Joint Employer Standard Creates a Complex New Playing Field

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Far-reaching measure’s impact also affects overtime pay, union organizing efforts. Franchisees urged to join industry push against measures in Washington, D.C. Sept. 13-14.

By Elizabeth Taylor

Following the Aug. 27, 2015, decision by the U.S. National Labor Relations Board to change the definition of “joint employer,” businesses across the country have been struggling to adapt to the new, nebulous standard. Most have been examining all of their contractual relationships and trying to determine where changes must be made to comply with the standard and avoid being deemed a joint employer with other, independent businesses. Not surprisingly, these evaluations are happening in franchise businesses too.

As a result, the true complexity and far-reaching effect of the new standard is still being discovered. This complexity is most apparent in the intersection between joint employer and the bevy of new federal rules that regulate businesses.

Overtime rule could double salary levels, change “duties” test

For example, the Obama Administration released a new regulation addressing overtime requirements in mid-May as this issue went to press. The rule is expected to not only double the salary level for those who are exempt from overtime pay and index it so it increases annually, but also may modify the “duties test,” which outlines the criteria employees must meet to qualify as exempt.

Under the previous rule, in order for employees to be exempt, their “primary duties” must be consistent with managerial, professional, or administrative positions as defined by the U.S. Department of Labor. It was unclear at time of writing what changes DOL may make to the duties test. Franchisees have 60 days to determine which of their employees qualify as exempt under the new rule and who must be paid overtime when they work more than 40 hours per week. Franchisees may need to reclassify employees in order to manage expenses or make other changes to their business practices in a short period of time.

Prior to the NLRB’s ruling on joint employer, a franchisee could have appealed to its franchisor for assistance in making those overtime determinations. After all, one of the many reasons franchisees chose to open a franchise small business rather than another business was because they wanted the support of a franchisor if they needed it.

What’s more, they paid for that support. However, under the new joint employer standard, franchisors may be reluctant to provide advice to franchisees about the management and classification of employees for fear of later being deemed a joint employer of those employees. Providing advice could mean the franchisor had “indirect control” over the “essential terms and conditions of their employment,” which is the new standard for joint employment.

Ambush, Persuader rules ease union organization

Similarly, the new joint-employer standard may force franchisees to handle potential unionizing efforts by their employees without any advice from their franchisor. While unionizing activities at franchise businesses have been limited historically, the Administration’s new ambush elections and persuader rules have both facilitated union organization and complicated it.

The ambush election rule allows a union to organize a location far more quickly than in the past. In fact, a recent study showed union elections are being held on average 28 days after a petition is filed, which is down from an average of 43 days last year. In addition to the shorter timeframe, franchisees may not be able to seek advice on how to handle a union election due to the new persuader rule.

The persuader rule requires disclosure of an employer’s contact with a lawyer or advisor when the discussion involves union organization. As a result, obtaining legal advice from an outside counsel may become less prevalent and more costly. Before these rules were changed, a franchisee who was confronted with a union organization effort could have turned to its franchisor for advice as to what to do. Following the joint employer ruling, however, franchisors may be wary of giving advice for fear of being deemed a joint employer.

Further, the nebulous joint employer standard could impede franchisees’ access to advice from their franchisor on any number of additional issues such as changes to labor and employment law made by the Department of Labor’s Wage and Hour Division, how to handle a harassment or discrimination lawsuit by an employee, or what to do if charged with unfair labor practices by the NLRB.

Fight Back: Tell Congress how new regulations are hurting businesses

While the potential effects of the NLRB’s joint employer ruling may seem overwhelming, you can fight back. Franchisees must tell Washington how these regulations are hampering their ability to grow their business and create jobs. On Sept. 13-14, IFA will host its Franchise Action Network Annual Meeting in Washington, D.C. Attendees will spend a full day on Capitol Hill meeting with their elected officials explaining the vast benefits of franchising and how these new regulations are hurting their business. I hope you will join us in this effort!

Elizabeth Taylor is vice president of Federal Government Relations, Public Policy and Counsel for the International Franchise Association. Find her at fransocial.franchise.org.