Franchise News: DOL Proposes Four-Point Test to Determine Joint Employer Status

It started in 2014—the year that the National Labor Relations Board (NLRB) recommended that McDonald’s be considered a co-employer and partially responsible for franchisees’ employees.

With that news, it was clear that the very face and form of the independent business franchise model could be altered forever, and those placed at either end found themselves on shaky, if not shattered, ground.

Then, in December of 2014, the NLRB named McDonald’s a joint employer with joint liability and filed 86 charges against the corporation. McDonald’s settled one of the labor complaints for $3.75 million in legal fees and back wages. Some believed the successful franchise model would be destroyed as more lawsuits, in search of deep pockets, followed. Companies began scaling back their assistance and support to their franchisees, particularly in the HR and payroll departments, in an effort to limit their liability under the joint employer ruling.

False Hope

In 2017, a ray of hope appeared for the industry in the guise of Andy Puzder, Trump’s pick for Labor Secretary, who had been CEO of CKE Restaurants—the parent company of fast food enterprises such as Carl’s Jr. and Hardee’s.  When alleged wage violations at CKE quick-service restaurants and abuse allegations by an ex-wife surfaced, he withdrew from consideration for the post and eventually lost his position as CEO. Yet another domino in the Trump administration had fallen.

Even Trump felt the affects of the NLRB ruling when his Doral National Golf Resort was held liable as a joint employer with the staffing agency that had hired catering workers for a 10-day event. Trump Miami Resort Management settled the case for $125,000.

The DOL’s New Proposal

Now, two years later, on April 1, 2019, the U.S. Department of Labor (DOL) has proposed revisions to joint employer regulations. Their new guidelines, that will help a franchisor (as well as businesses that obtain employees from third-party organizations such as staffing agencies) determine when they can be held responsible for the labor policies and practices of their franchisees, comes in the form of a four-factor test.

The franchisor is equally responsible for their franchisee’s illegal employment actions if:

  1. They have the power to hire or fire employees;
  2. They supervise and control the employees’ work schedules or working conditions;
  3. They determine employees’ pay rates and method of payment; and
  4. They maintain the employees’ employment records.

The DOL also noted that additional factors may be used to determine joint employment, such as the exercise of significant control over terms and conditions of the employee’s work, and otherwise acting directly or indirectly in the interest of the employer in relation to the employee.

Restaurant Business reported Matt Haller’s, the SVP of government relations and public affairs for the International Franchise Association, response to the proposed revision, “Through this proposal, the Department of Labor has the chance to undo one of the most harmful economic regulations from the past Administration and replace it with a rule that creates certainty for America’s 733,000 franchise businesses. An expanded joint employer standard has held back tens of billions of dollars in economic output each year due to a proliferation of frivolous lawsuits.”

You, the public, have 60 days to submit comments to the DOL regarding this proposal. After that time, a final ruling will be issued.


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