Are You a Joint Employer? DOL Announces New Rule

The U.S. Department of Labor (“DOL”) has finalized a new rule to determine whether two or more entities jointly employ individuals for liability purposes, which will become effective on March 16, 2020. The rule revises its previous test for determining when more than one employer bears joint blame for pay and other legal violations. The joint employer rule, which was published in the Federal Register on January 16, 2020, asks Courts to use a four-part test to decide whether two or more linked firms jointly employ a group of workers. The test is primarily focused on whether staffing or temporary agencies can be held liable for acts and omissions of their business clients under wage and hour laws.

Under the Fair Labor Standards Act (“FLSA”), an employee of one company may be considered as an employee of a second, independent company depending on the nature and extent of the control over the employee’s work exerted by the second company. Such a finding may result in the second company being held jointly and severally liable for FLSA wage and hour obligations to the employee. The rule states that no single factor is dispositive in determining joint-employer status. Rather, it encourages Courts to assess the totality of the circumstances, recognizing that the weight of each of the factors may vary based on the facts of each case. The new test focuses on whether the alleged joint employer can hire or fire employees, control their schedules or their job conditions, set their pay and payment methods, and maintain their employment records. The final rule states specifically that to be a joint employer under the FLSA, a second employer must actually exercise – directly or indirectly – one or more of the four control factors (not just in principal or theory). The final rule also establishes when additional factors may be relevant to a determination of FLSA joint-employer status, including certain business models. Most importantly, the final rule expressly provides that the use of the franchise model does not mean that a franchisor is more likely to be the joint employer of its franchisee’s employees.

The final rule settles long-standing uncertainty regarding the joint-employer standard’s application in the franchise industry, which first began in 2014 when petitions were filed alleging labor violations against McDonald’s and various franchisees of McDonald’s under a joint-employer theory of liability. Initial rulings in the McDonald’s case had threatened the core principles of the franchise model by holding that a franchisor that retained the right to exercise controls over its franchisee’s employees, even if unexercised, could be considered a joint employer. The DOL’s final rule returns to the prior standard, which examines a franchisor’s actions and direct involvement in a franchisee’s employment decisions and not rights that are only contractually retained.

Businesses with questions regarding the DOL’s joint employer rule should feel free to contact Lisa Scidurlo, Amanda Dempsey or the Stevens & Lee or Kent Franchise Law Group attorney with whom they regularly work.

Kent Franchise Law Group is part of our multidisciplinary professional services platform and represents a wide range of business clients in franchising, distribution, intellectual property and brand development.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

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