There is concern amongst many franchisors regarding the likeliness of being held liable as joint employers for wage-and-hour violations under the Fair Labor Standards Act (FLSA). Due to these concerns, the U.S. Department of Labor (DOL) updated and revised its definition of the role of joint employment under the FLSA with the purpose of ensuring continuity for employers and employees.

Let’s discuss more regarding a joint employer situation.


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Specifications Under the Final Rule

In the DOL’s final rule announced on Jan. 12, 2020, a four-factor-test was implemented to determine whether an entity would be considered a “joint employer” under the FLSA. According to this test, a joint employer:

  • “Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records.”

The final rule specifies that no single factor is enough to assess the status of a joint employer and the appropriate weight to be assigned to each factor may differ depending on the circumstances. However, the satisfaction of maintaining the employment records element alone does not reflect the role of a joint employer.

Additional specifications under this final rule are that it:

  • “specifies that when an employee performs work for the employer that simultaneously benefits another person, that person will be considered a joint employer when that person is acting directly or indirectly in the interest of the employer in relation to the employee;
  • provides a four-factor balancing test to determine when a person is acting directly or indirectly in the interest of an employer in relation to the employee;
  • clarifies that an employee’s “economic dependence” on a potential joint employer does not determine whether it is a joint employer under the FLSA;
  • specifies that an employer’s franchisor, brand, and supply, or similar business model and certain contractual agreements or business practices do not make joint-employer status under the FLSA more or less likely; and
  • provides several examples applying the Department’s guidance for determining FLSA joint-employer status in a variety of different factual situations.”

One of the main things you might want to take away is the provision that operating as a franchisor entering into a brand-and-supply agreement or using a similar business model does not increase the likelihood of FLSA joint-employer status.

The FLSA  allows a joint employer situation when an employer and a joint employer are jointly responsible for the employee’s wages. The final rule aims at ensuring that employers and joint employers clearly understand their obligations to pay at least the federal minimum wage for all hours worked and overtime for all hours worked in excess of 40 working weeks.

The final rule provides further guidance for determining joint-employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity, including guidance on the identification of certain factors that are not relevant when determining joint-employer status.

For more information on the final rule, check out the DOLs Joint Employer Final Rule Frequently Asked Questions and the full summary here.

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Disclaimer: Please note that this article is not all-inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding the specific application of the information to your own plan.