US Labor Department clarifies co-employment rule

The U.S. Department of Labor's new final rule on when a worker is employed by one or more entities should help clarify responsibilities, particularly with restaurants and other franchise businesses, experts said Tuesday.

Announced over the weekend, the new rule set up a four-prong test to determine if a company co-employs a worker with another entity. According to the Labor Department, a company is a joint employer if it can a) hire and fire employees, b) supervise and control employees work schedules and conditions of employment, c) determine pay rate and method of payment, and d) maintain employment records.

The new rule enters the Federal Register on Thursday and will go into effect March 16, the Labor Department said in a statement.

Alexander J. Passantino, a partner at Seyfarth Shaw LLP's D.C. office and former acting administrator of the Labor Department's wage and hour division, said the new rule completes an overhaul the President Donald J. Trump's administration began in 2017 when then-Labor Secretary Alex Acosta rescinded an administrative interpretation that established new standards on joint employment.

Before it was rescinded, the President Barack Obama-era interpretation expanded the responsibilities of joint employers to include franchisers and businesses that use temporary workers or independent contractors, making them liable for wage-and-hour law violations, Passantino said.

"A lot of what went into this [new final] rule making was our response to that push in order to ensure that the franchise relationship continued to have the same sort of legal status that it did previously," Passantino said.

Franchisers as joint employers has become a legal issue in recent months. This past December, the 9th U.S. Circuit Court of Appeals denied en banc consideration to a case accusing McDonald's Corp. of wage theft, reaffirming an October ruling the fast-food chain was not responsible for violations committed by a franchisee. Salazar v. McDonald's Corp., 2019 DJDAR 11524.

While the court agreed the chain had no control over how the franchisee operated the restaurant, Chief Judge Sidney R. Thomas wrote in his partial dissent he believed McDonald's was culpable in the wage-and-hour law violations.

The franchisee, an Oakland-based family business, could not reprogram McDonald's timekeeping software to account for overtime and meal breaks, leading to the violations, Thomas wrote.

"Reasonable inferences can be drawn that McDonald's had the ability to prevent wage-and-hour violations caused by its system settings, yet failed to do so," Thomas wrote in his dissent. Passantino declined to comment on the matter but reiterated the new rule assigns control to franchisees, meaning McDonald's and other similar franchisers won't face violations as joint employers under federal law. Passantino added that subcontracting and staffing relationships would be affected in similar fashion.

"It goes to, 'Is this punitive joint employer actually exercising control over important parts of the employee's work?' more than the previous version," Passantino said.