On April 1, 2019, the U.S. Department of Labor (DOL) offered a simplified test in a Notice of Proposed Rulemaking to determine whether two entities should be considered joint employers under the Fair Labor Standards Act (FLSA). The FLSA provides that two entities can be jointly and severally responsible for an employee’s wages, and thus the potential FLSA violations of either entity, if they function as joint employers. The notice sets out that the employment relationship should be determined based on a balance of four factors, specifically, whether a potential joint employer actually exercises the power to:
- hire or fire the employee;
- supervise and control the employee’s work schedules or conditions of employment;
- determine the employee’s rate and method of payment; and
- maintain the employee’s employment records.
The DOL explained that these “factors are consistent with section 3(d) of the FLSA, which defines an ‘employer’ to ‘include any person acting directly or indirectly in the interest of an employer in relation to an employee,’ 29 U.S.C. 203(d), and with Supreme Court precedent. They are clear and easy to understand. They can be used across a wide variety of contexts. And they are highly probative of the ultimate inquiry in determining joint employer status: whether a potential joint employer, as a matter of economic reality, actually exercises sufficient control over an employee to qualify as a joint employer under the [FLSA].”
The Notice of Proposed Rulemaking comes almost two years after the DOL withdrew the Obama-era guidance letter 2016-1, which resulted in an expansion of the joint employer doctrine such that even a business entity with very little control, if any, over an employee could still be considered a joint employer.
The Proposed Rulemaking is a welcome relief to businesses, including franchisors that have little to no control over franchisee employees. The DOL’s proposal states that the business model, including a franchise relationship, does not have any bearing on whether there is a joint employment relationship. Furthermore, the DOL included several hypothetical examples and explained that a franchisor providing its franchisees with sample employment materials, applications or policies or requiring the franchisees to conduct certain training would not result in a joint employment relationship if there was no other day-to-day control exercised by the franchisor.
If after the notice and comment period, the DOL adopts the proposed rule, it will not have the weight of law. However, it will provide guidance to the agency and courts when interpreting the FLSA and joint employment situations. If you have questions about how your business may be affected by this proposed rule, please contact any of the attorneys in our Franchising & Distribution Group.