The Labor Department released a final rule to narrow the situations in which multiple businesses share liability for paying workers their wages, a key element of the Trump White House’s effort to roll back the Obama administration’s more expansive definition of “joint employment.”
The new rule, which takes effect March 16, satisfies one of the business lobby’s top priorities. It limits the circumstances under which employers, such as a franchiser and its franchisees, can be considered to jointly employ a group of workers under federal wage-and-hour law, thereby making them responsible for paying minimum wages and overtime.
The Trump administration’s regulation was issued against the backdrop of conflicting judicial interpretations of the matter—a significant business concern for restaurant franchise owners and large companies that enter into contracts with third parties for janitorial services and temporary staffing, among other arrangements. It comes as two other agencies are also tightening their approaches to shared liability under separate laws.
Corporations such as McDonald’s, Amazon, and Comcast have faced private lawsuits arguing the companies are jointly responsible, along with third-party contractors, for workers’ unpaid minimum wages and overtime.
“The changes in this final rule break down barriers that keep companies from constructively overseeing, guiding and helping their business partners,” said Wage and Hour Division Administrator Cheryl Stanton. “For small business owners, and the employees working in those businesses, the relationship and the guidance coming from franchisors and other contracting companies can greatly improve the workplace and help them create jobs.”
By describing a simpler and more limited legal view than the Obama administration advanced, the Labor Department may allow employers to exert more control and influence over independent contractors without the risk of being tagged in federal court as a joint employer, which would put them on the hook for shorting workers’ paychecks.
The International Franchise Association applauded the department in a statement issued after the rule was released. IFA President Robert Cresanti said the new regulation returns to a “simple, clear, and thoughtful joint employer standard.”
The National Labor Relations Board is also moving to finalize a proposal to similarly limit shared responsibility for collective bargaining and unfair labor practice purposes. The Equal Employment Opportunity Commission will soon wade into the issue with its own proposal under workplace discrimination and harassment law.
Central to the final rule is DOL’s adoption of a four-part test for assessing whether one company is a joint employer of another company’s workers. The test, which considers all factors collectively, probes whether the potential joint-employer hires or fires an employee; supervises or controls work schedules; sets pay rates; and maintains employment records.
The department said in the final version of the rule that a company’s right or ability to exercise any of the four factors may be relevant, but that such ability alone doesn’t determine joint employer status unless there’s some actual exercise of control.
Critics say the new approach will allow large companies that often dictate terms and conditions covering subcontractor and franchisee workers to avoid responsibility when those employees are not properly paid. Some worker advocates are arguing the DOL doesn’t have the authority to address the issue via regulation, and that the rule shouldn’t be considered persuasive in court.
The department’s Wage and Hour Division reviewed feedback from nearly 60,000 public comments on a proposed version of the rule, issued in April.