Executive Summary
The Department of Labor (“DOL”) submitted a notice of proposed rulemaking that would rollback the determination of joint employer status under the Fair Labor Standards Act (“FLSA”) to pre-Obama standards. In doing so, the DOL specifically recognized and addressed concerns raised by the franchise industry.
Analysis
On April 1, 2019, the DOL submitted a notice of proposed rulemaking that would amend Part 791 of Title 29, Code of Federal Regulations to establish a four-factor test for determining whether a putative employer is a joint employer under the FLSA. Specifically, the DOL states the following in its fact sheet:
“In the scenario where an employee works one set of hours in the workweek for his or her employer, and that work simultaneously benefits another entity, the Department proposes a clear, four-factor test–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; and
- Maintain the employee’s employment records.”
The DOL identifies later in its fact sheet that the proposal would have the following effects:
- “eliminate the ‘not completely disassociated’ standards for situations where an employee works one set of hours for an employer that simultaneously benefits another person, and replaces it with the four factor balancing test derived from Bonnette v. California Health & Welfare Agency…”;
- “explaining that the employee’s ‘economic dependence’ on the potential joint employer does not determine the potential joint employer’s liability under the FLSA…”;
- “explaining that the ability, power, or reserved contractual right to act in relation to the employee is not relevant for determining joint employer status”; and
- clarifying that a person’s business model–for example, operating as a franchisor–does not make joint employer status more or less likely.”
The DOL is now soliciting comments on its notice of proposed rulemaking.
Looking Forward
Since their appointment, David Weil of Department of Labor and Richard Griffin of the National Labor Relations Board (‘NLRB”) have been using an overbroad, precedent shattering interpretation of joint employer liability to help unions throughout the country take aim at the franchise industry as part of the “Fight for 15.” Matters had been getting worse over the last several years with a direct attack on the franchise model through the NLRB’s case against McDonald’s USA and its franchisees, a NLRB decision in Browning-Ferris Industries of California, Inc. in 2015 that created an indirect control joint employer standards, and a similar move by the DOL through a Administrator’s Interpretation of the FLSA in 2016. While the McDonald’s litigation was resolved without a joint-employer finding, Browning-Ferris was appealed, and the DOL rescinded the Administrator’s Interpretation, this is the first significant step that would clarify that the franchisors, franchisees, and their employees should not be considered joint employers.
While this is a positive step in the right direction, the franchise industry’s excitement should be tempered slightly for several reasons:
- This is a notice of proposed rulemaking and not a final rule. There are likely to be hundreds of comments by labor groups opposed to this rule.
- Even if this rule is finalized as is, it is highly likely it will be challenged by labor groups and progressive leaning states on both coasts.
- Even if the rule is finalized as is and it withstands legal challenges, it is highly likely that this will become a political pendulum that will be “clarified” everytime that a new administration takes control.
- Last, even without consideration of new federal administrations, this rule strictly relates to the FLSA and does not address or otherwise confine the actions of progressive leaning states to enact their own standard for analyzing joint employer liability under state statutes.
Simply stated, while this notice of proposed rulemaking is meant to clarify the joint-employer standard, it is virtually certain that this issue will continue to be a source of uncertainty for years to come.
This article was originally published on the California Franchise Network.
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Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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