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Log In / Register | Sep 19, 2017

US Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance

Secretary of Labor Alexander Acosta

U.S. Secretary of Labor Alexander Acosta announced earlier this month the withdrawal of the U.S. Department of Labor's 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department's long-standing regulations and case law.

The department will continue to fully and fairly enforce all laws within its jurisdiction, including the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

While the International Franchise Association, representing franchisors and franchisees, applauded the DOL decision to rescind the Administrator's new interpretations of joint-employer liability, saying, "it is one of the most costly and burdensome regulations impacting the franchise business model," Bob Purvin, chairman of the American Association of Franchisees & Dealers, said the action is a "mixed blessing for franchisees."

"On the one hand, the threat of joint employer classification has clearly negatively impacted many franchisees, including the withdrawal of vital HR support by many 'threatened' franchisors. On the other hand, the joint employer doctrine has given franchisees ammunition to achieve greater autonomy and certainty of 'business ownership' of their franchise businesses," Purvin explained.

The AAFD chair said the doctrine had also opened doors to franchisee associations to provide services and purpose of benefit to both franchisors and franchisee constituents. "The AAFD has long urged franchisees to leverage the threat that their franchisor may be deemed the joint employer of a franchisee's employees to achieve contractual assurances of equity ownership of the franchised business. A franchise agreement and culture that clearly defines a franchisee as an independent business owner has never been threatened—only franchise systems that have crossed a line of control over franchise operations were impacted."

Other reaction outside franchise community

The Bossier Chamber of Commerce, a private, non-profit organization in Louisiana that partners with the U.S. Chamber of Commerce, said the withdrawal of the two Obama-era interpretive bulletins covering employee misclassification and the joint employer standard is good news, but added that it does not solve the underlying joint employer problem created by the NLRB. "That will have to await Senate confirmation of two new Republican members on the Board, which can then overturn Browning Ferris. But until then, we'll count this latest action as a win."

The Bossier Chamber explained the two interpretive bulletins in more detail:

Interpretive Bulletin 2015-1 dealt with misclassification of independent contractors, and said that the Wage and Hour Division would view the Fair Labor Standards Act's (FLSA) "suffer or permit" language in an extremely broad fashion. The 15-page document could essentially be boiled down to one point: DOL felt that there were very few instances where someone was actually an independent contractor as opposed to a bona fide employee.

In the bulletin, the Wage and Hour Division expressed the opinion that limiting the circumstances under which someone could be considered an independent contractor would offer greater legal protections to workers. But of course, there was another angle as well. Independent contractors are not eligible to unionize, so reducing the ranks of independent contractors means broadening the pool of individuals who could become union recruits.

Interpretive Bulletin 2016-1 dealt with the application of the FLSA's joint employer doctrine. In many ways, this was DOL's attempt to expand upon the National Labor Relations Board's (NLRB) campaign to extend the reach of the joint employer standard under the National Labor Relations Act, as laid out in the infamous Browning-Ferris decision. In the bulletin, the Wage and Hour Division argued that the concept of "vertical" joint employment, as spelled out in the regulations implementing the Migrant and Seasonal Agricultural Worker Protection Act, should also be applied to the regulations implementing the FLSA. One might have thought that the way to update the FLSA regulations was through the formal regulatory process rather than an interpretive bulletin, but that is now a moot point.

The upshot of Interpretive Bulletin 2016-1 was that a broader universe of businesses faced potential liability as joint employers under the FLSA. This expansion of joint employer liability was also the goal of the Browning-Ferris decision, as well as the NLRB's litigation claiming that McDonald's corporation is a joint employer with its franchisees. Not surprisingly, this all coincided with the Service Employees International Union's (SEIU) campaign to unionize fast food workers, which depends heavily on proving joint employment status throughout the fast food industry.

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Related Article:

U.S. Labor Department rescinds Obama-era rule on 'joint employment' (Reuters)

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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.