The existing joint employer rule is over a half-century old. In January 2020, the Department of Labor finally updated the controversial rule.

Joint employer relationships often occur in franchise businesses. For example, 7-11 has over 55,000 worldwide locations. 7-11 controls most operational things like business hours, inventory, advertising, and prices. But for the most part, each franchise is independently owned. So, is the boss of the franchisor (7-11) or the franchisee (independent owner)?

Subcontracting is another example. If Big hires Little to clean Big’s offices, Little’s workers could be employees of either or both companies. The joint employer problem is even more difficult if Big is Little’s only customer.

Under the old rule, a company could be a joint employer unless it was “completely disassociated” from a worker. The new rule is more subjective. The test is whether any proposed joint employer “exercises substantial control over the terms and conditions of the employee’s work.

Hiring and Firing Employees

This factor might seem black and white. After all, the franchisee has the final say in these matters. But there is a grey area.

Let’s return to the 7-11 example. Assume the franchisor raises employee standards regarding identity verification for alcohol purchases. Employees must pass tests and demonstrate proficiency with a complex new computer system. In response, franchisees must fire some employees who cannot meet the standard and hire new ones.

In this example, did the franchisor or the franchisee hire and fire these workers? The argument could go either way.

Determining Pay Frequency and Rate

Once again, this factor could go either way. But that’s not always the case, especially in Big/Little contracting situations.

Assume Big and Little use the same payroll processor. The payment processor designates a Big employee as the primary agent. So, if Little workers have issues with their pay or need advances, they must go through Big.

Substantial Supervision of Work Schedule and Conditions

This factor is perhaps the clearest one. The franchisee company almost always controls these issues. True, the franchisor has a say regarding store hours and other such matters. But that control is not substantial. At the end of the day, the franchisee has the key to the front door.

Maintaining Records

In Big/Little contractor situations, this factor is straightforward. Typically, Big has no desire to maintain such records. But in franchisor/franchisee environments, the outcome could be different. Generally, franchisees enter this information in a computer database. Frequently, the franchisor at least has login information for this database, and in many cases, the database is proprietary. In this example, who maintains these records?

No single factor is dispositive, and all four need not be present. However, for Big or 7-11 to be a joint employer, the company must exercise more than theoretical control.

The DOL changed the joint employer to keep pace with today’s market realities. For a confidential consultation with an experienced Greenville employment law attorney, contact the Briggs Law Firm. We routinely handle matters in Spartanburg County and nearby jurisdictions.

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