New York v. Scalia

490 F.Supp.3d 748

State of NEW YORK, Commonwealth of Pennsylvania, State of California, State of Colorado, State of Delaware, District of Columbia, State of Illinois, State of Maryland, Commonwealth of Massachusetts, State of Michigan, State of Minnesota, State of New Jersey, State of New Mexico, State of Oregon, State of Rhode Island, State of Washington, State of Vermont, and Commonwealth of Virginia, Plaintiffs,

v. Eugene SCALIA, Secretary of the United States Department of Labor, United States Department of Labor, and United States of America, Defendants,andInternational Franchise Association, the Chamber of Commerce of the United States of America, HR Policy Association, National Retail Federation, Associated Builders and Contractors, and American Lodging and Hotel Association, Intervenor-Defendants.

1:20-cv-1689-GHW

United States District Court, S.D. New York.

Signed September 8, 2020

Fiona Jeannette Kaye, Matthew Colangelo, Julie Rivchin Ulmet, NYS Office of the Attorney General, New York, NY, for Plaintiff State of New York.

Nancy A. Walker, Pennsylvania Office of Attorney General, Ryan B. Smith, Pennsylvania Office of Attorney General Fair Labor Section, Philadelphia, PA, for Plaintiff Commonwealth of Pennsylvania.

Jennifer C. Bonilla, California Department of Justice, San Diego, CA, for Plaintiff State of California.

Eric Olson, Colorado Department of Law, Denver, CO, for Plaintiff State of Colorado.

Christian Douglas Wright, Delaware Department of Justice, Wilmington, DE, for Plaintiff State of Delaware.

Kathleen Konopka, DC Office of the Attorney General, Washington, DC, for Plaintiff District of Columbia.

Alvar Ayala, Illinois Attorney General's Office, Chicago, IL, for Plaintiff State of Illinois.

Jeffrey Paul Dunlap, Office of the Attorney General, Baltimore, MD, for Plaintiff State of Maryland.

Andrew H. Cahill, Attorney General's Office, Boston, MA, for Plaintiff Commonwealth of Massachusetts.

Zachary A. Risk, Matthew Lee Walker, Michigan Attorney General, Lansing, MI, for Plaintiff State of Michigan.

Jonathan Dean Moler, Minnesota Attorney General's Office, St. Paul, MN, for Plaintiff State of Minnesota.

Estelle Bronstein, Nj Office of the Attorney General, Trenton, NJ, for Plaintiff State of New Jersey.

Tania Maestas, NM Office of the Attorney General, Santa Fe, NM, for Plaintiff State of New Mexico.

Marc Abrams, Oregon Department of Justice, Salem, OR, for Plaintiff State of Oregon.

Justin James Sullivan, RI Department of Attorney General, Providence, RI, for Plaintiff State of Rhode Island.

James Mills, WA State Attorney General Office, Tacoma, WA, Jeffrey T. Sprung, State of Washington, Attorney General's Office, Seattle, WA, for Plaintiff State of Washington.

Julio A. Thompson, State of Vermont Office of the Attorney General, Montpelier, VT, for Plaintiff State of Vermont.

Mamoona Siddiqui, Office of the Attorney General, Richmond, VA, for Plaintiff Commonwealth of Virginia.

Natasha Waglow Teleanu, United States Attorney's Office, New York, NY, for Defendants.

Eli Zev Freedberg, Littler Mendelson, P.C., New York, NY, Maurice Baskin, Littler Mendelson, Washington, DC, for Intervenor-Defendants.

MEMORANDUM OPINION AND ORDER

GREGORY H. WOODS, United States District Judge:

For more than eighty years, the Department of Labor (the "Department") has recognized that multiple employers may qualify as "joint employers" under the Fair Labor Standards Act (the "FLSA"). Suppose, for instance, that an employee works for a subcontractor and that a primary contractor hires the subcontractor. If both the primary contractor and the subcontractor meet the FLSA's definition of an "employer," they are joint employers. Joint employers are jointly and severally liable for damages for FLSA violations.

Earlier this year, the Department issued a final rule (the "Final Rule") that narrows the definition of joint employment under the FLSA. Eighteen States (the "States") sued, arguing that the Final Rule is invalid.

The Final Rule violates the Administrative Procedure Act (the "APA"). It conflicts with the FLSA because it ignores the statute's broad definitions. And the Department failed to adequately justify its departure from its prior interpretations and to account for some of the Final Rule's important costs. So the Final Rule is also arbitrary and capricious. But one part of the Final Rule is severable from the portions that are legally infirm. For those and other reasons discussed below, the parties’ cross motions for summary judgment are GRANTED in part and DENIED in part.

I. BACKGROUND

A. Statutory and Regulatory Background¹

1. The FLSA

"The principal congressional purpose in enacting the FLSA was to protect all covered workers from substandard wages and oppressive working hours[.]" Scalia I , 464 F.Supp.3d at 533 (quoting Mei Xing Yu v. Hasaki Rest., Inc. , 944 F.3d 395, 402 (2d Cir. 2019) ). "Consistent with [that] ‘remedial and humanitarian’ purpose, Congress adopted definitions of ‘employ,’ ‘employee,’ and ‘employer’ that brought a broad swath of workers within the statute's protection." Id. (quoting Salinas v. Com. Interiors, Inc. , 848 F.3d 125, 133 (4th Cir. 2017) ). "The FLSA defines an ‘employee’ as ‘any individual employed by an employer,’ " an " ‘employer’ to include ‘any person acting directly or indirectly in the interest of an employer in relation to an employee[,]’ " and "the term ‘employ’ " to include " ‘to suffer or permit to work.’ " Id. (quoting 29 U.S.C. §§ 203(e)(1), 203(d), 203(g) ).

