The Labor Department released a proposal Monday that would limit claims against big companies for employment-law violations by franchisees or contractors.
The proposal, related to a concept called joint employment, seeks to define when, for example, employees of a locally owned McDonald’s restaurant could successfully take action against the McDonald’s Corp. over violations of minimum-wage and overtime laws.
The proposal, which will require a 60-day public comment period before it can be finalized, could affect the ability of millions of workers pursuing wage claims. Franchisees and contractors can be small, poorly capitalized operations, which can complicate efforts to recover wages that were illegally denied. Instead, those efforts are often directed at large companies with whom those employers have relationships.
“This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections,” Labor Secretary Alexander Acosta said in a statement.
The proposal is a sharp departure from the joint employer criteria that the Labor Department laid out in 2016 under the Obama administration. Under that guidance, a company like McDonald’s could be held liable for minimum-wage violations committed by a franchisee even if it did not directly supervise workers or hire and fire them. The fact that McDonald’s may exert some forms of indirect control over the franchisee – which may rely on software provided by the company and incorporate policies that the company developed – could make the larger corporation liable.
According to the new proposal, four factors are capable of establishing joint employment: whether the upstream company exercises the power to hire and fire employees; whether it supervises them and controls their schedules; whether it sets their pay; and whether it keeps up their employment records.
If a company doesn’t engage in most or all of these activities, it is unlikely that it would be deemed a joint employer.
Critics accused the department of laying out a step-by-step guide to employers seeking to get off the hook for violations even when they have substantial control over workers hired by their franchisees and contractors.
“It has provided such an obvious road map for employers to evade liability,” said Sharon Block, a former top official in the Obama Labor Department who is executive director of the Labor and Worklife Program at Harvard Law School. “But that’s going to introduce tremendous uncertainty into the lives of American workers who are subject to these business models.”