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eLABORate: No More Super Sizing: DOL Scales Back on Franchiser Joint Employer Liability

April 02, 2019

The Department of Labor (DOL) proposed new legislation on April 1, 2019, which will likely narrow the instances in which certain businesses will be liable as “joint employers.” Joint employers are jointly and severally liable for employees’ wages under the Fair Labor Standards Act. The proposed rule is expected to address situations where franchisees sue their franchisers (or companies sue their staffing agencies) after employees sue for unpaid overtime and minimum wage, etc. The purpose of the proposed rule is to clarify the current regulation which merely provides that multiple entities can be joint employers if they are “not completely disassociated” from employees.

The proposed rule lists four key factors to be weighed in determining whether joint employer liability exists. Specifically, the rule proposes weighing whether the supposed employer: (1) hires or fires the employee(s); (2) supervises and controls the employees’ work schedule or conditions of employment; (3) determines the employees’ rate and method of payment; and (4) maintains the employees’ employment records.

The proposed rule would also focus on whether the entity has taken actions with respect to employees’ terms and conditions of employment, rather than merely having the power to do so (i.e. pursuant to a contract between franchiser and franchisee). Other factors may be relevant to the analysis, including whether the supposed joint employer exercises significant control over the terms and conditions of the employees’ work, or otherwise acts in the interest of the employer in relation to the employee. Notably, one factor which the DOL says is not relevant to the analysis is whether the employee is economically dependent on the supposed joint employer. Under these factors, traditional franchisers and staffing agencies are less likely to have joint employer liability.

While these factors come from a proposed rule issued by the DOL, they are not legally binding on courts. In any event, however, this DOL-proposed rule is likely to shape future litigation surrounding joint employer liability, and may serve as the basis for more employer-filed motions for summary judgment.

The DOL is seeking public comments on the rule for sixty days.