On June 7, 2017, U.S. Secretary of Labor Alexander Acosta announced the withdrawal of the U.S. Department of Labor’s (DOL’s) 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.
It’s important to note that laws concerning joint employment and independent contractors remain in force. The DOL has simply removed the administrator interpretation. The DOL is the only federal agency to make this change. The National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC) will still enforce their broad interpretations of joint employer relationships as well as the courts. However, some speculate that these agencies may relax their enforcement going forward.
Guidance made companies fear greater liability
Businesses opposed the Obama administration guidance, which suggested expanded circumstances under which they could be held liable as a joint employer. The guidance suggested, for example, a business that hired temporary workers through a staffing agency could be considered a joint employer of those workers for purposes of wage and hour laws, and perhaps other federal laws depending on the scope of control.
Until 2015, the DOL maintained that the guidance applied only to cases in which the hiring business had “direct control” over the other firm’s workplace. The guidance issued under Obama’s Labor Secretary, Tom Perez, would change the requirement in 2015 to a vaguer “indirect control.” This worried many business owners regarding liability for offsite workplace violations.
To combat perceived economic inequality, the Obama government intended the DOL guidance to restrict the type of worker designated as an independent contractor. As written, millions of low-wage workers currently treated as independent contractors would now likely be classified as employees, affecting their tax status, unemployment insurance, and eligibility for overtime pay.
Franchisors cautiously relieved at guidance change
The removal of the informal guidance on joint employment may have particular impact for franchisors, which allow others to use their names, brands, and business models in exchange for annual fees and part of the franchisees’ profits. But franchisors are cautioned that this action does not necessarily impact the considerably broad definitions of joint employment currently in force by other agencies, including the National Labor Relations Board and the Equal Employment Opportunity Commission, or as recently decided by the courts.
Because franchisors clearly must support a consistent business model and customer experience, which requires certain standardizations with franchisee employee processes, they have a vested and critical interest in ensuring franchisees invest in a compliance program. And while dictating and/or directing specific policies and processes related to the everyday management of franchisees’ employees can likely contribute to a finding of joint employment, franchisors may be able to limit their liability in this regard by continuing to encourage franchisees to take steps to ensure full compliance, and by highlighting and recommending the soundness of HR outsourcing options that incorporate compliance support. Such support might include assistance with employee handbook development, payroll processing, or even access to an HR consultant not employed by the franchisor.
Independent contractors may receive less scrutiny
Removal of the 2015 informal guidance might indicate that the DOL will ease back on enforcement activity related to misclassification of workers. As the National Law Review noted, “A more business-friendly DOL may choose to rely on certain factors, such as an independent contractor agreement setting forth the business relationship and the comparative degree of control over the work exerted by the two parties, over those factors that were highlighted in [the] former administrator’s … interpretation, such as whether the worker runs his or her own independent business.”
The DOL upholds the division between employees and independent contractors, but under President Trump, the agency could approach the issue differently than previous administrations.
Paychex will continue to monitor this issue and provide updates as necessary. If you have questions about the application of wage and hour laws to your particular situation, call the DOL Wage and Hour Division office nearest you.