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The Franchise Memorandum

Department Of Labor Proposes A Different Joint Employer Rule
Posted in Employment

The U.S. Department of Labor has proposed a rule to revise and clarify when two entities will be considered joint employers for purposes of wage and hour liability under the Fair Labor Standards Act. The proposal contains specific limitations on joint employer status in the franchising context, and is intended to “ensure employers and joint employers clearly understand their responsibilities” under the FLSA. It is important to note that this proposal is distinct from, and different than, the proposed joint employer rule currently under consideration by the National Labor Relations Board. The DOL’s proposed rule would not have any direct or immediate impact on the NLRB’s proposed rule, which applies in different contexts for different purposes.

The heart of the new DOL proposal is a “clear, four-factor test—based on well-established precedent.” This new test would consider whether the potential joint employer actually exercises the power to: (i) hire or fire the employee; (ii) supervise and control the employee’s work schedules or conditions of employment; (iii) determine the employee’s rate and method of payment; and (iv) maintain the employee’s employment records. The proposal also includes guidance of particular interest to franchisors, such as the following:

  1. “Only actions taken” on employment terms and conditions, and not merely a theoretical power under a contract, are relevant to joint employer status.

  2. A franchisor’s “providing a sample employee handbook or other forms to an employer as part of a franchise arrangement” does not make joint employer liability more or less likely. Similarly, requiring a franchisee employer to institute workplace safety measures, wage floors, or sexual harassment policies does not itself create a joint employer relationship between the franchisor and the franchisee.

  3. Separate franchisees do not become joint employers simply by employing the same person during different hours, where the franchisees “are not associated in any meaningful way with respect to the individual’s employment. The fact that both restaurants are part of the same nationwide franchise, [is] not relevant to the joint employer analysis.”

The DOL’s Notice of Proposed Rulemaking indicates that interested parties may submit comments on the proposal, identified by Regulatory Information Number 1235-AA26, at Comments are due by June 10, 2019.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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