January 13, 2020 | Legal News

Final Joint Employer Rule under FLSA

The U.S. Department of Labor released the final Joint Employer Rule under the Fair Labor Standard Act (FLSA) on January 12, 2020.  Under the FLSA, an employee may have multiple individuals or entities that are jointly liable for the employee’s wages.    While most franchise agreements give franchisors certain controls necessary to protect their marks and the brand, franchisors do not typically have direct control over the franchisees’ employees.  However, courts around the country interpreting the FLSA and the DOL’s regulations have issued inconsistent rulings on the joint employer issue, applying different standards and factors.  These rulings have frustrated franchisors seeking simply to protect their brands.  The final rule provides for a four-factor balancing test to determine whether the FLSA applies to any entity or individual that does not directly employ a person (a potential joint employer), based on whether that entity or individual employer directly or indirectly:

  • Hires or fires the employee
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  • Determines the employee’s compensation rates and method of payment
  • Maintains the employment records

The DOL goes on to state that, although other factors may be considered in some cases (if for example the potential joint employer is exerting significant control over the terms and conditions of the employee’s work), the four factors listed above should determine joint employer status in most cases.

The final rule also identifies certain business practices that should not be considered to determine whether an entity or individual should be deemed a joint employer under the FLSA.  For example, the rule makes it clear that the question of whether the employee is economically dependent on a potential joint employer is not relevant (such as, whether the employee has invested in equipment or materials required for the work, or whether the employee has an opportunity for profit or loss based on its managerial skill).  These distinctions are particularly salient in the franchise context.  The rule also goes on to specifically state that the franchise business model does not make joint employer status more or less likely under the FLSA.

These revisions will hopefully give franchisors a little more certainty as to how to maintain consistency in its brand without crossing the joint employer line.  The final rule, which is available at here, will be effective on March 16, 2020.

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