Franchisees Get Relief: Labor Department Axes Joint Employer Interpretation

Source: United States Chamber Of Commerce

While the rest of Washington gets sucked into political circuses, Trump’s regulatory pullback continues:

The U.S. Labor Department on Wednesday said it was rescinding the Obama administration’s standard for determining when companies are “joint employers” of contract and franchise workers, in the agency’s first major shift in labor policy under President Donald Trump.

The department in a statement said it had withdrawn a 2016 interpretation of the federal Fair Labor Standards Act (FLSA) that expanded the circumstances under which a business could be held liable for wage-law violations by staffing agencies, contractors, and franchisees.

Previously, companies were considered joint employers when they hired and fired workers and set wages. The Obama administration said a worker’s level of “economic dependence” on a company should also be considered.

The expanded definition of joint employment had rankled the business community, which said it threatened the franchise business model and would draw companies into lawsuits when they were not responsible for setting working conditions.

The Labor Department rescinded both the joint employer interpretation and another that tilted how independent contractors and as employees would be classified with a presumption favoring employee status.

These interpretations along with guidance documents, memoranda, bulletins, circulars, and letters are dubbed by the Competitive Enterprise Institute’s Clyde Wayne Crews, regulatory dark matter, because they are some of the ways federal agencies regulate businesses without going through the formal rulemaking process that includes public comments.

This is welcome news for employers, said Randel Johnson, U.S. Chamber Senior Vice President for Labor, Immigration and Employee Benefits. The interpretations were issued with no input from employers who would be subject to them. Under them, employers would have been left not knowing whether they had properly classified their workers, or whether they would be held accountable for another employer’s violations under the FLSA.

They were merely enforcement traps waiting to spring, Johnson added.

There’s still a cloud hanging over the joint employer issue. While the Labor Department’s reversals are welcome, it doesn’t address the National Labor Relations Board’s 2015 ruling broadening the definition of a joint employer under the National Labor Relations Act, specifically for questions of union organizing. This upending of settled labor law has thrown the traditional franchise relationship into chaos and burdened small business franchise owners with higher costs and uncertainties.

As Douglas Holtz-Eakin, president of the American Action Forum, writes:

A complete reversal of the Obama-era overreach awaits either a potential Appeals Court ruling to repeal the new standard, the opportunity for another case to reach the NLRB and provide the opportunity to revisit the standard, or a new law from Congress that returns joint employer to the previous standard.

Nevertheless, the Labor Department continues the Trump administration’s efforts at removing regulatory burdens on business.

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