (g). The district court vacated 
sections 791.2(f) and (g) and all other provisions of section 791.2 
except for subsection (e). See 2020 WL 5370871, at *34.
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F. Effect of Proposed Rescission

    If the Joint Employer Rule is rescinded, as proposed here, Part 791 
of Title 29 of the Code of Federal Regulations would be removed in its 
entirety and reserved. The Department is not proposing any regulatory 
guidance to replace the guidance currently located in Part 791, so any 
commenter feedback addressing or suggesting such a replacement or 
otherwise requesting that WHD adopt specific guidance if the Joint 
Employer Rule is rescinded will be considered to be outside the scope 
of this NPRM. In addition to the reasons for the proposed rescission 
explained above, rescission of the Joint Employer Rule and removal of 
Part 791 would allow WHD an additional opportunity to consider legal 
and policy issues relating to FLSA joint employment.

III. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) and its attendant 
regulations \143\ require the Department to consider the agency's need 
for its information collections, their practical utility, as well as 
the impact of paperwork and other information collection burdens 
imposed on the public, and how to minimize those burdens. The PRA 
typically requires an agency to provide notice and seek public comments 
on any proposed collection of information contained in a proposed 
rule.\144\ This NPRM does not contain a collection of information 
subject to Office of Management and Budget approval under the PRA.
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    \143\ See 44 U.S.C. 3501 et seq.; 5 CFR part 1320.
    \144\ See 44 U.S.C. 3506(c)(2)(B); 5 CFR 1320.8.
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IV. Executive Order 12866, Regulatory Planning and Review; and 
Executive Order 13563, Improved Regulation and Regulatory Review

A. Introduction

    Under Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs (OIRA) determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\145\ Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as a regulatory 
action that is likely to result in a rule that may: (1) Have an annual 
effect on the economy of $100 million or more, or adversely affect in a 
material way a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or state, local or tribal 
governments or communities (also referred to as economically 
significant); (2) create serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order. OIRA has determined that this proposed rescission is 
economically significant under section 3(f) of Executive Order 12866.
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    \145\ See 58 FR 51,735, 51,741 (Oct. 4, 1993).
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    Executive Order 13563 directs agencies to, among other things, 
propose or adopt a regulation only upon a reasoned determination that 
its benefits justify its costs; that it is tailored to impose the least 
burden on society, consistent with obtaining the regulatory objectives; 
and that, in choosing among alternative regulatory approaches, the 
agency has selected those approaches that maximize net benefits. 
Executive Order 13563 recognizes that some costs and benefits are 
difficult to quantify and provides that, when appropriate and permitted 
by law, agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts. The analysis below outlines the 
impacts that the Department anticipates may result from this proposed 
rescission and was prepared pursuant to the above-mentioned executive 
orders.

B. Background

    The FLSA requires a covered employer to pay nonexempt employees at 
least the federal minimum wage for every hour worked in a non-overtime 
workweek and (in an overtime workweek) premium pay of at least one and 
one-half times the employee's regular rate of pay for all hours worked 
in excess of 40. The FLSA defines ``employer'' to ``include[] any 
person acting directly or indirectly in the interest of an employer in 
relation to an employee'' \146\; ``employee'' to generally mean ``any 
individual employed by an employer'' \147\; and ``employ'' to 
``include[] to suffer or permit to work.'' \148\ Two or more employers 
may jointly employ an employee and thus be jointly and severally liable 
for every hour worked by the employee in a workweek.
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    \146\ 29 U.S.C. 203(d).
    \147\ 29 U.S.C. 203(e)(1).
    \148\ 29 U.S.C. 203(g).
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    In January 2020, WHD published a final rule entitled ``Joint 
Employer Status Under the Fair Labor Standards Act,'' which became 
effective on March 16, 2020 (Joint Employer Rule or Rule). The Rule 
provides a four-factor test for determining joint employer status in 
vertical joint employment situations. Those four factors are whether 
the potential joint employer: (1) Hires or fires the employee; (2) 
supervises and controls the employee's work schedule or conditions of 
employment to a substantial degree; (3) determines the employee's rate 
and method of payment; and (4) maintains the employee's employment 
records. For horizontal joint employment situations, the Joint Employer 
Rule made non-substantive revisions to WHD's existing standard. For 
reasons discussed in Section II above, the Department is now proposing 
to rescind the Joint Employer Rule and to remove the regulations in 29 
CFR part 791.

