The Trump administration is preparing to release an updated rule limiting corporations’ liability for workplace law violations caused by companies they work closely with, a rollback of Obama-era regulations sought by business groups that would be a blow to franchise employees.
The rule, known as “joint employer,” was expanded under the Obama administration to cover businesses even if they only had “indirect control” over the other company’s workplace policies, a change that prompted a sharp outcry from the business community. The Trump administration is expected to roll the rule back to the previous, more limited, standard of “direct control.”
The White House’s Office of Management and Budget reported receiving the revised rule, which falls under the Fair Labor Standards Act, from the Labor Department on Thursday. The rule’s release is “pending” according to OMB, but no release date is scheduled.
Joint employer refers to when one business works so closely with another one that it has effective control over its workplace and hiring practices, such as when contractors hire subcontractors, and therefore becomes liable for any violations by the second business. The traditional standard was when one company had “direct control” over another’s policies, but the Obama administration’s “indirect control” standard expanded it to make corporations potentially liable for franchisees, which were previously viewed as separate businesses.
Business groups lobbied Congress and the White House to change it back to direct control, arguing that the increase in liability would result in companies avoiding franchising altogether. Labor Secretary Alexander Acosta moved to officially rewrite the rule in 2017. The same year he directed agency officials to return to the “direct control” standard.
“This is exciting news for America’s 733,000 locally-owned franchise businesses. We know that the expanded joint employer standard under the National Labor Relations Act has cost franchise businesses tens of billions per year,” said Matt Haller, senior vice president for government affairs for the International Franchise Association. “IFA hopes that the DOL will return to a simple, thoughtful, and clear standard that can create an environment where American small businesses can grow and prosper.”
A Labor Department spokesman could not be reached for comment.
