Labor Department Joins Franchise Fight

DOL submits regulation on joint employment to White House

Secretary of Labor Alex Acosta
Secretary of Labor Alex Acosta / Getty Images
March 7, 2019

The Department of Labor is weighing taking steps to roll back an Obama-era policy that targeted franchise businesses.

In 2017 Labor Secretary Alex Acosta reversed a 2016 department interpretation that aimed to hold parent companies liable for workplace violations committed by franchisees or sub-contractors—a reversal of the traditional approach to determining joint employment. The Department is now seeking approval for a regulation that would cement the old rules, which only hold parent or franchise corporations accountable if they played a direct role in the violation. Labor experts say this could prove to be less easily reversed.

Steve Bernstein, a labor attorney at Fisher Phillips, said the Obama administration guidance only delivered an interpretation of labor law to expand joint employer. Interpretations can be reversed with relative ease, as Acosta demonstrated when he withdrew the 2016 document, but regulations could be harder for future administrations to undo. Regulatory action would provide more certainty to employers and workers moving forward by drawing a bright line between which party will be held liable for an alleged violation, according to Bernstein.

"At least in the short-term, a rule that returns to the traditional doctrine will lend more certainty with respect to a DOL standard that has stood the test of time from one administration to the next—thereby freeing business entities (particularly those that rely to some extent on a contingent workforce) to engage in more reliable strategic planning and assessment," Bernstein said. "Businesses and stakeholders are hoping that it will lend clarity to an increasingly murky landscape for all parties involved when it comes to assessing the prospect of joint employer status."

News of a potential regulation sparked optimism from business groups. Matthew Haller, spokesman for the International Franchise Association, said the industry is looking for a "clear standard" that would deliver certainty to both franchise owners and their parent companies.

"IFA hopes that the DOL will return to a simple, thoughtful, and clear standard that can create an environment where American small businesses can grow and prosper," Haller said.

IFA has been leading the charge against the Obama-era approach to joint employer. A study commissioned by the group found that the complications of determining liability has caused parent companies to scale back expansion and hindered small business owners from hiring, opening new locations, or even entering the field. 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 Labor Department's movement on the issue comes as the National Labor Relations Board (NLRB) is weighing a rulemaking proposal that would also revert back to the traditional standard. Haller said the two-pronged approach to rolling back the Obama administration's rules is necessary to broaden the scope because the Labor Department oversees the broader economy under the Fair Labor Standards Act, while the NLRB enforces the National Labor Relations Act, which mostly deals with organized labor and workplace disputes.

"We know that the expanded joint employer standard under the National Labor Relations Act has cost franchise businesses tens of billions per year, and the Department of Labor is seeking to address this standard under an even broader law that has had even broader impacts," Haller said.

Bernstein said the DOL guidance will carry weight with the vast majority of American businesses, but employers who deal with unionized workforces will be more secure once the NLRB adopts its own rule. He expects that the administration will stay consistent in both cases.

"Those businesses hoping to assess their exposure in that area will likely have to wait until that agency issues its anticipated joint employer rule later this year," he said. "There is room for optimism that the two agencies will endeavor to strive for greater consistency from one standard to the next."

A department spokesman did not respond to request for comment.

The regulation is currently pending review before the White House's Office of Information and Regulatory Affairs website.