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On June 7, 2017, the U.S. Secretary of Labor, Alexander Acosta, announced the withdrawal of the U.S. Department of Labor’s (“DOL”) Wage and Hour Administrator’s Interpretations (“AI”) on joint employment and independent contractors. Recall that in February 2016, the Obama Administration DOL announced that the agency planned to examine dual employer relationships very closely, with an apparent intent to find joint employer status in more circumstances under both the Fair Labor Standards Act (“FSLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). In that DOL AI, the DOL identified the two most likely scenarios where joint employment typically exists: vertical joint employment; and horizontal joint employment. Briefly, vertical joint employment is where there may be an intermediary employer, such as a staffing agency and horizontal joint employment is where the employee has two or more separate, but related employers, raising the issue of whether the DOL had its sights set on the franchise industry. In the Obama Administration DOL IAs, the agency adopted a new test for determining joint employment: if, due to the economic realities of the employment relationship, a joint employment relationship exists. That was in stark contrast to the traditional test for joint employment: if the employer exercised direct control over the employee’s workplace.
Importantly, the June 2017 rescission of the IA announcing the “economic realities” test, reestablished the “direct control” standard for determining joint employer status. This announcement reflects the new Trump Administration’s return to interpreting and applying federal wage and hour law under the direct control standard. This standard would be applicable to investigations or enforcement actions undertaken by the federal DOL, which interprets and administers the federal wage and hour laws. However, the Labor Secretary’s announcement was very clear that the removal of the AIs does not change the legal responsibilities of employers under the FLSA, as reflected in the DOL’s long-standing regulations and case law. Similarly, the announcement does not affect any conflicting interpretations of joint employment under applicable state laws, nor the expanded concept of joint employment recently adopted by the National Labor Relations Board (“NLRB”).
With regard to the NLRB’s standard, restaurateurs will recall the joint employer issue came to the forefront in July 2014, when the NLRB’s General Counsel, Mr. Richard Griffin, announced that he authorized complaints in forty-three (43) unfair labor practice cases that alleged McDonald’s, USA, LLC was a joint employer with its franchisees. Since the McDonald’s complaints were authorized, NLRB has issued an instructive advice memorandum concerning whether Freshii Development, LLC (“Freshii”), franchisor of a fast-casual restaurant chain, was a joint employer with its franchisee under the National Labor Relations Act and at least one other influential joint employer decision in Browning-Ferris Industries of California, Inc. v Sanitary Truck Drivers and Helpers Local 350.
In the Freshii advice memorandum, the NLRB concluded no joint employer relationship existed between Freshii and its franchisee and provided guidance on how employers, particularly franchisors, can seek to avoid a joint employer relationship with its franchisees. In Browning-Ferris, the NLRB found that merely having the authority to control the terms and conditions of an employee’s employment may invoke joint employment status, effectively abandoning any previous requirement that an employer be required to exercise direct and immediate control.
While each case is fact intensive, employers seeking to avoid a joint employer relationship under the NLRB’s current standard should be careful not to reserve or exercise direct or indirect control over matters such as hiring, firing, discipline, supervision, wages, hours, benefits, number of workers, scheduling, seniority, providing daily assignments and assigning work, and determining the manner and method of work performance. Employers should also avoid reserving any contractual right to direct employees, handling employee grievances, mandating shift length, authorizing overtime, setting safety rules or production standards, and setting or approving vacation, holiday, or leave requirements. Other examples of indicia of control suggestive of a joint employer relationship under the current NLRB standard include providing reimbursements for wages and expenses, requiring attendance at mandatory meetings, and prioritizing certain tasks. Of further note, the NLRB has also advised that requirements regarding uniforms, initial training, store hours, food preparation, recipes, menu, and décor, without more, were not a basis for finding a joint employer relationship. Other elements of indirect control designed to protect an employer’s legitimate interest in the quality of its products or brand may also be acceptable.
Until further guidance is issued, employers should continue to exercise caution in structuring employment and independent contractor relationships so that such relationships are consistent state law and the NLRB advice memorandum and opinion mentioned above. Though DOL has withdrawn its informal guidance, both state and the NLRB’s standards remain alive and well.
We will continue to monitor this situation for any forthcoming DOL opinion letters and the Trump Administration’s recent nominations to fill vacancies in the NLRB Board, which could swing the political ideology of the five person NLRB Board for the first time since 2009. If you have any questions or concerns related to the DOL’s June announcement or the NLRB’s joint employer standard, please do not hesitate to contact us at 517-381-0100.
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At Fahey Schultz Burzych Rhodes PLC, we’ve been helping municipalities, franchised businesses, employers, and more with their legal needs since 2008. We’d love to learn how we can help you, too.