C. Costs

1. Rule Familiarization Costs

    Rescinding the Joint Employer Rule would impose direct costs on 
businesses that will need to review the rescission. To estimate these 
regulatory familiarization costs, the Department determined: (1) The 
number of potentially affected entities, (2) the average hourly wage 
rate of the employees reviewing the rescission, and (3) the amount of 
time required to review the rescission. It is uncertain whether these 
entities would incur regulatory familiarization costs at the firm or 
the establishment level. For

[[Page 14047]]

example, in smaller businesses there might be just one specialist 
reviewing the rescission, while larger businesses might review it at 
corporate headquarters and determine policy for all establishments 
owned by the business. To avoid underestimating the costs of this 
proposed rescission, the Department uses both the number of 
establishments and the number of firms to estimate a potential range 
for regulatory familiarization costs. The lower bound of the range is 
calculated assuming that one specialist per firm will review the 
rescission, and the upper bound of the range assumes one specialist per 
establishment.
    The most recent data on private sector entities at the time this 
NPRM was drafted are from the 2017 Statistics of U.S. Businesses 
(SUSB), which reports 5,996,900 private firms and 7,860,674 private 
establishments with paid employees.\149\ Because the Department is 
unable to determine how many of these businesses have workers with one 
or more joint employers, this analysis assumes all businesses will 
undertake review.
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    \149\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 
2016 SUSB Annual Data Tables by Establishment Industry.
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    The Department believes ten minutes per entity, on average, to be 
an appropriate review time here. This rulemaking is a proposed 
rescission and would not set forth any new regulations or guidance 
regarding joint employment. Additionally, as it believed when it issued 
the Joint Employer Rule, the Department believes that many entities are 
not joint employers and thus would not spend any time reviewing the 
proposed rescission. Therefore, the ten-minute review time represents 
an average of no time for the majority of entities that are not joint 
employers, and potentially more than ten minutes for review by some 
entities that might be joint employers.
    The Department's analysis assumes that the proposed rescission 
would be reviewed by Compensation, Benefits, and Job Analysis 
Specialists (SOC 13-1141) or employees of similar status and comparable 
pay. The median hourly wage for these workers was $31.04 per hour in 
2019, the most recent year of data available.\150\ The Department also 
assumes that benefits are paid at a rate of 46 percent \151\ and 
overhead costs are paid at a rate of 17 percent of the base wage, 
resulting in a fully loaded hourly rate of $50.60.
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    \150\ Occupational Employment and Wages, May 2019, https://www.bls.gov/oes/current/oes131141.htm.
    \151\ The benefits-earnings ratio is derived from the Bureau of 
Labor Statistics' Employer Costs for Employee Compensation data 
using variables CMU1020000000000D and CMU1030000000000D.
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    The Department estimates that the lower bound of regulatory 
familiarization cost range would be $50,675,004 (5,996,900 firms x 
$50.60 x 0.167 hours), and the upper bound, $66,424,267 (7,860,674 
establishments x $50.60 x 0.167 hours). The Department estimates that 
all regulatory familiarization costs would occur in Year 1.
    Additionally, the Department estimated average annualized costs of 
this proposed rescission over 10 years. Over 10 years, it would have an 
average annual cost of $6.7 million to $8.8 million, calculated at a 7 
percent discount rate ($5.8 million to $7.6 million calculated at a 3 
percent discount rate). All costs are in 2019 dollars.
2. Other Costs
    The Department acknowledges that there may be other potential costs 
to the regulated community, such as reduced clarity from the lack of 
regulatory guidance. Because it lacks data on the number of businesses 
that are in a joint employment relationship or those that changed their 
policies as a result of the Joint Employer Rule, the Department has not 
quantified these potential costs, which are expected to be de minimis. 
Although the rescission would remove the regulations at 29 CFR part 
791, the Department believes that this will not result in substantial 
costs or decreased clarity for the regulated community because, as 
discussed above, courts already apply a joint employment analysis 
different from the analysis in the Joint Employer Rule and generally 
have not adopted the Rule's analysis.

