This week, the Department of Labor issued its proposed joint employer rule, which would change the test for determining if two companies are jointly responsible for wage and overtime pay of an employee. Meanwhile, the White House is expected to release details on its “Opportunity and Revitalization Council,” while more guidance on opportunity zones is forthcoming. Finally, congressional committees are in full swing with hearings on issues relevant to the middle market being discussed in the Senate and the House.
DOL Announces Proposed Joint Employer Rule
On Monday, the Department of Labor issued its proposed rule to update and clarify joint employer status under the Fair Labor Standards Act (FLSA).
Joint employer status under the FLSA dictates when two employers are jointly responsible for ensuring that employees receive at least the federal minimum wage and overtime pay when applicable. According to the notice, the proposed changes are designed to promote certainty for employers and employees, reduce litigation, and encourage innovation. The proposed rule includes various qualifiers to judge whether an employer is a joint employer with another business.
The agency stated in a news release that its proposal takes into account a four-factor test to consider whether the business in question of being a joint employer. Criteria include whether a company has exercised the power to hire or fire employees, supervise and control work schedules or conditions of employment, determine the rate and method of payment and maintain employment records.
Meanwhile, the joint-employer rulemaking at the National Labor Relations Board, which ACG supported, remains ongoing. Under the NLRA, joint employer status dictates when an employer can be liable for collective bargaining and other labor disputes with the employees of another business. Although operating under different statutes, both the NLRB and DOL proposals would return the definition of a joint employer to a limited, direct standard which, if finalized, will provide much-needed certainty to the business community.
Comments on the DOL’s rulemaking will be due 60 days after the proposal is published in the Federal Register.
Opportunity Zones to Receive White House Oversight
The White House will soon release its work plan, schedule, and executive director for the “Opportunity and Revitalization Council,” created by an executive order from President Donald Trump last December.
According to the order, the council will be responsible for assessing actions agencies can take that prioritize or focus federal investments and programs on urban and economically distressed communities, including opportunity zones and minimize the regulatory and administrative costs and burdens that discourage public and private investment in them.
In addition, the order also instructs the council to regularly consult with state, local and tribal governments and individuals from the private sector for feedback on how best to stimulate the economic development in economically distressed and opportunity zone-qualifying areas and coordinate interagency efforts to ensure private and public stakeholders can successfully develop strategies for economic growth and revitalization.
This comes on the heels of the Treasury’s submission of the second round of opportunity zone guidance currently under review by the Office of Management and Budget. This latest guidance is expected to address the “active business requirement,” which dictates opportunity zone businesses must receive at least 50% of their gross income from business conducted inside of an opportunity zone.
The active business requirement has already been the subject of congressional inquiry. A bipartisan group of lawmakers who created the legislation, which was eventually packaged in the Tax Cuts and Jobs Act establishing opportunity zones, expressed concern about the requirement, and suggested that in order for a business to qualify for opportunity zone benefits it should instead only be required to , to clarify that certain sales outside of an opportunity zone also qualify.
Congressional Hearings on Tax Reform, ESG Issues
Ways and Means Tax Reform Hearing
The House Ways and Means Committee held a hearing last week entitled “The 2017 Tax Law and Who it Left Behind,” kicking off the first in a series of what Chairman Richard Neal, D-Mass., considers to be important hearings that should have been held prior to the tax law’s passage.
Christopher Shelton, president of the Communications Workers of America, was a witness at the hearing and argued that several bills sponsored by committee members were reforms that should have been included in the tax law.
Specifically, Mr. Shelton advocated for passage of H.R. 1735, the Carried Interest Fairness Act, which would tax carried interest for private equity and hedge fund managers as income tax, rather than its current treatment as capital gains.
Nancy Abramowitz, professor of practice and director of the Janet R. Spragens Federal Tax Clinic at American University, was a witness and stated her concerns that the opportunity zones tax incentive would only serve the purpose of gentrifying distressed areas.
Continuing Abramowitz’s line of thinking, Rep. Blumenauer, D-Ore., said the opportunity zones provision wasn’t debated in the Ways and Means Committee and may not be useful.
Rep. Mike Kelly, R-Pa., pushed back. “It’s creating an opportunity in a zone that the rest of the world has left behind and doesn’t even look at anymore because there’s no reason to invest there,” he said.
Overall, the hearing showed the continued focus by the Democrat-controlled Ways and Means Committee at relitigating the 2017 tax law, which they believe was passed too quickly and should have had bipartisan consensus.
Senate Banking Committee Discusses ESG
The Senate Committee on Banking, Housing, and Urban affairs held a hearing on environmental, social, and governance investing considerations.
Led by Chairman Mike Crapo, R-Idaho, Republicans on the committee and witnesses generally expressed concern that ESG shareholder proposals are being pushed by mutual funds and institutional investors who are leveraging their investor’s dollars to try and sway the policies of public companies, potentially against the wishes of their investors.
Witnesses and Senators further expressed concern that the share threshold for bringing a vote at the investor meeting was far too low, allowing individuals not interested in investing in a company to purchase shares specifically to force votes.
Of specific relevance to ACG’s membership was Senator Pat Toomey’s, R-Pa., concerns that ESG considerations and shareholder proposals were another reason why companies are staying private longer.
Democrats generally expressed their desire for the SEC to create standardized reporting for ESG considerations, exemplifying the partisan divide on this issue.
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Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.
Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.