The U.S. Department of Labor (DOL) announced Jan. 12, 2020 a final rule narrowing the definition of “joint employer” under the Fair Labor Standards Act (FLSA) and providing clarity to businesses about franchise and contractor relationships.
The DOL created a four-factor balancing test to determine whether businesses share liability for federal FLSA wage and hour violations. The department will consider whether a business:
- Hires and fires employees.
- Supervises and controls employees’ work schedules or conditions of employment to a substantial degree.
- Determines employees’ rate and method of payment.
- Maintains employment records.
- Reserving the right to control the employee’s working conditions would not be enough to show that a business is a joint employer; the company would have to actually exert that control. So businesses likely won’t be deemed joint employers if they stay out of the day-to-day employment decisions of their contractors and franchisees.
The rule clarifies that the following factors don’t influence the joint-employer analysis:
- Having a franchisor business model.
- Providing a sample employee handbook to a franchisee.
- Allowing an employer to operate a facility on the company’s grounds.
- Jointly participating with an employer in an apprenticeship program.
- Offering an association health or retirement plan to an employer or participating in a plan with the employer.
- Requiring a business partner to establish minimum wages and workplace-safety, sexual-harassment-prevention and other policies.
Employers should note that the rule applies only to wage and hour issues under the FLSA.
The National Labor Relations Board and the Equal Employment Opportunity Commission are expected to issue rules about joint-employer status under the National Labor Relations Act and anti-discrimination laws.