State Of New York v. Scalia

Background

Eighteen States sued Eugene Scalia, the United States Department of Labor, and the United States. They sought to set aside and block implementation of the Department of Labor’s final rule defining when two entities are “joint employers” under the Fair Labor Standards Act. The rule generally limits joint-employer status to situations in which a person exercises certain forms of control over a worker, including hiring or firing, substantially supervising work schedules or conditions, setting pay, or maintaining employment records.

The States alleged that the rule would increase workplace outsourcing and subcontracting, reduce workers’ ability to recover unpaid wages, lower the States’ wage-related tax bases, and increase state administrative and enforcement costs. The defendants moved to dismiss for lack of constitutional and prudential standing. Because the motion was based only on the complaint’s allegations, the court treated material factual allegations as true and drew reasonable inferences for the States.

Constitutional Standing

Constitutional standing requires an injury that is concrete and particularized, fairly traceable to the challenged conduct, and likely to be addressed by a favorable decision. The court held that the States plausibly alleged an injury through expected tax-revenue losses. Their theory was that the final rule would limit the businesses liable under the federal wage law, make it harder for workers to recover back wages, reduce aggregate wages and the States’ tax bases, and consequently reduce tax revenue. The court found this causal chain plausible at the pleading stage.

The court also held that the States plausibly alleged increased administrative and enforcement costs. The States claimed they would need to revise guidance, educate the public about different state and federal joint-employer standards, and spend additional resources investigating and enforcing state wage laws. The court concluded that these alleged costs were sufficiently predictable, likely, and imminent to support standing.

The court expressly declined to decide whether the States also had standing to sue on behalf of their residents, a form of standing sometimes called representative or “parens patriae” standing. Because the States had plausibly alleged direct injuries sufficient for constitutional standing, the court found it unnecessary to resolve that issue.

Prudential Standing

The court also rejected the defendants’ argument that the States’ interests fell outside the interests protected by the Administrative Procedure Act. The court explained that the Act broadly permits judicial review by a person adversely affected or aggrieved by agency action. It held that the States’ alleged interests in protecting their tax bases and ensuring workers receive legally required wages were at least sufficiently related to the purposes of the Administrative Procedure Act and, according to the court, also aligned with interests protected by the Fair Labor Standards Act.

The court further stated that lost tax revenue and additional government expenses can satisfy this requirement. It noted that the defendants had moved under Rule 12(b)(1), which concerns subject-matter jurisdiction, even though the zone-of-interests inquiry generally concerns whether a plaintiff has a valid cause of action rather than the court’s jurisdiction. The court did not rely on that procedural distinction because it concluded that the States satisfied the requirement in any event.

Disposition

The court held that the States adequately alleged both constitutional and prudential standing. Judge Gregory H. Woods denied the defendants’ motion to dismiss. The opinion did not decide whether the final rule violated the Administrative Procedure Act, and it did not decide the States’ parens patriae standing theory.