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What Does it Mean To Be a ‘Joint Employer’? The U.S. Department of Labor Has New Rules

Franchisors are now less likely to be held liable for the compensation policies and practices of individual franchisees.

When things get legally dicey within a franchised business, the franchisor can often be held as a responsible party because of a policy referred to as ‘joint employer’ status. In the past, the regulations surrounding this status have been somewhat murky, making legal proceedings that much more difficult. According to an article in Restaurant Business Online, the Department of Labor finally narrowed down the specific criteria in which a franchisor can be considered a joint employer. 

While the final ruling does not take place for 60 days, Restaurant Business Online reported on the set of new criteria. To quality for joint employer status, the franchise must do any of the following: Hires or fires employees; substantially supervises employee conditions of employment including work schedule; determines wages; or maintains employment records.

For many franchisors, this will vastly clear things up and most likely reduce the amount of lawsuits where joint employer status comes into question, including several recent legal battles that have put McDonald’s Corp. at the forefront of this issue. Simply put, franchisors are covering their bases to avoid legal trouble, as many of them have faced legal threats by franchisees. 

The definition of a joint employer wasn’t always so broad, however. Restaurant Business Online reported that the culpability of franchisors was first broadened in 2015 by the National Labor Relations Board, and faced significant pushback from franchisors and groups such as the International Franchise Association. The IFA even called it “an existential threat to franchising,” with a significant uptick in lawsuits and resulting in an average loss of $142,000 for franchise businesses. 

“We applaud the U.S. Department of Labor for acting to deliver a joint employment rule that the National Restaurant Association and its members have long fought for.  It ensures clarity and predictability for employers and employee under the Fair Labor Standards Act,” said Shannon Meade, VP of public policy for the IFA. 

The Department of Labor was in agreement. “This rule promotes greater uniformity among court decisions by providing a clearer interpretation of FLSA joint employer status. These benefits will in turn improve employers’ ability to remain in compliance with the FLSA and will help reduce litigation costs,” said a representative from the DOL as reported by Restaurant Business Online.

Read the full story here.