Department of Labor Maneuvers to Limit Liability for Corporations Whose Franchises Underpay

The U.S. Department of Labor recently released a proposal that would reduce claims against corporations based on wage violations of their franchisees.  In hopes of reversing an Obama-era rule where corporations could be held liable for minimum-wage violations of its franchises, the DOL’s new rule seeks to “revise and clarify the responsibilities of employers and joint employers to employees in joint employer arrangements.”

The Department is proposing a four-factor test for determination of joint-employer liability.  The test looks at whether the alleged joint employer has the power to:

  • Hire or fire the employee;
  • Supervise and control the employee’s work schedules or conditions of employment;
  • Determine the employee’s rate and method of payment; and
  • Maintain the employee’s employment records.

Under the previous administration, corporations could be held liable for wage violations committed by franchisees even if the parent organization did not exercise direct supervision over employees.

This proposal appears to go the extra mile in protecting large corporations, even if they do exert some control over the employees through franchisee handbooks or directives to the franchise owners.  If a corporation does not exercise control in the four criteria above, it is unlikely they will be found jointly liable for underpayment of wages.

The primary areas this decision impacts are the calculation of hours in determining whether an employee is due overtime pay, and the ability of plaintiffs to name parent corporations as defendants in wage claims against their employers.  Without the resources of the larger corporations, it may be possible that even if a plaintiff wins a verdict against a franchise, and the damages could go unpaid, due to lack of funds from the smaller franchisee.

As of now, this remains a proposal from the department that still must go through the entire rulemaking process.  After that, there is always the possibility that the regulation is challenged, and courts refuse to give the regulations deference.  There is much caselaw already on the books for determining joint employer status, and it may take more than this to overturn precedent.  You can count on the Wiley Law Office to stay abreast of any changes to the law as it stands, and let you know when they happen.  For labor advice that works, contact the professionals at the Wiley Law Office.