The U.S. Department of Labor’s proposal to streamline its test for determining whether multiple businesses are jointly liable for wage violations puts the agency in the middle of a contentious debate over whether a tighter standard would let franchisors off the hook too easily.
The DOL on Monday issued a proposed regulation updating its 60-year-old framework for analyzing whether two or more businesses qualify as joint employers under the Fair Labor Standards Act, focusing on whether a franchisor or contractor’s actions actually affect the terms and conditions of workers’ employment. If two businesses are deemed joint employers under the FLSA, they share responsibility for wages and liability for any pay violations.
The centerpiece of the policy is a four-factor test to determine whether a business qualifies as a joint employer: If it can hire or fire employees, if it controls their schedules, if it determines pay rates and how workers are paid, and if it maintains workers' employment records.
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One area of the proposed rule that attorneys say bears watching is the extent to which the DOL has authority to issue it — and how much deference any final rule will ultimately receive from courts.
D. Michael Hancock of Cohen Milstein Sellers & Toll PLLC, formerly an assistant administrator for the Wage and Hour Division, told Law360 that the department under the FLSA doesn’t have direct authority from Congress to enact a rule that binds parties to its view of the law surrounding joint employment.
As such, the agency can at best issue a so-called interpretive regulation — the department’s statement of what it believes the definition of joint employment is — rather than a so-called legislative regulation.
“DOL doesn’t have regulatory authority to enact a regulation that binds anyone on how to interpret and apply the employment relationship rule, so this is basically an advisory regulation,” Hancock said. “In fact, I would argue that this gets no more deference than the [guidance] that was issued during the Obama administration. It was done in a different form, but I think its effect is the same.”
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