Franchising Threat No. 2: Joint Employment Is BACK!

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The second troublesome threat is the joint employment standard. The Obama Adminstration DOL caused angst in the franchise industry in January 2016, when it adopted a joint employment standard that focused on “whether the employee is dependent on the potential joint employer who, via an arrangement with the intermediary employer, is benefitting from the work.” Administrator’s Interpretation No. 2016-1, U.S. Department of Labor, January 16, 2016 (the “Interpretation”) Section II B.

The Interpretation explained that “the vertical joint employment analysis must be an economic realities test and cannot focus only on control.” The Department summarized a seven factor analysis:

  • Does the putative joint employer direct, control or supervise the work performed “beyond a reasonable degree of contract performance oversight?”
  • Does the putative joint employer control employment conditions, directly or indirectly, even if such control is not exclusive?
  • Is the putative joint employer’s relationship with the employer a long-term relationship?
  • Is the nature of the employee’s work repetitive, rote, relatively unskilled and/or does it require little or no training?
  • Is the employee’s work integral to the putative joint employer’s business?
  • Is the employee’s work performed on premises owned or controlled by the putative joint employer?
  • Does the putative joint employer perform administrative functions related to employment, e.g. “handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials for the work.”

The DOL’s action followed a ruling by the NLRB in Browning Ferris Industries of California, Inc., in which the Board held that a third party with indirect control could be held jointly responsible, with the direct employer, for actions taken by employees.  This was the case regardless of whether the putative joint employer had ever actually exercised such control.

The franchise industry wrestled with the “economic realities” standard through the remainder of the Obama Administration, urging the DOL and the NLRB to acknowledge the existence of bona fide franchise/franchisor relationships. The agencies ultimately did so, by focusing not only on a franchisor’s contractual right to control aspects of franchised operations, but on the franchisor’s use of that power. In 2018 the NLRB concluded in Hy-Brand Industrial Contractors, Ltd & Brandt Construction Co., that the potential joint employer must have actually exercised joint control over the employee. 366 NLRB No. 94 (2018). The Board reiterated that position in Browning-Ferris Industries of California, Inc., declaring that a joint employer must possess and exercise direct and immediate control over at least one essential term or condition of employment. 369 NLRB No. 139 (2020).

The Trump Administration DOL withdrew the Obama Administration economic realities standard and engaged in a rule-making process that reverted to a control test of joint employment. However, in May 2021, mere days before the Trump rule was to become effective, it was withdrawn by the new Biden Administration. A new rulemaking is anticipated (and feared).

Next Up: Potential State Legislation

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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