In a move likely to be welcomed by many restaurant franchisors, the Labor Department released Monday the details of a proposed rule that could usher in a new era of the so-called “joint-employment” discussion.
Under the Trump administration, the new rule would establish a four-part test to determine if two firms could both be liable for complying with labor laws, such as minimum wage and overtime rules, for an individual worker. It would update a portion of labor regulations that has not been meaningful revised since 1958.
“This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections,” Secretary of Labor Alexander Acosta said in a statement “Providing public notice and comment is the best way to move forward with another significant deregulatory proposal.”
It aims to clarify which party is culpable if employees have not been paid minimum wage or overtime pay. If the rule goes through, judges can consider it as they evaluate the merits of wage-left lawsuits brought by workers.
The DOL proposed a “clear, four-factor” test to determine, which it said is based on well-established precedent that would consider whether the potential joint employer actually exercises the power to:
- Hire or fire the employee
- Supervise and control the employee’s work schedules or conditions of employment
- Determine the employee’s rate and method of payment
- Maintain the employee’s employment records
If a company doesn’t engage in most or all of these activities, they will likely not be considered a joint employer.
The measure has to progress through a 60-day public comment period before the administration implements it. As the New York Times pointed out, it could affect the ability of millions of workers pursuing wage claims. “Franchisees and contractors can be small, poorly capitalized operations, which can complicate efforts to recover wages that were illegally denied. Instead, those efforts are often directed at large companies with whom those employers have relationships,” the publication wrote.
“The proposal explains the statutory basis for joint liability, helping to ensure that the Department’s joint employer guidance is fully consistent with the text of the FLSA,” added Keith Sonderling, acting administrator for the department’s Wage and Hour Division, in a statement. “The proposed changes would provide courts with a clearer method for determining joint employer status, promote greater uniformity among court decisions, and reduce litigation.”
The “joint-employment” rule has long been a contentious point in the franchise community, given it clarifies when a worker has two employers. This version will limit liability for franchised brands and companies that use staffing firms.
The Obama administrations interpreted joint-employer status in a way that put franchisors in danger of being held accountable for labor violations at franchised stores. Under that guidance, a restaurant franchise could be on the hook for minimum-wage violations committed by a franchisee even if the chain did not directly supervise workers or hire and fire them. The Obama Labor Department also argued that corporations could be joint employers even without exercising control over a franchisee or contractor because the smaller companies were economically dependent on them.
The Trump administration ditched that guidance in 2017, but went a step further with the new written rule.
The new proposal cuts back, significantly, those situations where a franchisor would be considered liable.
Here’s a look at one example the DOL offers under the new rule:
Example: Franchisor A is a global organization representing a hospitality brand with several thousand hotels under franchise agreements. Franchisee B owns one of these hotels and is a licensee of A’s brand. In addition, A provides B with a sample employment application, a sample employee handbook, and other forms and documents for use in operating the franchise. The licensing agreement is an industry-standard document explaining that B is solely responsible for all day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment. Is A a joint employer of B’s employees?
Application: Under these facts, A is not a joint employer of B’s employees. A does not exercise direct or indirect control over B’s employees. Providing samples, forms, and documents does not amount to direct or indirect control over B’s employees that would establish joint liability.