Return to rationality: Department of Labor issues final ruling on joint employer status



In the opening weeks of 2020, the Department of Labor (DOL) issued a revision on its interpretation of joint employer status, altering the regulations dictated by the Fair Labor Standards Act (FLSA) that determine whether an additional entity is considered jointly liable for another business’s employees. The updated regulations are projected to clarify the situations in which two or more businesses could be considered joint employers.

Up until 2015, the Joint Employer Rule under the FLSA had remained largely unchanged for 60 years. During the Obama Administration, revisions to the interpretation of joint employer status expanded its determining factors. This led the DOL and National Labor Relations Board (NLRB) to impose liability on businesses that had indirect or potential oversight over another business’s employees. Many businesses were roped into lawsuits and grievances filed against their business partners. This expanded interpretation had unintended consequences, particularly for franchise business models under which many hoteliers operate.

Going into effect on March 16, 2020, this final ruling introduces a four-factor balancing test that clarifies the obligations of the franchisor-franchisee relationship while providing franchise owners with increased certainty about the ownership and control of their businesses. Previous rulings on joint employer status harbored precarious situations where the franchisor may have assumed liability for the franchisee’s workforce, causing uncertainty that stunted new business developments and workforce expansions. The final ruling aims to provide clarity for business owners who are gauging their exposure to liability in potential joint employer partnerships.

“America’s hoteliers applaud the DOL’s ruling, for it provides franchise owners with a clear and straightforward joint employer standard. More than 80 percent of AAHOA members own franchised properties. The franchise business model continues to serve as an on-ramp to economic empowerment for America’s entrepreneurs. Returning to the traditional joint employer standard gives owners the peace of mind that they will remain in control of their businesses,” AAHOA President & CEO Cecil P. Staton said.

The DOL stated that its updates to joint employer status under the FLSA will take effect this month, but AAHOA anticipates legal challenges to the DOL’s change in regulation, which may delay the ruling. The DOL’s final ruling, while a step in the right direction, does not represent a stable, long-lasting change in the joint employer status under the FLSA. Any sitting administration could revise or reverse the regulation. To ensure systematic change to the joint employer status, AAHOA and other proponents of this final ruling will continue to urge Congress to pass sound, rational, and transparent legislation to determine joint employer status.


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