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A win for employers on the ‘Joint Employer’ Doctrine

July 12, 2017 | Ghazaleh Modarresi
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The U.S. Department of Labor (“DOL”) announced on June 7, 2017 that it is withdrawing its 2015 and 2016 informal guidance on the “joint employer” doctrine.  The joint employer doctrine is used to determine whether a business can be said to effectively control the workplace policies of another company, thereby creating liability for them with respect to the workers of the other company.   Until 2015, the department said the doctrine applied only to cases in which a company had “direct control” over the other’s workplace.  In 2015, the standard was changed to “indirect control.”  This new language was much more ambiguous and broad, effectively expanding the situations wherein one business could be held liable for the violations at another company.  Companies, particularly franchises, were concerned that they would be held responsible for violations at workplaces they did not directly oversee and liable for workers that they did not employ and did not directly control, which leads to the kind of instability and uncertainty that harms businesses.  This reversal going back to the pre-2015 guidance is a win for employers, especially for the restaurant and franchise industries.

However, this reversal only addresses joint-employment liability under federal law and does not affect California’s state law interpretations of joint employer liability.  In addition, removal of the informal guidance does not change the legal responsibilities of employers under the Fair Labor Standards Act (“FLSA”) as interpreted by the DOL’s long standing regulations and case law.  And, because the DOL is not an adjudicatory body, plaintiffs’ attorneys are still free to argue their theories on joint employer liability in the courts, especially in circuits that have established broad joint employer tests under the FLSA.

It is important to note also that, despite the DOL’s withdrawal of the informal guidance, the “indirect control” standard can still be applied to businesses through the National Labor Relations Board (“NLRB”).  The NLRB is an independent federal agency that enforces the labor law rights of private sector employees.  The standard used by the NLRB to determine joint liability for compliance with the National Labor Relations Act is whether a company has “indirect” control over the terms and conditions of employment or has “reserved authority” to do so.  (See Browning-Ferris Industries.)  The NLRB has not rescinded its interpretation, and President Trump has not yet picked nominees for the board’s two open seats, which will likely affect the NLRB’s interpretation of the joint employer doctrine.