Department of Labor Withdraws Guidance on Joint Employment, Independent Contractors

In a positive development for employers, particularly the franchise community, the Department of Labor (DOL) has officially withdrawn its guidance on joint employment and independent contractors.

The move represents a step in the opposite direction from the Obama Administration's Labor Department, which significantly expanded the scope of determining "joint employment." A broader joint employer standard means that more employers can be held liable for unfair labor practices.

For example, franchisors may be held liable for the practices of their franchisees, and companies may be held liable for the practices of their contractors. The standard also makes businesses more susceptible to workforce unionization by imposing new collective bargaining obligations and allowing unions the ability to strike or picket a large corporate entity rather than the individual location where there is a dispute.

The Department of Labor also withdrew guidance on the Obama Administration's interpretation of "independent contractor." Under the Obama Administration, more individuals were considered "employees" as opposed to contractors. The status of a worker as an employee vs. an independent contractor can have implications in a variety of areas, such as an employer's obligations to pay overtime benefits, offer healthcare coverage, and liability for workplace injuries.

Importantly, withdrawing these guidance documents does not change the legal responsibilities of employers under the Fair Labor Standards Act. It does, however, signal that the Department of Labor will relax its approach to classification rules, and will make it more difficult for aggressive plaintiffs' lawyers to assert claims against employers when workers claim to have suffered labor grievances.

In addition, the National Labor Relations Board (NLRB), which is a separate, more independent entity from the Department of Labor, has not changed its position on joint employment from the Obama Administration. The NLRB established the original changes to the joint employer rules, a decision which continues to make its way through the courts. The NLRB position, unlike the guidance issues by the Labor Department, carries legal weight because courts are required to defer to it if the interpretation is "reasonable." (There are currently two open slots at the NLRB, which in the coming months likely will be filled by appointees more in line with President Trump's thinking on these issues

The Obama-era interpretations were designed to crack down on employee misclassification. Critics in the employment community, however, claimed they did not include consideration for the way employers actually used contractors when meeting talent needs. The new guidance should ease some of that concern.

This is a clear sign that the Trump Administration intends to undue some of the more activist policies of the prior administration, according to David Fialkov, NATSO's Vice President of Government Relations. The recent developments are a clear sign that the Labor Department under new Secretary Alexander Acosta will be less likely to target employers who might misclassify workers, he said. This is an issue the Obama Labor Department investigated aggressively, recouping millions of dollars in back wages for underpaid workers.

Fialkov said it's important for NATSO members to know they are still at risk for lawsuits from contractors claiming to be employees. A lot of uncertainty remains. For example, state regulators may now be more aggressive, particularly with respect to the blurred lines in the gig and temp economies. But the tide is moving in the right direction for the employment community.


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