September 26, 2020

Labor Dept. Rule to Curb Lawsuits by Franchise Workers

A company would typically have to meet some or all of these criteria to be considered a joint employer.

By contrast, under the approach set out by Barack Obama’s Labor Department, a broader set of “economic realities” dictated whether the company should be considered a joint employer — among them, the degree of dependence of workers on the upstream company. For example, a company could be considered a joint employer of a contractor’s employees if it provided facilities and equipment for the workers, and if the workers were easy to replace, even if the company didn’t supervise the workers or hire and fire them.

Catherine Ruckelshaus, the general counsel of the National Employment Law Project, a worker advocacy group, said that the department’s new rule essentially offers guidance to the courts, which courts aren’t bound to follow. But, she added, the rule could still have significant practical impact because “many workers and employers and courts follow D.O.L. guidance.”


The department’s new rule is in line with a similar proposal by the National Labor Relations Board from 2018 that seeks to make it more difficult for employees of franchisees and contractors to hold parent companies liable for labor law violations, like firing workers because they are trying to unionize.

Under a ruling the labor board handed down during the Obama administration, a company could be considered a joint employer of workers at a contractor or franchisee if it exercised indirect control over them, not just direct control. But under the rule that the board proposed in 2018, the form of control would have to be “substantial, direct and immediate” for the company to be considered a joint employer. That would make it significantly less likely that large companies would be found liable.

The labor board is expected to finalize its own rule in the coming weeks.

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