DOL to Narrow Franchiser, Staffing Wage Liability

Bloomberg Law—Jaclyn Diaz and Chris Opfer

The Labor Department proposed a new regulation April 1 to limit shared wage and hour liability for companies in franchise and staffing arrangements.

The proposed rule narrows the situations in which businesses can be considered “joint employers” of a group of workers. The question often comes up when workers at a franchise restaurant try to sue the franchiser for unpaid minimum wages and overtime. It’s also been at the center of debates over whether companies should be required to bargain with workers provided by a staffing firm.

“This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections,” Labor Secretary Alexander Acosta said in a statement announcing the proposed rule. “Providing public notice and comment is the best way to move forward with another significant deregulatory proposal.”

The department plans to weigh four factors—the ability to hire and fire, supervise and control schedules, set pay rates, and maintain employment records—to determine whether one company is a joint employer of another company’s workers. All four factors should be consider collectively, the department says.

The DOL’s new approach to the issue—one that has a broad impact on various businesses and workers involved in staffing, franchise, and other contractual relationships—eases the liability franchisers face if a franchisee violates wage and hour laws.

Business lobbyists complained that the Obama administration’s expansion of joint employer liability made companies potentially liable for workplace law violations involving another business’s employees. Worker advocates say businesses often use complicated contract relationships to avoid pay, bargaining, and other responsibilities.

“The Department of Labor shouldn’t be in the business of making it harder for workers to recover if there’s a violation,” Justin Swartz, an attorney who represents workers in class action wage and hour cases, told Bloomberg Law. “Unscrupulous employers will go to great lengths to ensure they don’t have to pay.”

McDonald’s is the subject of ongoing NLRB litigation over whether the fast-food giant is a joint employer of franchise workers fired for participating in Fight for $15 demonstrations. Microsoft recently was embroiled in a debate over whether it’s required to bargain with software testers staffed by a third-party company.

Rulemaking Authority a ‘Moving Target’

The move comes as the National Labor Relations Board is working on its own regulation to limit joint employer liability for collective bargaining and unfair labor practices. The board generally would require a company to exercise direct control over workers to be considered their joint employer.

The DOL regulation is considered an interpretive rule because Congress didn’t directly give the department the authority to define joint employment. Some say that means the rule isn’t legally binding and will have less persuasive value in court. It may also be subject to legal challenge.

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The DOL is more likely to face a lawsuit on the substance of the rule, Cathy Ruckelshaus, general counsel and legal director at the National Employment Law Project, said.

“The department is narrowly defining the role of an employer and employee” and establishes four factors, which is contrary to the Fair Labor Standards Act, she said. “This is in violation of the statute.”

The Supreme Court has repeatedly upheld the broad definition of an employer and employee, Ruckelshaus said. This new standard to test for joint employer liability ignores the standards long established by the Supreme Court, she said.

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