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On Sunday, January 12, 2020, the Department of Labor published new guidance that clarifies when a business should be considered the joint employer of a worker and therefore liable for labor law violations related to things such as overtime or minimum wages. The new rule, which takes effect March 16, is particularly important for franchisors, contractors, and businesses that utilize outsourced services such as temporary staffing, maintenance firms or cleaning agencies.

Rolling back previous policy and updating a standard that hadn’t changed in over 60 years, the new rule creates a four-part test to determine joint employment liability. When all factors are considered collectively, a business will be considered a joint employer with another entity if it has the power to:

  • Hire or fire the employee
  • Supervise and control the employee’s work schedules or employment conditions
  • Determine the employee’s rate and method of payment
  • Maintain the employee’s employment records

This simpler, more concrete test provides clarity and direction for many businesses moving forward and ends years of judicial conflict. Under this new rule, employers will be allowed more oversight and guidance without the fear of imposing joint employer liability.

“The changes in this final rule break down barriers that keep companies from constructively overseeing, guiding and helping their business partners,” said Department of Labor Wage and Hour Division Administrator Cheryl Stanton in a news release issued over the weekend.

Despite this new rule, businesses should still ensure they are complying with all state labor laws, and franchisors may want to review their franchise agreements to ensure that a franchisor is not assuming direct control over a franchisee’s employees. 

The entire guidelines area available here and an important section has been included below. For questions related to the new joint employer standard, contact the McDonald Hopkins attorney listed below.

In the NPRM, the Department proposed to clarify that a person's business model—for example, operating as a franchisor—does not make joint employer status more or less likely under the Act, because a person's business model does not indicate whether it is "acting ... in relation to" an employee of an employer. 84 FR 14051. The Department also proposed excluding as irrelevant to the joint employer inquiry certain contractual provisions intended to encourage legal compliance or promote desired societal effects, such as provisions requiring an employer to institute workplace safety practices, sexual harassment policies, wage floors, morality clauses, or other provisions encouraging the employer's compliance with their legal obligations. To the extent that a business merely requires the employer to institute such general policies, and does not itself enforce the contractual provisions with respect to the workers, the Department proposed that such contractual provisions do not make joint employer status more or less likely. See id. Similarly, the Department proposed clarifying that certain business practices where a potential joint employer merely provides or shares resources or benefits with an employer—such as providing sample handbooks or other forms to the employer, allowing an employer to operate a facility on its premises, offering an association health or retirement plan to the employer or participating in such a plan with the employer, or jointly participating with an employer in an apprenticeship program—do not make joint employer status more or less likely. Id. The Department explained that merely providing or sharing the resources or benefits, in the absence of any action by a potential joint employer to control the use of the resources or benefits by the employer's employees, does not constitute "acting ... in relation to" the employees. Id.

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