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U.S. Labor Department Proposes Rules Restricting Joint Employment Status

    Client Alerts
  • April 08, 2019

In recent years, both the Obama administration’s Department of Labor and some federal courts issued interpretations of joint employer status that vexed many companies, especially franchisors. Joint employment means that two or more companies are equally liable for wage payment and other labor law obligations. In a non-regulatory 2016 interpretive guidance, DOL expanded on the common law definition of joint employment, applying that status to situations where a company has the ability to exercise control over employees of another entity, even if it never actually acted on that authority.

On April 1, DOL under the Trump administration issued a proposed rulemaking that would change the regulatory definition of joint employment for the first time since 1958. The proposal would abandon the earlier interpretation in favor of a test that potential joint employers would likely find significantly less vexing – whether they actually exercise the following four powers:

  1. Hire or fire the employee.
  2. Supervise and control the employee’s work schedule or conditions of employment.
  3. Determine the employee’s rate and method of payment.
  4. Maintain the employee’s employment records.

In addition to these factors, DOL provided nine examples classified as either joint or not joint employment. The traditional franchise agreement where the franchisor provides forms, an employee handbook, and sets standards for employee services is not considered joint employment under the new proposal. In most situations, joint employment is limited to cases where the employee provides separate services for two related entities, or one company actually exercises direct control over the employee’s work, work status, and payment.

If finalized, this standard would replace broader definitions of joint employment in place in many federal appellate courts, including the Fourth Circuit (which includes North Carolina and South Carolina). In addition to reviewing the right to exercise control, these courts often looked at economic realities of the relationship, factors not included in the DOL proposal. DOL is accepting comments on the proposed rules for 60 days after formal publication.