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Department of Labor rule limits liability in joint employer suits
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Department of Labor rule limits liability in joint employer suits

The US Department of Labor promulgated a rule on Sunday that is likely to limit large franchise brands from employee overtime and wage suits.

The rule is 29 CFR Part 791, which defines Joint Employer Status under the Fair Labor Standards Act. The rule shifts the definition of “employer” for joint employment status from “multiple person … ‘not completely disassociated’ or ‘acting entirely independently of each other'” to a standard that requires more meaningful control over the employee. Under the new rule, an employer liable for wage and overtime disputes an arise several factors are met including whether the employer hires or fires the employee; supervises and controls the employee’s work schedule or conditions of employment; determines the employee’s rate and method of payment; and maintains the employee’s employment records.

The rule states that “the primary purpose of this final rule is to offer guidance explaining how to determine joint employer status where an employer suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work.” The Department of Labor indicates that it believes that the clarification “will allow parties to make business decisions and enter into business relationships with more certainty and clarity regarding what actions will result in joint liability under the Act.” The Department says this is the first meaningful revision to this part “since its promulgation in 1958, over 60 years ago.”

In the summary of the rule, the Department indicates that the update and revision will “promote certainty for employers and employee, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.” This rule is likely to reduce litigation and limit liability for large national franchises, like restaurant brands, while placing the burden more clearly on the local franchise for wage and overtime disputes.

The effective date of this rule is March 16, 2020.