Attention Franchisors: Changes to Joint Employer Liability
The Department of Labor has withdrawn Administrator’s Interpretation 2016-1, which is its previous informal guidance on joint employment under the Fair Labor Standards Act (“FLSA”) and brings Changes to Joint Employer Liability.
In addition, the National Labor Relations Board has retreated from the broad joint employer standard set in the 2015 Browning-Ferris Industries of California, Inc. case.
While many believe that the era of stricter rules for joint employers has ended, franchisors should still be aware of the threat of joint employer liability.
The DirecTV Case
In addition to the Labor Department’s announcement, the U.S. Supreme Court recently rejected DirecTV’s petition for certiorari to review a ruling from the Fourth Circuit Court of Appeals (the federal appellate court for Maryland, Virginia, North Carolina, South Carolina and West Virginia). The case, DirecTV LLC v. Marlon Hall was decided along with another case, Salinas v. Commercial Interiors, Inc. Both cases involved the FLSA, the Act that governs the frequently contested topics of minimum wage and overtime.
The Court held that joint employment exists when two or more persons or entities are not “completely disassociated” with respect to a worker such that they “share, agree to allocate responsibility for or otherwise codetermine – formally or informally, directly or indirectly, – the essential terms and conditions of a worker’s employment…” Note that the Court said directly or indirectly, which broadens the application of the rule.
Some of the factors to be considered when making this determination are “whether, formally or as a matter of practice, the putative joint employers jointly determine, share or allocate the power to direct, control or supervise the worker, whether by direct or indirect means…”
The denial of the writ of certiorari means, in effect, that the U.S. Supreme Court is allowing the Fourth Circuit’s test to control as precedent in the Fourth Circuit.
Although the joint employer standard promulgated by the National Labor Relations Board was disconcerting for franchising, it only applied to claims under the National Labor Relations Act (“NLRA”). As such, unless your company has a unionized workforce, it’s likely that you are at greater risk of a suit under the FLSA than the NLRA.
Changes to Joint Employer Liability – Takeaway
While Administrator’s Interpretations aren’t binding law, these changes show a significant shift in wage and hour law advocated by the Obama administration which was the Wage and Hour Administration’s rationale for taking enforcement actions.
Regardless of whether you have a company location in one of the states in the Fourth Circuit, your company should continue to be diligent in its business practices—especially if you’re considering an expansion into one of those states.
Avoid any direct involvement in any human resources issues or otherwise communicating directly with employees of your franchisees. Speak with your business attorney if you have questions—but err on the side of caution.
Contact a Business Expert
Andrew is a business expert and has worked with franchise owners and those seeking to buy and sell franchises in cities throughout the Sacramento Region, including Rocklin, Citrus Heights, Rancho Cordova, Folsom, Elk Grove, Roseville, Davis, El Dorado Hills, and Cameron Park. Andrew can help you with deciding on an appropriate opportunity in the Sacramento region, competitive intelligence, financing, in addition to providing answers to all of your franchise agreement questions.