The Labor Department is quietly moving to undo a central Obama-era labor policy that made companies more likely to be liable when staffing firms or franchisees don’t pay minimum wages and overtime.
A small group of political hires at the DOL is working to update the department’s approach to “joint employer” liability, sources familiar with the situation tell Bloomberg Law. The department plans to restrict the scenarios in which one business is legally responsible for wage-and-hour violations by a contractually related company.
The issue has been hotly debated in courtrooms and the halls of Congress in recent years, sparked largely by a 2015 decision in which the National Labor Relations Board said a business can be considered a joint employer of another’s workers if it exerts indirect control over those employees. That has raised questions about whether businesses’ relationships with staffing firms or requirements franchisers place on franchisees about brand management should create joint employment liability.
“I’m worried they will probably attempt to make it very difficult to prove that someone is a joint employer,” Greg McGillivary, a Washington lawyer who represents workers and labor unions, told Bloomberg Law. “The problem is that when they send messages out there that they loosened the joint employer rules, the companies then immediately try to avoid liability.”
The U.S. Supreme Court in 2017 declined to consider a federal appeals court ruling that DirecTV is a joint employer of home satellite technicians hired by a staffing firm who said they were stiffed on overtime pay. McDonald’s is embroiled in ongoing litigation over whether it’s on the hook for alleged unfair labor practices by franchisees who fired workers for participating in demonstrations calling for higher wages.
Labor Department spokeswoman Megan Sweeney declined to comment for this story.
Labor Secretary Alexander Acosta in 2017 scrapped an Obama-era memo in which the department said joint employment should be applied “as broad as possible” under the Fair Labor Standards Act. The NLRB, now controlled by Republicans, is working on a proposed regulation to update its approach to the joint employer question under a separate labor relations law.
Business groups like the International Franchise Association recently urged the Labor Department to make clear that companies aren’t liable to workers that they don’t directly control. But supporters of expanded joint employer liability say it prevents businesses from using complicated contract relationships to shield themselves from legal responsibility for labor and employment violations.
It’s unclear whether the DOL plans to issue a proposed regulation through the notice-and-comment rulemaking process. The department could instead use other, less formal tools like opinion letters or field bulletins to signal a new approach to the joint employment question.
The satellite technicians in the DirecTV case were hired by a staffing company called DirectSat. The U.S. Court of Appeals for the Fourth Circuit said DirecTV had a close enough relationship with the company and the workers—who claimed they were wrongly classified as independent contractors—to create a joint employment situation.
The appeals court focused on DirecTV’s pyramid network of technicians, which includes workers hired directly by the company and others hired by various intermediary contractors and subcontractors. It noted in particular that DirecTV set the criteria that DirectSat used to consider job applicants, dictated the technicians’ schedules via a centralized assignment system, and generally supervised their work.
The Fourth Circuit’s decision is “something of an outlier,” Jason Schwartz, an attorney at Gibson Dunn who represents businesses, told Bloomberg Law. “The prevailing view is that if you have an ordinary relationship between two entities—like parent-subsidiary or franchiser-franchisee—as long as you’re not overreaching into the day-to-day operations you’re not going to have a joint employer situation.”
A current DOL regulation interpreting the Fair Labor Standards Act focuses on the relationship between the businesses, rather than between each business and the workers, to determine joint employer liability for minimum wage and overtime purposes.