Proposed Easing of Obama-Era Labor Rules Yet Another Good Move by Trump Administration

The Trump Administration’s effort to reduce growth killing regulations gets far less coverage than it deserves. So, if you’re a franchised business owner — or hold one of the 7.6 million jobs they create — the Department of Labor’s (DOL) recently proposed “joint employer” rule may help you more than you realize.

Joint employer rules impose liability for violating an employee’s rights on entities in addition to the employee’s direct employer. Traditionally, to incur such liability, an entity had to meaningfully affect "matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.” 

In 2015, the Obama-era National Labor Relations Board (NLRB), expanded this traditional standard in cases involving collective bargaining and unfair labor practices. It imposed joint employer liability on entities that had an “indirect” — or even a “potential” —  relationship to another business’s employees. Ostensibly, the NLRB intended this new standard to address “changes in the workplace and economic circumstances.” In practice, it blurred the lines between franchisers and franchisees, contractors and sub-contractors, staffing service and their customers, making it easier to unionize larger businesses and relieving unions of the need to unionize smaller entities one by one.   

In 2016, the Obama-era DOL followed suit by issuing an Administrator Interpretation (AI) expanding joint employer liability consistent with the NLRB’s interpretation. The new rule applied to employee compensation claims such as those involving overtime pay and the minimum wage. 

This expansion of joint employer liability posed a significant threat to the franchise business model. Franchised businesses are independently owned and operated, even if they license a name and follow operating standards from a larger brand. It is a basic premise of the franchiser/franchisee relationship that the franchisee controls its labor force including hiring, firing, benefits, wages and incentives. Executives in McDonald’s Chicago office have no control over who fries the fries in your local McDonald’s.