Trying to decide who’s an employee and who’s an employer had been getting pretty confusing, what with third-party labor providers, so-called gig-economy platforms, and franchise relationships. Big companies could get all the help they wanted to further their strategies. When questions about labor law compliance came up, the companies could point to another business and say, “Sorry, not us.”
The Obama Department of Labor started pushing a different focus by questioning when big companies might effectively be “joint employers” and, thus, also responsible. That appears to have come to an end under the Trump administration.
The Department of Labor Secretary Alexander Acosta announced that informal guidance on joint employment and independent contractors from 2015 and 2016 is now withdrawn. The statement “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act” under pre-existing regulations and case law. And the DoL says it will “continue to fully and fairly enforce all laws within its jurisdiction.”
If employees are split up among many third parties, problems with employment are similarly divided. Fast food workers for franchise owners of a large chain might not, in theory, be entitled to enter a class action suit against the central company because they aren’t technically employees. Similarly, big companies might split up duties like customer service or reviewing website comments through multiple third-party platform companies. The workers cannot sue the big companies because they aren’t employees and don’t have standing.
The approach allowed big ultimate users of the labor to wash their hands of allegations of wage theft, working conditions, and other responsibilities. Using legal structures and statutory law in such ways was the embodiment of the privilege of those on the upper side of income inequality.
Obama administration takes action
The protective structures began to show cracks in 2014 when workers at a number of McDonald’s franchises filed class action suits, claiming that their wages had been illegally withheld and that, because of the close control McDonald’s has been known to exert over franchise operations, the central company created the conditions that led to wage theft. The company disputed the claim.
The general counsel of the National Labor Relations Board said the agency should treat McDonald’s as a joint employer, meaning that employees worked for both the specific franchisees that hired them and for the central company.
In January 2016, the Department of Labor issued what is called an administrator’s interpretation of law (since taken down from the DoL site, which is why the previous link is to an archived version). It was informal governance, but still significant. The agency took a look at so-called fissured industries like restaurants, construction, and hotels that often made use of intermediary employers-of-record and of companies using gig workers. Here are the examples the document gave, with the first three showing joint employment and the fourth, not.
- “Casey, a registered nurse, works at Springfield Nursing Home for 25 hours in one week and at Riverside Nursing Home for 25 hours during that same week. If Springfield and Riverside are joint employers, Casey’s hours for the week are added together, and the employers are jointly and severally liable for paying Casey for 40 hours at her regular rate and for 10 hours at the overtime rate. Casey should receive 10 hours of overtime compensation in total (not 10 hours from each employer).”
- “An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee’s hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. These facts are indicative of joint employment between Employers A and B.”
- “A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers’ compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer’s schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor’s construction projects, whether through ABC Drywall or another intermediary. These facts are indicative of joint employment of the laborer by the General Contractor.”
- “A mechanic is employed by Airy AC & Heating Company. The Company has a short-term contract to test and, if necessary, replace the HVAC systems at Condor Condos. The Company hired and pays the mechanic and directs the work, including setting the mechanic’s hours and timeline for completion of the project. For the duration of the project, the mechanic works at the Condos and checks in with the property manager there every morning, but the Company supervises his work. The Company provides the mechanic’s benefits, including workers’ compensation insurance. The Company also provides the mechanic with all the tools and materials needed to complete the project. The mechanic brings this equipment to the project site. These facts are not indicative of joint employment of the mechanic by the Condos.”
In other words, the Obama administration said that there was nothing wrong with a truly independent form of employment. The problem occurred when a company wanted to claim that it wasn’t an employer and yet desired to maintain extensive control that an employer would have.
That has become a growing problem in U.S. employment. With the general consolidation of many industries and weakening of labor representation, workers have had ever less power to negotiate and to ensure their rights.
Now, with today’s announcement, the administration, through the DoL, has effectively declared open season for indirect structures that increasingly benefit large employers and allow them to more freely act as direct employers but avoid responsibility for the implications of their decisions.
But it’s also effectively saying that it won’t go further or push for new interpretations of regulations that reflect changing employment conditions.
How the issue came up
The issues at stake come from developing practices in which corporations legally isolated themselves from workers in the following ways:
- Workers were declared “contractors” and not employees, like drivers for Uber and Lyft.
- Workers might report to a franchise operations, as in the case of large fast food operations.
- Workers might be removed from the employment of a big firm and be told they now worked for a third party instead.
In each of these situations, the big company technically did not employ the people and so could argue any questions of labor law or conditions were either not applicable, because the workers were “self-employed” contractors, or were a matter for the employer of record.
The approach had some serious implications. Self-employed people aren’t allowed to join a union or be involved with collective bargaining because the individuals are considered independent business owners. To work together on pricing and conditions would be considered price fixing, which is why organizations of independent contractors are frequently structured as trade associations.