The International Franchise Association (IFA) praised the new rule as a "return to a simple, clear, and thoughtful joint-employer standard."
The U.S. Labor Department under President Trump is changing course from the Obama administration and revising guidelines to determine joint-employer status under the Fair Labor Standards Act – "in order to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions and encourage innovation in the economy."
The nonbinding rule, which takes effect March 15, is intended to give more clarity when an entity can be considered a joint-employer that could be sued for labor violations including requirements on minimum wage and overtime pay. The Labor Department's joint-employer status guidelines under Obama were much more expansive, making it easier for workers to sue more than one entity for labor violations, like for example, both the McDonald's Corp. and separately owned franchises that own McDonald's restaurants.
The revised guidelines to determine joint-employer status center around a four-factor balancing test derived from the 1983 Ninth Circuit decision, Bonnette v. California Health & Welfare Agency, to assess whether the potential joint-employer hires or fires the employee; supervises and controls the employee's work schedule or conditions of employment to a substantial degree; determines the employee's rate and method of payment; and maintains the employee's employment records.
An entity does not have to meet all of those requirements to be considered a joint-employer. Moreover, additional factors may be considered, but only if they are indicative of whether the potential joint-employer exercises significant control over the terms and conditions of the employee's work.
Examples of such factors include whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment or foresight; whether the employee has the opportunity for profit or loss based on his or her managerial skill; whether the employee invests in equipment or materials required for work or the employment of helpers; and the number of contractual relationships, other than with the employer, that the potential joint-employer has entered into to receive similar services.
The revised guidelines would benefit McDonald's Corp., as well as other companies like Amazon and Comcast that have faced private lawsuits arguing the corporations are jointly responsible, along with third-party contractors, for workers' unpaid minimum wages and overtime, according to Bloomberg Law.
"By describing a simpler and more limited legal view than the Obama administration advanced, the Labor Department may allow employers to exert more control and influence over independent contractors without the risk of being tagged in federal court as a joint-employer, which would put them on the hook for shorting workers' paychecks," Bloomberg Law writes.
Indeed, Labor Secretary Eugene Scalia and White House Chief of Staff Mick Mulvaney write in the Wall Street Journal that the new rule "also gives companies in traditional contracting and franchising relationships confidence that they can demand certain basic standards from suppliers or franchisees — like effective anti-harassment policies and compliance with employment laws — without themselves being deemed the employer of the other company's workers. That will help companies promote fair working conditions without facing unwarranted regulatory costs."
The International Franchise Association (IFA) praised the new rule as a "return to a simple, clear, and thoughtful joint-employer standard," according to the Insurance Journal.
"IFA has argued that the Obama standard increased lawsuits against employers, cost jobs and sapped the American economy of $33.3 billion per year."
Worker groups paint a different picture: Rebecca Dixon, executive director of the National Employment Law Project, told the Insurance Journal that the new rule "makes it easier for corporations to cheat their workers and look the other way when workplace violations occur." The liberal Economic Policy Institute has said workers could lose $1.3 billion in wages annually under the new rule, according to the publication.
The National Labor Relations Board is close to revising its rule on joint-employer status, which would be binding in courts, the Insurance Journal writes.
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Katie Kuehner-Hebert
Katie Kuehner-Hebert is a freelance writer based in Running Springs, Calif. She has more than three decades of journalism experience, with particular expertise in employee benefits and other human resource topics.
