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Here’s the Cost of Being the Boss: Joint Employers Explained (2)

Jan. 17, 2020, 4:02 PMUpdated: Feb. 26, 2020, 8:24 PM

Who signs your paycheck? That question was once a common way for workers to identify their employers, but it’s been obscured by the rise of direct deposit and complicated by networks of contract, staffing, and other business arrangements that can leave employees unclear who actually calls the shots.

A trio of Trump administration agencies is trimming down “joint employment,” or situations in which two or more businesses are legally considered to employ the same group of workers.

The moves mark a significant victory for McDonald’s Corp. and other franchisers, as well as a wide range of companies that rely on staffing agencies for contract labor. That’s because joint employment comes with big consequences: It establishes who’s liable in the event a worker sues for unpaid wages, labor violations, discrimination or harassment on the job.

1. Who’s a Joint Employer?

It depends on whom you ask. The Labor Department, the National Labor Relations Board, and the Equal Employment Opportunity Commission use varying tests to determine whether two or more companies share liability as joint employers.

Federal courts also have looked at the question through different lenses, and that’s not to mention the patchwork of legal standards used by state judges and enforcement agencies. One common thread is that the analysis often focuses on how much control a potential joint employer exerts—or, in some cases, has the right to exert—over the workers.

2. Why Does it Matter?

For businesses, it’s largely a question of legal risk. Companies from McDonald’s and DirecTV to Microsoft Corp. in recent years have faced claims they’re liable as joint employers for complaints from workers at franchise restaurants or third-party staffing agencies. Corporate lobbyists often argue joint employment questions throw a wrench in business operations. Companies are skittish about being too involved in how franchisees or contractors perform work because of the liability risk, they say.

For workers, it’s a matter of rights and protections on the job. If the company that pays an employee is simply a middleman with no real control over the terms and conditions, bargaining with that business or complaining to it about workplace discrimination may not have much impact. It’s also likely easier for workers to get their rights enforced if they can threaten to haul larger, deep-pocketed companies into court.

3. What’s the Trump Administration Doing?

The Labor Department, the NLRB, and the EEOC are working to put new joint employer regulations on the books that the Trump administration says will clarify the issue. The regulations, at least two of which mark a departure from the previous administration, significantly limit the circumstances in which multiple businesses are considered joint employers.

The DOL’s joint employer rule covers minimum wage, overtime pay, and other disputes under the Fair Labor Standards Act. The regulation is set to take effect March 16.

The NLRB’s new regulation, which goes into effect in April, limits the situations in which more than one business may be required to collectively bargain with the same group of workers. The rule also narrows joint employer liability for violations of the National Labor Relations Act, which gives workers fairly broad rights to engage in certain “concerted activity,” regardless of whether the workplace is unionized.

The EEOC is expected to soon unveil a proposed rule on joint employment under the 1964 Civil Rights Act. The law bans discrimination and harassment in the workplace.

4. Why are Businesses Happy?

McDonald’s and other businesses waged a legal and lobbying blitz against the Obama administration’s more expansive approach to the joint employer question. The International Franchise Association is the face of that effort, but the new rules will free up a variety of other companies to use contract labor with significantly less risk.

The debate has focused on two questions: How much control must a business exert over a group of workers to be considered their joint employer? And does that control have to be direct, or can it be through an intermediary like a franchisee or staffing company? Some businesses reserve the right to direct franchise or contract workers, but may never actually use that power. Others may make certain suggestions to franchisees or staffing firms about who should be doing what and how they should do it, without being clear whether that’s an order or simply an option.

The Labor Department and NLRB rules allow companies to exercise at least some indirect control over workers through a staffing agency, franchisee, or other intermediary—and to reserve the right to exert direct control—without necessarily becoming a joint employer.

The NLRB’s proposed rule explicitly states that control must be “direct and immediate” to trigger joint employment. The Labor Department says indirect control must be through mandatory instructions, rather than suggestions, and that reserved control must be accompanied by “some actual exercise” of control to support a joint employment relationship.

The EEOC has yet to explain how it will handle questions of control.

5. What’s Next?

New York, California and a group of other states recently sued the Labor Department to try to block its joint employer rule. Lawyers for the states say the department hasn’t justified moving away from an existing joint employment test that has been used by federal courts for decades.

The NLRB regulation poses more of a threat to workers and the unions seeking to represent them because they must take labor-relations claims to the board and can’t go to court instead. Worker groups are likely to sue to also try to block the rule before it goes into effect. They’ll argue the NLRB hasn’t sufficiently justified the change and that the board is using the regulation to avoid some messy conflict-of-interest questions that have prevented it from revising the joint employer analysis via individual case decisions.

To Learn More:

—From Bloomberg Law:

New York, California Sue Labor Dept. Over Joint Employer Rule

NLRB Issues New Joint Employer Rule Requiring Direct Control

Trump Cements Rule to Limit Companies’ Joint-Employer Risk

Trump Administration Moves to Limit Franchiser Labor Liability

Employer Groups Want Harmony Among ‘Joint Employer’ Rules

This Trump Ethics Probe Has Lawyers’ Attention

—From Bloomberg News:

McDonald’s Has White House Allies in High-Stakes Labor Showdown

(Updated to include lawsuit challenging DOL rule, filed Feb. 26.)

To contact the reporter on this story: Chris Opfer in New York at copfer@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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