The U.S. Department of Labor recently announced its departure from the Obama-era “joint employer” standard. The joint employment standard relates to an interpretation of the Federal Fair Labor Standards Act (“FLSA”), which dictates the standards and circumstances in which a business could be liable for various wage-law violations. In 2016, the Department of Labor issued guidelines with a broader interpretation of the term “joint employment” to include a company that had “indirect control” over workers. The broader interpretation in 2016 caused significant concerns for businesses, particularly those utilizing the franchise business model.
Additionally, the Department of Labor also withdrew guidance related to independent contractor classifications. In 2015, the Department of Labor issued a statement noting that many workers are improperly identified as independent contractors, when they should be classified as employees and entitled to various protections under the law. The 2015 guidance was intended to help make more workers eligible for minimum wage coverage, overtime, and other protections.
The current shift away from the 2015 and 2016 guidance is generally favorable to businesses. Proponents of this change believe that the language implemented in 2015 and 2016 guidance was too ambiguous and opened the door to excessive litigation. Many business owners believe the prior guidance is easier for companies to understand and comply with. Specifically, franchisors are pleased with the shift back to “direct control” as the standard for determining whether a franchise is a joint employer. Franchise owners have argued that the Obama-era standard made it difficult to create new jobs.
Proponents of the 2105 and 2016 guidelines argued that the broader language of the joint employment benefits for workers, and to prevent employers from avoiding paying for unemployment insurance or payroll taxes.
The guidance issued by the Department of Labor does not have a binding effect, but it provides insight as to the Department’s goals and priorities. The Department of Labor’s recent guidance changes signal a more employer-friendly approach than the previous administration had taken.