Executive Summary
The U.S. Department of Labor released a final rule regarding the determination of joint employer status under the FLSA. The standard largely mirrors the Bonnette standard that was well-settled law for decades, but the Department of Labor’s interpretative opinion is likely to be challenged, and there is some doubt of whether it will be followed by the courts.
Analysis
On January 13, 2020, the United States Department of Labor (“DOL”) released its final rule regarding the determination of joint employer status under the Fair Labor Standards Act (“FLSA”). The DOL’s press release provides the following summary:
In the final rule, the department provides a four-factor balancing test for determining FLSA joint employer status in situations where an employee performs work for one employer that simultaneously benefits another entity or individual. The balancing test examines 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.
The final rule also clarifies when additional factors may be relevant to a determination of FLSA joint employer status and identifies certain business models, contractual agreements with the employer, and business practices that do not make joint employer status more or less likely.
Relevant here, the final rule, notes, and sample fact patterns clarify that (i) a putative employer must actually exercise one or more of the four factors to be considered a joint employer, (ii) a putative employer must actually utilize a reserved right of control to be considered a joint-employer, and (iii) franchisors are not automatically assumed to be joint employers of a franchisee’s employees. The DOL will publish the new rule in the Federal Register on or about January 16, 2020, and it will become effective 60 days from its publication date.
Looking Forward
Under a new Republican administration, there has been a substantial push to roll-back Obama administration changes to the joint-employer status to, as the press release states, “add certainty regarding what business practices may result in joint employer status.” While it took almost eight months from initial publication to final rule, it is likely that the next few weeks or months will include additional publications or memos related to the administrations more restrained interpretation of joint employer status including, but not limited to, by the National Labor Relations Board and the Equal Employment Opportunity Commission.
These are positive developments, the franchise industry should hesitate before taking a victory lap. First, it should be noted that the rule is merely an interpretive opinion, and therefore need not be followed by the courts. Second, the rule largely mirrors the decision of the U.S. Court of Appeals for the 9th Circuit in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983) which has been modified, disapproved of, or overruled many times. (See Hall v. DirecTV, LLC, 846 F.3d 757 (4th Cir. 2017); Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017)). Third, labor organizations have fought to broaden the joint employer standard for years, including that all franchisors should automatically be considered joint employers of a franchisee’s employees. This rule completely negates that line of reasoning and is likely to result in an immediate reaction by those labor organizations and the entities that they have influence over.
Based on the foregoing, do not be surprised if:
- labor-friendly states broaden their own joint employer rules under state statutes;
- labor-friendly states challenge the rule in court;
- labor organizations challenge the rule in court;
- labor organizations (or their pawns) file test cases in Circuits that already adopted a broader joint employer standard under the FLSA (i.e., the 4th Circuit with Salinas and DirecTV); and/or
- labor increases their funding for the 2020 national races so that Congress can pass legislation negating this new standard.
In sum, the franchise industry should take their victories where they can get them, but we should only be cautiously optimistic this rule will have a positive effect on how courts interpret joint employer status under the FLSA.
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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