Franchise Law: Burden of Joint Employer Just Got a Little Lighter
Chair, Franchise & Distribution Practice Group
by Barry Kurtz
818-907-3006
Direct control, indirect control…these are the employment litigation phrases that had franchisors cowering in duck-and-cover positions over the last few years. But the Department of Labor just issued a statement to breathe new life into the franchise industry.
The dangerous era of joint employer litigation isn’t completely over yet. Franchisors should still take protective measures as they can. Still, there’s a glimmer of hope in the trenches:
Last week the DOL announced a retreat of sorts by withdrawing its interpretation of the Fair Labor Standards Act (FLSA). This January 2016 interpretation was the one that defined an employer as an entity or individual who has “indirect control” over an employee. In the franchise context, it meant courts were looking at whether or not an employee was economically dependent on the franchisor to determine whether that franchisor could be deemed liable for claims as a joint employer. (See our Franchise & Distribution Newsletters for more on Joint Employer Litigation.)
The NLRB was the first agency to take a broad stance on the issue of joint employment, most notably in 2015 in the Browning-Ferris Industries decision. In that case, the NLRB decided entities may be joint employers if:
(1) They are both employers within the meaning of the common law; and
(2) They share or codetermine those matters governing the essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the Board will – among other factors – consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.
DOL’s rescinding of guidance on this issue doesn’t necessarily change the law, it simply reflects the current government’s friendlier attitudes towards business.
So franchisors, take a deep breath and relax a little. But not too much, as the war on joint employer liability still wages on.
Barry Kurtz is a State Bar of California Certified Specialist in Franchise & Distribution Law.