In an effort to improve workers’ rights, the Labor Department announced Thursday that it has officially removed a Trump-era rule that restricted the definition of a common employer.
The rule, which went into effect in March 2020 and will officially end on September 28, used a four-factor test to determine co-employer status: hires or fires the employee, supervises and controls the work schedule. or the terms and conditions of employment of the employee to graduate, determines the rate and method of payment of the employee and maintains the employee’s employment records. In addition, he noted that “economic dependence” on a possible co-employer does not determine co-employer status and that a franchisor model does not make co-employer status more or less likely.
With this limited scope, franchisors were less likely to be described as a co-employer, which reduced their liability for franchisee-level lawsuits.
However, the Labor Department noted that the repealed rule included descriptions of a co-employer that were contrary to statutory language and the intent of Congress, and ignored previous guidelines. The U.S. District Court for the Southern District of New York overturned most of the rule in 2020 following a lawsuit brought by New York Attorney General Letitia James, Pennsylvania Attorney General Josh Shapiro and more a dozen other states. U.S. District Court Judge Gregory Woods said in a September 2020 notice that the rule conflicts with the Fair Labor Standards Act. He also called the rule “arbitrary and capricious” because it did not explain why the Ministry of Labor had deviated from previous guidelines or why it had not taken into account the effect on workers.
The Department of Labor explained that under the Fair Labor Standards Act, an employee can have more than one employer for the work they perform. Joint employment applies when, for the purposes of minimum wage and overtime requirements, the department considers two separate companies to be an employer for the same work. The ministry used a sample contract of a hotel with a recruiting agency to provide cleaning staff, which the hotel controls directly. If the agency and the hotel are joint employers, it means that they are both responsible for the protection of the workers.
The ministry said a strong common employer standard is essential because responsibilities and liability under the Fair Labor Standards Act do not apply to a business that does not meet the definition of an employer.
“Joint working has been a long-standing federal labor law,” Wages and Hours Division Acting Administrator Jessica Looman said in a statement. “The United States Department of Labor’s Wages and Hours division will continue to follow the law and legal precedents when assessing employer-employer relationships to uphold workers’ protections. “
Franchisors have previously argued that a broad definition of joint employer could hamper growth, increase lawsuits and force them to be tougher in store-level practices, like hiring and recruiting. The International Franchise Association has expressed disappointment with the new rule and said the expanded co-employer standard “would place a cloud of uncertainty on the heads of local small business owners trying to lead this economic recovery.”
“The Common Employer Standard released in 2020 has helped small business owners navigate the crisis, keep employees safe and protect their communities during the COVID-19 pandemic,” the organization said in a statement. In addition, the 2020 Standard also allowed brands to leverage their networks to help small business owners navigate the Paycheque Protection Program (P3) and other critical emergency lending measures. .
“The franchises share the same values as this administration and are committed to fighting against inequalities in our economy and our society,” he added. “Almost a third of franchises are owned by people of color, a higher rate of ownership than small, non-franchised businesses. generational wealth for those who are historically excluded from the entrepreneurial market.