D. Transfers

    The Department acknowledged that the Joint Employer Rule could 
limit the ability of workers to collect wages due to them under the 
FLSA because when there is only one employer liable, there are fewer 
employers from which to collect those wages and no other options if 
that sole employer lacks sufficient assets to pay.\152\ Because the 
Joint Employer Rule provided new criteria for determining joint 
employer status under the FLSA and given the specifics of those 
criteria, it potentially reduced the number of businesses found to be 
joint employers from which employees may be able to collect back wages 
due to them under the Act. This, in turn, would reduce the amount of 
back wages that employees are able to collect when an employer does not 
comply with the Act and, for example, was or became insolvent.
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    \152\ See 85 FR 2853.
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    Like the Joint Employer Rule, this rescission would not change the 
amount of wages due any employee under the FLSA. Rescinding the Joint 
Employer Rule could result in a transfer from employers to employees in 
the form of back wages that employees would thereafter be able to 
collect. The Department lacks data on the current number of businesses 
that are in a joint employment relationship, or to estimate the 
financial capabilities (or lack thereof) of these businesses and 
therefore is unable to estimate the magnitude of an increase in the 
number of employers liable as joint employers.
    Although the Rule would not have changed the amount of wages due to 
an employee, the narrower standard for joint employment could have 
incentivized ``workplace fissuring.'' Research has shown that this type 
of domestic outsourcing can suppress workers' wages, especially for 
low-wage occupations.\153\
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    \153\ Arindrajit Dube and Ethan Kaplan, ``Does Outsourcing 
Reduce Wages in the Low-Wage Service Occupations? Evidence from 
Janitors and Guards,'' ILR Review 63, no. 2 (January 2010): 287-306.
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    In 2019, the Economic Policy Institute (EPI) submitted a comment to 
the Joint Employer NPRM in which they calculated that the rule would 
result in transfers from employees to employers of over $1 
billion.\154\ EPI explained that these transfers would result from both 
an increase in workplace ``fissuring'' as well as from an increase in 
wage theft by employers. Rescinding this standard could help mitigate 
this impact. The Department is unable to determine to what extent these 
transfers occurred while the Joint Employer Rule was in effect, and 
therefore has not provided a quantitative estimate of transfers from 
employers to employees because of this rescission. The Department is 
also unable to estimate the increase in back wages that employees would 
be able to collect because of this change.
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    \154\ Celine McNicholas and Heidi Shierholz, EPI comments 
regarding the Department of Labor's proposed joint-employer 
standard, June 25, 2019. https://www.epi.org/publication/epi-comments-regarding-the-department-of-labors-proposed-joint-employer-standard/.
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    This proposed rescission could also benefit some small businesses, 
because the Joint Employer Rule's narrowing of the joint employment 
standard could make them solely liable and responsible for complying 
with the FLSA without relying on the resources of a larger business in 
certain situations.

[[Page 14048]]

    The Department welcomes comments and data to help quantify these 
transfers.

E. Benefits

    The Department believes that rescinding the Joint Employer Rule 
would result in benefits to workers and would strengthen wage and hour 
protections for vulnerable workers. Removing a standard for joint 
employment that is narrower than the standard applied by courts and 
WHD's prior standards may enable more workers to collect back wages to 
which they would already be entitled under the FLSA. This could 
particularly improve the well-being and economic security of workers in 
low-wage industries, many of whom are immigrants and people of color, 
because FLSA violations are more severe and widespread in low-wage 
labor markets.\155\
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    \155\ Annette Bernhardt, Ruth Milkman, et al., Broken Laws, 
Unprotected Workers: Violations of Employment and Labor Laws in 
America's Cities, 2009, available at https://www.nelp.org/wp-content/uploads/2015/03/BrokenLawsReport2009.pdf.
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    The Department welcomes any comments and data on quantifying the 
benefits associated with this proposed rescission.

V. Regulatory Flexibility Act (RFA) Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act of 
1996, Public Law 104-121 (1996), requires federal agencies engaged in 
rulemaking to consider the impact of their proposals on small entities, 
consider alternatives to minimize that impact, and solicit public 
comment on their analyses. The RFA requires the assessment of the 
impact of a regulation on a wide range of small entities, including 
small businesses, not-for-profit organizations, and small governmental 
jurisdictions. Accordingly, the Department examined this proposed 
rescission to determine whether it would have a significant economic 
impact on a substantial number of small entities. The most recent data 
on private sector entities at the time this NPRM was drafted are from 
the 2017 Statistics of U.S. Businesses (SUSB), which reports 5,996,900 
private firms and 7,860,674 private establishments with paid 
employees.\156\ Of these, 5,976,761 firms and 6,512,802 establishments 
have fewer than 500 employees. Because the Department is unable to 
determine how many of these businesses have workers with one or more 
joint employers, this analysis assumes all businesses will undertake 
review.
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    \156\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html, 
2016 SUSB Annual Data Tables by Establishment Industry.
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    The per-entity cost for small business employers is the regulatory 
familiarization cost of $8.43, or the fully loaded mean hourly wage of 
a Compensation, Benefits, and Job Analysis Specialist ($50.60) 
multiplied by \1/6\ hour (ten minutes). Because this cost is minimal 
for small business entities, and well below one percent of their gross 
annual revenues, which is typically at least $100,000 per year for the 
smallest businesses, the Department certifies that this proposed 
rescission will not have a significant economic impact on a substantial 
number of small entities.
    The Department welcomes any comments and data on this Regulatory 
Flexibility Act Analysis, including the costs and benefits of this 
proposed rescission on small entities.

VII. Executive Order 13132, Federalism

    The Department has (1) reviewed this proposed rescission in 
accordance with Executive Order 13132 regarding federalism and (2) 
determined that it does not have federalism implications. The proposed 
rescission would not have substantial direct effects on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government.

VIII. Executive Order 13175, Indian Tribal Governments

    This proposed rescission would not have substantial direct effects 
on one or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.

List of Subjects in 29 CFR Part 791

    Wages.

PART 791--[REMOVED AND RESERVED]

0
For the reasons set forth in the preamble, and under the authority of 
29 U.S.C. 201-219, the Department proposes to remove and reserve 29 CFR 
part 791.

    Signed this 4th day of March, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-04867 Filed 3-11-21; 8:45 am]
BILLING CODE 4510-27-P