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Much-criticized old definition of 'joint employer' is officially back

Reverting back to a looser standard is likely to expose more franchisors to litigation arising from franchisees' labor practices.
Photograph: Shutterstock

The Biden administration has officially killed the narrow definition of “joint employer” set by the U.S. Department of Labor during Donald Trump’s time in office, reverting back to the looser standard that restaurant chains had blasted as a lethal threat to franchising.

The switch back to the older, vaguer definition will almost certainly raise the likelihood of franchisors being sued or fined more often for the labor practices and policies of their franchisees. Organized labor has long championed the looser standard, in part because employees stand to collect more from big franchisors than they might from a mom-and-pop operator.

Tying the mistakes or mis-actions of a franchisee to the owner of a well-known national brand could also help in mustering support for unionizing an operation on the scale of a McDonald’s. Indeed, McDonald’s was involved in one of the landmark cases stemming from the looser joint-employer standard that was set during the Obama administration. 

Under that threshold, franchisors could be regarded as a joint employer if they exercised direct or indirect control over a franchisees’ staff.  

Given the risks, franchisors had warned through representatives such as the International Franchise Association (IFA) that they might have to stop awarding franchises, or limit deals for new restaurants to existing licensees who had proved they can abide by labor regulations.

The Trump administration had attempted to narrow the exposure by posing four closed-ended questions as the criteria for determining when a franchisor could be regarded as a joint employer of a franchisee’s staff:  

  • Do they have the power to hire or fire?
  • Do they set or supervise workers’ schedules and duties?
  • Do they determine what and how employees are paid?
  • Do they maintain a staff’s employment records?

The standard was adopted in March 2020.

“The joint employer standard released in 2020 helped small business owners navigate the crisis, keep employees safe, and protect their communities during the COVID-19 pandemic,” the IFA said in a statement. “Moreover, the 2020 standard also ensured brands could leverage their networks to assist small business owners in navigating the Paycheck Protection Program (PPP) and other critical emergency lending measures.

The stricter definition was not long lived. The Trump standards were largely struck down by the U.S. District Court for the Southern District of New York later in 2020 on grounds that the Trump administration had not followed the correct rule-making process.

The new rule issued Thursday by the Department of Labor technically states that the Trump standard will be totally rescinded as of September 28.

“It’s disappointing that the Biden Administration wishes to throw out a simple, clear and thoughtful rule and return to an expanded joint employer standard that would place a cloud of uncertainty over the heads of local small business owners that are trying to lead this economic recovery,” the IFA said in its statement.

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