Last summer a National Labor Relations Board interpretation of law set a chill to the franchise industry. The organization said McDonald's should be treated as a joint employer of workers at franchised locations because it exerted considerable control over franchisee staffing and operations. The potential was that the main company could be thoroughly tied into class action suits over fast food worker wages and working conditions.

Now the Department of Labor has issued an Administrator's Interpretation of Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act. It expands on the issues that the NLRB brought up with McDonald's but in a more expansive treatment. From first glance, a number of strategies and structures that companies use to reduce overall labor and compliance costs could turn out to be a problem.

The issue arises when an employee has more than one employer and the employers have some relationship between them. The danger for employers is that the relationship they think they have with an employee could suddenly change, based on the joint employers interpretation. For example, the hours worked at each employer get added together to decide whether overtime pay is due -- or, presumably, whether the person is actually a full-time worker, which would have additional consequences under the Affordable Care Act and possibly other laws.

The joint employers are "jointly and severally liable for compliance with the FLSA and MSPA." In other words, if one party fails to meet its regulatory obligations, both are equally culpable and responsible.

A joint employment finding depends on the specific facts and there are two types: horizontal and vertical. In horizontal, two employers that separately employ an individual may have enough of a relationship, which can include common owners, to be declared joint employers. In vertical, one company has workers that another uses. Here are some examples the Labor Department offered, with the first three showing joint employment and the last, not.

  • "Casey, a registered nurse, works at Springfield Nursing Home for 25 hours in one week and at Riverside Nursing Home for 25 hours during that same week. If Springfield and Riverside are joint employers, Casey's hours for the week are added together, and the employers are jointly and severally liable for paying Casey for 40 hours at her regular rate and for 10 hours at the overtime rate. Casey should receive 10 hours of overtime compensation in total (not 10 hours from each employer)."
  • "An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee's hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. These facts are indicative of joint employment between Employers A and B."
  • "A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers' compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer's schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor's construction projects, whether through ABC Drywall or another intermediary. These facts are indicative of joint employment of the laborer by the General Contractor."
  • "A mechanic is employed by Airy AC & Heating Company. The Company has a short-term contract to test and, if necessary, replace the HVAC systems at Condor Condos. The Company hired and pays the mechanic and directs the work, including setting the mechanic's hours and timeline for completion of the project. For the duration of the project, the mechanic works at the Condos and checks in with the property manager there every morning, but the Company supervises his work. The Company provides the mechanic's benefits, including workers' compensation insurance. The Company also provides the mechanic with all the tools and materials needed to complete the project. The mechanic brings this equipment to the project site. These facts are not indicative of joint employment of the mechanic by the Condos."

As McDonald's is finding, these cases can be anything other than straightforward. As the nature of business changes and companies increasingly use more complex labor structures, the chances of getting tripped by regulatory compliance grows.

Published on: Jan 20, 2016