A federal district court in New York last week struck down a significant portion of the US Department of Labor’s final rule regarding the standard for establishing joint-employer liability under the Fair Labor Standards Act, the National Law Review reports.

The final rule, which went into effect in March, adopted a four-factor test for determining joint-employer status where an employee performs work for one employer and that work benefits another. The factors examine whether the employer:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedules or conditions of employment;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records.

Under the new rule, an entity may be considered as a joint employer for FLSA purposes only if it actually “[takes actions] with respect to the employee’s terms and conditions of employment,” as opposed to having the right to do so, according to the National Law Review.

The attorneys general of 17 states and the District of Columbia filed a lawsuit attempting to block the rule in February, arguing companies have increasingly outsourced employment of workers and that third-party employers are less stable and subject to less scrutiny. As a result, they are more likely to violate wage and hour laws.

The New York district court judge ruled in favor of the attorneys general on Sept. 8. Read more from the National Law Review.