In 2014, David Weil assumed the reins at the Department of Labor’s Wage and Hour division. Dr. Weil, an economic scholar, set his sights on the concept of joint employment. In academia, his work focused on what he termed a “fissured” employment model, one in which a worker’s economic position depended not only on his immediate employer, e.g., the franchisee, but on another company, e.g. the franchisor. The economic reality of the relationship, according to Dr. Weil, meant that the franchisee and franchisor were joint employers of the franchisee’s employees. The DOL put Dr. Weil’s views into practice and applied an expanded definition of joint employment to labor statutes. The NLRB quickly followed suit, opining that a joint employer such as a franchisor was subject to the NLRA.

The abrupt change in policy rocked the franchise industry and touched off a long period during which the industry’s very existence appeared to be threatened by state and federal employment laws. The DOL’s final rule on joint employment, published January 16^th, calls a truce in the federal fight.

The final rule, which becomes effective on March 16^th, returns to the pre-2014, widely accepted definition of joint employment that focuses on the putative joint employer’s ability to control the employee – hiring and firing, routine supervision and control, salary. Importantly, indicia typical of a franchise relationship are excluded from factors to be considered in the analysis. Whether the business relationship is a franchise, whether a franchisor exercises quality control, and whether the franchisor offers assistance to the franchisee, are irrelevant to the analysis.

Of course, no news is ever entirely positive. The final rule is in the context of the FLSA; whether other agencies, such as the NLRB, will be guided by the rule, and to what extent federal courts will interpret and apply the rule are unknown. And the federal action does nothing to ameliorate the uncertainties at best, and risks at worst, of California’s AB 5 legislation, which codified the problematic A-B-C test defined in the by now infamous Dynamex decision. As additional states consider and/or enact AB 5 type legislation, franchising’s battlefield thus turns to the states.

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