The U.S. Department of Labor has issued new and more simplified rules for determining joint-employer status, which can often be found in work involving temporary workers, subcontractors or workers in franchises.

The new rule reverses Obama-era regulations that employers say opened a floodgate of litigation, making it easier for workers to sue more than one entity for labor violations, as for example in these instances:

  • Both the Subway Group and separately owned franchises that own Subway eateries.
  • A business and the subcontractor that it hires to do specific work.
  • A beverage delivery company and the temp agency that sometimes provides it with replacement drivers.

Joint-employer rules are important as they can help determine which employer is responsible for wage and hour violations. But the new rules apply mainly to violations under the Fair Labor Standards Act, when an employee may have, in addition to their employer, one or more joint entities that are jointly and severally liable with the employer for the worker’s wages.

The new non-binding rule, which takes effect March 15, spells out in which circumstances an entity can be considered a joint employer under the FLSA.

Balancing test

The final rule provides a four-factor balancing test when an employee performs work that also benefits another person or entity. It defines an employer as an entity that:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a significant degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records

An employer does not have to meet all four factors to be considered a joint employer.

The ruling does seem to fall in line with recent court decisions regarding McDonald’s Corp., which franchisee employees had sued along with the franchisee itself in seeking back wages and overtime.

The National Labor Relations Board in late 2018 approved a settlement between workers and their employer, a McDonald’s franchisee, which absolved franchisor McDonald’s Corp. from any direct joint-employer responsibility.

Also, the U.S. Ninth Circuit Court of Appeals in California decided in October 2018 that McDonald’s was not a joint employer with its franchisee for violations of California wage and hour laws, because the company did not exercise the “requisite level of control” over the workers’ employment.

The takeaway

When the rule becomes effective, it should provide clarity for all parties in a multi-employer or multi-company arrangement.

That said, you should not interpret the new rule as a reason to approach joint-employer responsibility recklessly.

If you use temp workers and/or subcontractors and you provide your employee handbooks and policies to any other entities’ employees, you should include disclaimers that make it clear that the provision of those materials does not create an employment relationship.

You may also want to take this opportunity to examine your relationships with the workers from whom you receive beneficial services, but whom you do not employ directly.

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