Are You a Joint Employer? DOL Announces New Rule

By Lisa Scidurlo, Amanda D. Dempsey and Alexander Batoff

On January 16, 2020, the U.S. Department of Labor (“DOL”) finalized and published a new joint employer” rule in the Federal Register, revamping the standard of when, and under what circumstances, two or more entities — staffing and temp agencies and their business-clients, and franchisor-franchisee relationships, in particular — are considered “joint employers” of individual employees for purposes of liability under wage and hour laws like the Fair Labor Standards Act (“FLSA”) and other labor and employment laws. The new rule, which will become effective on March 16, 2020, calls for a four-part test that makes it much more difficult to impose joint employer liability and, consequently, is considered more favorable to employers’ interests than the old standard.

Under the FLSA, an employee of one company may be considered “jointly employed” by a second, independent company, depending on the nature and extent of that company’s control over the employee’s work. Joint employer status may cause the second company to be held jointly and severally liable for FLSA wage and hour claims asserted by the employee. Employers felt that under the old joint employment rule, distantly related entities were unfairly roped into litigation for wage and hour and other labor and employment violations. For example, a major fast food chain could be found liable for alleged unpaid minimum wages by a franchisee’s restaurant that, aside from licensing the restaurant name and brand, has no real connection to “corporate.” That is precisely what happened in 2014, after unfair labor practice charges (“ULPs”) alleging various labor law violations were jointly filed against McDonald’s and various franchisees.

The new rule takes a more nuanced approach and states that no single factor is dispositive and, depending on the facts of the case, individual factors may carry different degrees of weight in determining joint-employer status. The four-factor test focuses on whether the alleged joint employer can (1) hire or fire employees; (2) control employees’ schedules or job conditions; (3) set employees’ pay rates and payment methods; and, (4) if it maintains employees’ employment records. These factors include a crucial, employer-friendly caveat under the FLSA: the “joint employer” must exercise actual control under one or more of the four factors—not just control in principal or theory like under the old test. The final rule also clarifies when additional joint employment factors may be relevant under unique circumstances, like franchisor-franchisee relationships. Most beneficial to the franchisor-franchisee dynamic, the final rule makes clear that simply using the franchise model does not mean that a franchisor is more likely to be the joint employer of its franchisee’s employees.

Businesses with questions regarding the DOL’s joint employer rule should feel free to contact Lisa Scidurlo at lisa.scidurlo@stevenslee.com, Amanda Dempsey at amanda.dempsey@kentfranchiselaw.com, Alexander Batoff at alexander.batoff@stevenslee.com, or the Stevens & Lee or Kent Franchise Law Group attorney with whom they regularly work.

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