These definitions are broad. In 1945, the Supreme Court noted that "the term ‘employee’ " in the FLSA has " ‘the broadest definition ... ever ... included in any one act.’ " United States v. Rosenwasser , 323 U.S. 360, 363 n.3, 65 S.Ct. 295, 89 L.Ed. 301 (1945) (quoting 81 Cong. Rec. 7657 (1937) (statement of Sen. Hugo Black)). Two years later, the Court observed that the FLSA's "definition of ‘employ’ is broad." Rutherford Food Corp. v. McComb , 331 U.S. 722, 728, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947). Indeed, the FLSA's definitions are so "comprehensive" that they apply "to many persons and working relationships" that did not historically "fall within an employer-employee category." Walling v. Portland Terminal Co. , 330 U.S. 148, 150-51, 67 S.Ct. 639, 91 L.Ed. 809 (1947) (citation omitted). Decades later, the Court again noted the "striking breadth" of the FLSA's definition of "employ[.]" Nationwide Mut. Ins. Co. v. Darden , 503 U.S. 318, 326, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992). That definition "stretches the meaning of ‘employee’ to cover some parties who might not qualify as such" under "traditional agency law principles." Id.

The test for an employment relationship under the FLSA rests on "economic reality." In Rutherford , the Supreme Court observed that there is "no definition" that precisely delimits the scope "of the employer-employee relationship under the [FLSA]." 331 U.S. at 728, 67 S.Ct. 1473. Whether an employment relationship exists "does not depend on ... isolated factors but rather upon the circumstances of the whole activity." Id. at 730, 67 S.Ct. 1473. The Court later distilled Rutherford into an "economic reality" test: "[T]he ‘economic reality’ rather than ‘technical concepts’ " determines employment under the FLSA. Goldberg v. Whitaker House Co-op., Inc. , 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961) (citing United States v. Silk , 331 U.S. 704, 713, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947) ; Rutherford , 331 U.S. at 729, 67 S.Ct. 1473 ).

2. Joint Employer Doctrine

The joint employer doctrine is longstanding. The Department has recognized joint employment since 1939. Scalia I , 464 F.Supp.3d at 533-34. That year, the Department issued an "interpretative bulletin" establishing that multiple employers could simultaneously employ an employee. See id. (citing Interpretative Bulletin No. 13, "Hours Worked: Determination of Hours for Which Employees are Entitled to Compensation under the Fair Labor Standards Act of 1938," at 16-17 (U.S. Dep't of Labor July 1939)).

"In 1958, the Department first codified the joint employment standard." Id. (citing 23 Fed. Reg. 5905 (Aug. 5, 1958) ). Like the 1939 bulletin, the Department's 1958 regulations "recognized that ‘a single individual may’ " simultaneously have " ‘two or more employers’ " under the FLSA. Id. at 534 (quoting Salinas , 848 F.3d at 133, in turn quoting former 29 C.F.R. § 791.2(a) ) (alterations omitted). "The Department's 1958 regulations distinguished ‘separate and distinct employment’ and ‘joint employment.’ " Id. (quoting Salinas , 848 F.3d at 133, in turn quoting former 29 C.F.R. § 791.2(a) ) (brackets omitted). "[J]oint employment exists when ‘the facts establish that employment by one employer is not completely disassociated from employment by the other employer.’ " Id. (quoting Salinas , 848 F.3d at 133, in turn quoting former 29 C.F.R. § 791.2(a) ).

The Supreme Court first explicitly recognized joint employer liability in Falk v. Brennan , 414 U.S. 190, 94 S.Ct. 427, 38 L.Ed.2d 406 (1973). Given the FLSA's "expansive[ ] ... definition of ‘employer[,]’ " the Court recognized that an employee could have multiple employers for a single set of hours worked. Id. at 195, 94 S.Ct. 427 ; see, e.g. , Bonnette v. California Health & Welfare Agency , 704 F.2d 1465, 1469 (9th Cir. 1983) (citing Falk for the proposition that "[t]wo or more employers may jointly employ someone for purposes of the FLSA").

Congress enacted the Migrant and Seasonal Agricultural Workers Protection Act (the "MSPA") in 1983. See 29 U.S.C. §§ 1801 et seq. The MSPA "uses the same definition of ‘employ’ as the FLSA." Scalia I , 464 F.Supp.3d at 535, n.2 (quoting Salinas , 848 F.3d at 135 ); see also 29 U.S.C. § 1802(5) ("The term ‘employ’ has the meaning given such term under section 3(g) of the [FLSA] ( 29 U.S.C. [§] 203(g) )[.]"). The MSPA does not define "employer."

The Department issued regulations defining joint employment under the MSPA (the "MSPA Regulations"). See 29 C.F.R. §...