Franchising Threat # 2: Joint Employment Is Back! | Fox Rothschild LLP


The second troublesome threat is the mixed employment standard. The Obama administration’s DOL caused angst in the franchise industry in January 2016, when it passed a joint employment standard that focused on “whether the employee depends on the potential joint employer who , through an agreement with the intermediary employer, benefits from the work. “Administrator’s Interpretation No. 2016-1, US Department of Labor, January 16, 2016 (the” Interpretation “) Section II B.

The Interpretation explained that “the joint vertical employment analysis must be a test of economic realities and cannot focus solely on monitoring”. The Department summarized a seven-factor analysis:

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

The DOL’s action follows a decision by the NLRB in Browning Ferris Industries of California, Inc., in which the Board ruled that a third party exercising 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 co-employer ever actually exercised such control.

The franchise industry has struggled with the standard of “economic realities” throughout the rest of the Obama administration, urging the DOL and NLRB to recognize the existence of bona fide franchise / franchisor relationships. Agencies ultimately did so, focusing not only on a franchisor’s contractual right to control certain aspects of franchise operations, but also 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 co-employer must have effectively exercised joint control over the employee. 366 NLRB No.94 (2018). The Council reiterated its position in Browning-Ferris Industries of California, Inc., stating that a joint employer must have and exercise direct and immediate control over at least one essential condition of employment. 369 NLRB No.139 (2020).

The Trump administration’s DOL removed the norm from the economic realities of the Obama administration and embarked on a rulemaking process that reverted to a joint employment screening test. However, in May 2021, just days before the Trump rule took effect, it was withdrawn by the new Biden administration. New regulations are expected (and feared).

Next step: Potential state legislation

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