The Labor Department proposed a new rule Tuesday aimed at clarifying when businesses can be held accountable for violating wage or leave protections for contractors, franchisees, and regular employees.
The rule proposes a single nationwide standard addressing joint employer status under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act.
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In particular, it would make it easier for franchises, such as fast-food chains, to avoid liability under the law for workers who are not employees. Similar efforts during the first Trump administration were met with praise from business groups and opposition from unions.
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Acting Secretary of Labor Keith Sonderling said that the proposal is part of the Trump administration’s efforts in “simplifying compliance” for U.S. employers.
“This proposal helps us deliver on that promise,” Sonderling said. “A clear standard on joint employment would give businesses more confidence to invest in partnerships, help employees understand their rights, and make the department’s investigations more efficient.”
In a statement, International Franchise Association president and CEO Matt Haller said that the proposal “protects the independence of franchise small businesses, safeguards the equity franchisees have built in their local operations, and prevents the kind of regulatory overreach that has threatened jobs and growth in previous administrations.”
Joint employer liability has been the subject of a tug-of-war between Republicans and Democrats in rulemaking and in the courts. It involves the legal theory that one business can be held liable for the workplace practices of a second if they are deemed sufficiently entwined.
Sean Higgins, a research fellow at the Competitive Enterprise Institute, told the Washington Examiner that a classic example of this relationship is between a contractor and a subcontractor.
It becomes more complicated when the relationship between the two companies is more tenuous and less clear. For instance, some franchise-franchisee relationships are very closely tethered, and the franchisee has to follow all the franchise’s rules.
But in other franchise-franschisee relationships, the franchisee is essentially just renting out the brand name, exerting full control and operating as an independent business, which is where it gets tricky, according to Higgins. For instance, if a franchisee forces employees to work 80-hour weeks without overtime, a question of liability can arise.
This new rule would essentially reverse course from rulemaking under the Biden administration, according to Higgins.
The proposed rule sets four standards for use in every case of potential vertical joint employment: (1) whether the potential joint employer hires or fires the employee in question, (2) whether it supervises or controls the employee’s work schedule or conditions of employment to a “substantial degree,” (3) whether it controls the employee’s rate and method of pay, and (4) if it maintains the worker’s employment records.
Wage and Hour Division Administrator Andrew Rogers said that the proposal would “deliver much-needed regulatory clarity in the face of divergent judicial precedent throughout federal courts of appeals.”
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“The proposal would also reduce compliance and litigation costs for employers while helping Wage and Hour Division investigators identify what is and is not a joint employment relationship,” Rogers said.
The DOL is encouraging interested parties to submit comments on the proposed rule for a 60-day period that closes on June 22.
