WSJ: Labor Department Withdraws Obama-Era Guidance on Joint Employment

June 7, 2017

The Labor Department began taking steps Wednesday to roll back high-profile Obama administration policies, days ahead of President Donald Trump’s planned visit to the department to outline worker-training initiatives.

Labor Secretary Alexander Acosta told members of Congress Wednesday the department would begin rewriting overtime regulations within weeks, while also announcing the withdrawal of guidance that broadened the definition of when multiple employers could be responsible for the same worker.

Many businesses were eager to see the moves after Mr. Trump’s election.

Mr. Acosta, however, also gave the green light for a retirement-savings rule the prior administration had written and goes into partial effect Friday. Many members of the financial-industry and Republicans in Congress had wanted to see that regulation quashed as well.

Mr. Trump plans to visit the department on June 14 to announce steps to expand apprenticeship programs and accreditation for vocational programs and community colleges, Reed Cordish, a senior White House adviser said during a panel discussion Wednesday at the Business Roundtable, a corporate trade group.

Mr. Cordish said the Trump administration also would propose ways to expand student aid for vocational training and apprenticeship programs.

“This is our best opportunity to address the skills gap that exists in the country and to address the student debt crisis that exists in the country,” Mr. Cordish said. “Four-year college is wonderful, but it shouldn’t be the only option.”

Mr. Trump’s 2018 budget proposal last month would cut federal funding for work-study programs and eliminate funding for certain teacher-training initiatives as part of a 13.5% decrease next year in funding for the Education Department. It would also reduce funding by nearly 40% for job-training programs administered by the Labor Department.

Mr. Cordish said the cuts reflected the need to better organize some 31 workforce-training programs across 14 federal agencies.

Mr. Acosta defended those cuts to members of Congress at a budget hearing Wednesday. “We’re going to do more with less,” he said. “We’re going to focus the department on its core mission by making smart investments in programs that work.”

Democrats at the hearing rejected the notion that the Labor Department can improve outcomes with less funding.

“You can only do less with less,” said Rep. Rosa DeLauro (D., Conn.). “This budget cuts taxes for the wealthy while cutting programs that benefit middle-class families.”

Mr. Acosta said the administration will begin reviewing overtime regulations in coming weeks.

Last year, the Labor Department completed a rule that would have made millions more Americans eligible for overtime. The rule sought to raise the threshold salary under which most workers are required to receive time-and-half pay for working extra hours to $47,476 from $23,660. A federal judge blocked the rule from taking effect last year, after states and businesses sued.

The Obama-administration rule needs to be reconsidered because the way it was to be implemented would be a “shock to the system,” Mr. Acosta said. Some businesses said the threshold should be raised in smaller, gradual steps.

​The secretary said he favored raising the $23,660 threshold set more than a decade ago, “because life does get more expensive.”

On another issue, the Labor Department in a statement Wednesday morning rolled back informal guidance issued in 2015 and 2016 on joint employment and independent contractors. It expanded the department’s scope to consider when two firms are responsible for the same employee.

Some businesses, particularly franchised brands and those employing contractors on a large scale, said the guidance had opened them up to the potential for additional liability.

Mike Rotondo, chief executive of restaurant chain Tropical Smoothie Cafe, applauded the moves on overtime and multiple employers. He said in an interview that the Obama administration’s overtime proposal was too aggressive, adding that he hopes for a “more palatable approach” from Mr. Acosta.

Mr. Rotondo said the joint employer guidance had complicated the running of his business. Franchisers, he said, weren’t sure they could provide franchisees with things like training manuals and employee handbooks, since there was a risk that offering too much support to franchises could lead courts to consider the corporate parent as a joint employer in the event of a lawsuit.

Some Democrats say rescinding the guidance could put workers at risk. During the Obama administration, the Labor Department pursued cases against employers that improperly classified certain workers as contractors.

David Weil, the former Labor Department official who issued the guidance, said in an interview that classifying the workers as contractors allowed the firms to avoid paying them overtime wages and could make the workers ineligible for worker compensation or unemployment insurance. The guidance sought to clarify that the department was specifically looking for instances in which two firms could be responsible for labor violations or when employees were improperly classified as contractors.

Mr. Weil said the announcement rescinding the guidance was largely symbolic. “But if it means they’re going to pull back on enforcement, there are going to be fewer workers that get protections under the law,” he said.

Mr. Acosta declined to comment on the rationale behind rescinding the guidance when asked by reporters after the hearing.

 

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