Good News for Franchisors: DOL Withdraws Prior Joint Employment Guidance

19 June 2017 Publication

On June 7, 2017, U.S. Secretary of Labor Alexander Acosta announced that the Department of Labor (DOL) is withdrawing administrative guidance issued last year that aggressively sought to expand the standard for determining joint employment. The DOL’s press release announcing the change is available here.[1]

On Jan. 20, 2016, the Department of Labor’s Wage and Hour Division, which is charged with enforcing federal minimum wage and overtime laws, issued informal guidance (Administrator’s Interpretation No. 2016-1) regarding joint employment under the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Authored by the Division’s then-head David Weil, the guidance argued that the standard for finding joint employment under the FLSA and MSPA should be “as broad as possible.” The guidance advocated a broad “economic realities” standard that covers “a multitude of circumstances where the alleged employer exercised little or no control or supervision over the putative employees.”  A prior Gardere update about the DOL’s 2016 joint employer guidance is available here

Relevance to Franchisors

Although the DOL’s 2016 guidance did not mention franchise relationships, an accompanying question and answer sheet expressly noted that a franchisor and its franchisee could be deemed the joint employer of a franchisee’s workers depending on the situation. When joint employment exists, all joint employers are jointly and severally liable for compliance with minimum wage and overtime requirements. That is, each joint employer is individually responsible for the entire amount of wages due. As a result, under the prior guidance’s expansive view of joint employment, a franchisor could be liable for any minimum wage or overtime violations by its franchisees. 

A federal agency’s administrator interpretations generally contain broadly applicable guidance that is intended to provide clarity regarding a particular statutory or regulatory issue. Unlike a law or formal regulation, such informal guidance does not carry the weight of law or receive deference in courts, which are free to disregard it. Nevertheless, courts often find administrator interpretations persuasive. Moreover, the past year has seen plaintiffs’ attorneys attempt to use the DOL’s 2016 guidance as authority for holding franchisors liable for employment law violations by independent franchisees.

In announcing the withdrawal of the 2016 guidance, the DOL emphasized that the removal “does not change the legal responsibilities of employers,” adding that the DOL will continue to fully and fairly enforce the FLSA and MSPA. This suggests the DOL will enforce the FLSA and MSPA under the traditional, pre-Weil standard of finding joint employment, which focuses on whether a putative employer has actual control over the relevant workers. 

Joint Employment Concerns for Franchisors Remain

The DOL’s announcement does not end the threat of federal attempts to expand the joint-employment standard. In 2015, the National Labor Relations Board (NLRB) captured the full attention of the franchise industry by “restating” the standard for finding joint employment in Browning-Ferris Industries of California, Inc., 362 N.L.R.B. No. 186 (Aug. 27, 2015). Though significant, direct, and immediate control was traditionally required to find that a company (like a franchisor) was the joint employer of another company’s employees, the NLRB held that indirect control or the reserved right to control, even if unexercised, may be sufficient to find a joint-employer relationship. Browning-Ferris is currently on appeal to the D.C. Circuit Court of Appeals, which heard oral arguments in March 2017.[2] 

In various pending administrative actions against McDonald’s USA, LLC and its franchisees, the NLRB’s general counsel is seeking to use the expanded standard announced in Browning-Ferris to hold McDonald’s USA liable as a “joint employer” for alleged labor violations by independent franchisees. Thus, franchisors should continue to watch the pending appeal of Browning-Ferris. 

Gardere will continue to monitor how developments regarding the joint-employer standard may affect franchisors.

__________________________________

[1] The DOL is also withdrawing guidance issued in 2015 regarding the classification of employees as independent contractors.

[2] Browning-Ferris Indus. of Cal. Inc. v. Nat’l Labor Relations Bd., Nos. 16-1027, No. 16-1063, 16-1064 (D.C. Cir. 2017).