On Sunday, January 12, 2020, the U.S. Department of Labor (DOL) released the final version of its rule interpreting joint employer status under the Fair Labor Standards Act (FLSA), which regulates minimum wage and overtime.

The DOL adopted a four-factor test, which considers whether an alleged joint employer:

Under the final rule, a franchisor must exercise—directly or indirectly—at least one of the following control factors to be considered a joint employer of its franchisee’s employee:

  1. Hires and fires the employee
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  3. Determines the employee’s rate and method of payment; and
  4. Maintain the employee’s employment records.

According to the DOL, “[n]o single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances.”  Other factors may be considered in addition to these four “only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.”

Importantly, the DOL clarified that an alleged joint employer’s “ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control.”  According to the DOL, an alleged joint employer’s reserved but unexercised rights should be considered in the overall analysis, but emphasized that “there still must be some actual exercise of control.”

The franchising community and the International Franchise Association celebrate this as a big win for franchisors who have spent the better part of five years battling the effects of the National Labor Relations Board’s 2015 decision in Browning-Ferris Industries, 362 NLRB No. 186, in which the Board held that a franchisor’s ability to control the terms of employment, and not the actual exercise of the control, could make a franchisor a joint-employer of its franchisees’ employees.  See the statement of Robert Cresanti, President and CEO of the IFA, here: https://www.franchise.org/blog/cresantis-corner-a-win-for-franchising

 

Photo of Ashley Nielsen, CFE Ashley Nielsen, CFE

As a member of the largest franchise practice in North Carolina, she regularly counsels start-up and early-stage franchisors in building their brands and navigating complex state and federal franchise regulations.   She also serves as general corporate counsel to these and other retail and…

As a member of the largest franchise practice in North Carolina, she regularly counsels start-up and early-stage franchisors in building their brands and navigating complex state and federal franchise regulations.   She also serves as general corporate counsel to these and other retail and restaurant clients and assists with transactions that range from routine to complex.  Ashley has extensive experience preparing franchise disclosure documents (“FDDs”), which benefits not only the franchisors who seek her strategic advice, but also the franchisees who hire her to evaluate FDDs and negotiate franchise agreements and leases.  Ashley speaks to franchisors and teaches other attorneys about franchising and related topics.   In 2019, she received the Certified Franchise Executive (“CFE”) designation.