Ohio joint employer law could conflict with new federal joint employer standards

In January, we noted that both sides of the Ohio legislature had passed House Bill 494, a bill that addressed joint employer liability in Ohio, and which specifically exempts corporate franchisors from franchisee-level labor and pay-related violations. Since January, the bill was approved, and the law became effective on March 20, 2019. 

The bill specifically excludes franchisors from the list of employers that could be held liable for a local business’ violation of state labor laws and other similar laws, unless “the franchisor agrees to assume that role in writing, or a court of competent jurisdiction determines that the franchisor exercises a type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademark, brand, or both.” 

This bill could have a significant impact on the liability of franchise employers in Ohio – while a franchisor could have previously been held liable for a franchisee’s violation of a state labor law, it would not be held liable now. The state laws that HB 494 addresses include Ohio’s Minimum Fair Wage Standards Law, the Bimonthly Pay Law, the Workers’ Compensation Law, the Unemployment Compensation Law, and the Income Tax Law. It does not include federal laws like WARN, ERISA, and various discrimination laws. 

However, the federal joint employer standard has also been facing review by the Department of Labor this spring. On April 9, 2019, the Department of Labor proposed a new, four-part test that could potentially clear up some of the lack of clarity as to what entities are and are not “joint employers under federal law. Right now, the Browning Ferris standard is intact; it holds that two entities could be found to be joint employers if one entity merely reserved the right to exercise control over another company’s employees, or indirectly exercised such control. This broad standard has led to much confusion and litigation over the past few years. 

The new four-part test provides a simpler standard, noting that a employer would be a “joint employer” with another entity if the employer 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, and maintain the employee’s employment records. This simpler, more concrete test will hopefully provide more clarity and direction for both franchisees and franchisors moving forward. In the meantime, however, franchisees and franchisors in Ohio should make sure their business and related businesses 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 Department of Labor is currently accepting comments on the proposed rule through June 10, 2019. If you have thoughts or concerns about the proposed rule, you can make comments on the rule at www.regulations.gov (Rulemaking docket RIN 1235-AA26).