DOL Stands Up for Ronald McDonald  

New reg would codify old joint employer standard

A sign outside a San Francisco McDonald's
A sign outside a San Francisco McDonald's franchise / Getty Images

The Department of Labor released a proposal to protect franchise businesses on Monday, rolling back Obama-era policies that had hindered hiring in one of America's most popular business models.

The department released a new regulation that would re-establish traditional labor law about determining liability for labor violations committed by franchisees or contractors. The Obama administrations had worked to hold parent companies responsible for indirect abuses, a move which could open the door for unions to organize major corporations in the service industry. The Trump administration's proposal would revert to a standard that only holds companies responsible for directly playing a role in the violation.

"This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections," said Secretary of Labor Alexander Acosta. "Providing public notice and comment is the best way to move forward with another significant deregulatory proposal."

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The Obama administration's approach to joint employer had come under fire from employers and industry trade groups for causing uncertainty in determining liability. A study commissioned by the International Franchise Association found that parent companies scaled back expansion and hindered small business owners from hiring, opening new locations, or even entering the field in the wake of a 2016 Labor Department guidance. The study conducted by the Chamber of Commerce's Dr. Ronald Bird, who served as chief economist at the Labor Department during the Bush administration, estimated that 375,000 jobs were lost due to joint employer at an economic cost of $33.3 billion.

"The Department of Labor has the chance to undo one of the most harmful economic regulations from the past administration and replace it with a rule that creates certainty," IFA spokesman Matt Haller said in a statement. "An expanded joint employer standard has held back tens of billions of dollars in economic output each year."

The department proposal went beyond just establishing the old approach to joint employer, providing examples of when parent companies could or could not be held liable for being a joint employer. The release highlighted how a franchise company that upholds a code of conduct for its franchisees is not liable for scheduling violations committed by a local partner. Those hypothetical could be essential to

Tammy McCutchen, an attorney at management-side Littler Mendelson who worked at the Labor Department under George W. Bush, said the examples would be helpful to employers and workers moving forward. The muddy waters of liability had caused much confusion among her clients. Under the new proposal, she said, "requiring business partners to have sexual harassment policies is not going to all of a sudden make [parent companies] liable to all FLSA violations." She said the clear standard established by the courts in the 1980s was preferable to the Obama administration's 2016 rule, which left the determination of joint employer up in the air.

"This is going to give clarity for employers and managers and ease some of their minds," she said. "Some are going to say this is radical—it's not. It's a return to longstanding precedent."

McCutchen praised the Labor Department for issuing a former regulatory proposal, rather than simply revoking the Obama-era interpretation. Interpretations can be reversed with relative ease by future administrations and courts give them less deference. Regulatory action would provide more certainty to employers and draw a bright line in determining joint employment.
"Sub-regulatory opinion guidance, the courts have less obligation to defer to them…and the agency itself can reverse," she said. "This is much harder to change because it gets different deference from the courts."

The proposal is now subject to a public comment period. Stakeholders, interest groups, and attorneys will have 60 days to submit their opinions about the new regulation to the Labor Department.