One month after the National Labor Relations Board absolved McDonald’s of responsibility for alleged labor violations by its franchisees, the franchise industry received further clarity on the issue of joint employment after the U.S. Department of Labor issued a final rule January 12 with criteria for determining when a franchisor can be held liable for the compensation practices and other employment policies of its franchisees.
The NLRB caused perhaps the biggest headache in franchising in 2014 when it expanded the definition of who is a joint employer. Now, with the final DOL rule, there is clear criteria in the form of a four-factor balancing test to determine if a franchisor is a joint employer under the Fair Labor Standards Act. The franchisor can be considered a joint employer if it:
• Hires and fires the franchisee’s employees;
• Supervises and controls the employees’ work schedule or conditions of employment to a substantial degree;
• Determines the employee’s wages and method of payment; and
• Maintains the employee’s employment records.
"These revisions will add certainty regarding what business practices may result in joint employer status," the DOL said in its issuing of the rule. "This rule promotes greater uniformity among court decisions by providing a clearer interpretation of FLSA joint employer status. These benefits will in turn improve employers’ ability to remain in compliance with the FLSA and will help reduce litigation costs.
The International Franchise Association, which in the past had called joint employer an "existential threat" to the industry, applauded the DOL for this latest decision, calling it a "return to a simple, clear, and thoughtful joint employer standard," said Robert Cresanti, IFA’s president and CEO, in a statement. "This resolution provides much-needed clarity for the 733,000 franchise establishments across America, and returns to the traditional standard of business that has fundamentally supported and encouraged franchise entrepreneurship for decades."
"I am very pleased with the bipartisan support this ruling received from Congress and look forward to removing the cloud of uncertainty over future franchise operations," continued Cresanti.
Later, in a letter to IFA members, Cresanti said the new rule "can restore the clarity associated with the previous definition—which leads to lower costs and greater growth for franchises of all sizes. It also better allows for franchisors and franchisees to work together to promote franchisee employee advancement and provide a consistent, quality experience to franchisee customers."
The final rule takes effect March 16, 2020, but it’s worth noting this new definition has not yet been adopted by other federal agencies involved in the regulation of labor practices, such as the Equal Employment Opportunity Commission.