Proposed Easing of Obama-Era Labor Rules Yet Another Good Move by Trump Administration

Proposed Easing of Obama-Era Labor Rules Yet Another Good Move by Trump Administration

The Trump Administration’s effort to reduce growth killing regulations gets far less coverage than it deserves. So, if you’re a franchised business owner — or hold one of the 7.6 million jobs they create — the Department of Labor’s (DOL) recently proposed “joint employer” rule may help you more than you realize.

Joint employer rules impose liability for violating an employee’s rights on entities in addition to the employee’s direct employer. Traditionally, to incur such liability, an entity had to meaningfully affect "matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.” 

In 2015, the Obama-era National Labor Relations Board (NLRB), expanded this traditional standard in cases involving collective bargaining and unfair labor practices. It imposed joint employer liability on entities that had an “indirect” — or even a “potential” —  relationship to another business’s employees. Ostensibly, the NLRB intended this new standard to address “changes in the workplace and economic circumstances.” In practice, it blurred the lines between franchisers and franchisees, contractors and sub-contractors, staffing service and their customers, making it easier to unionize larger businesses and relieving unions of the need to unionize smaller entities one by one.   

In 2016, the Obama-era DOL followed suit by issuing an Administrator Interpretation (AI) expanding joint employer liability consistent with the NLRB’s interpretation. The new rule applied to employee compensation claims such as those involving overtime pay and the minimum wage. 

This expansion of joint employer liability posed a significant threat to the franchise business model. Franchised businesses are independently owned and operated, even if they license a name and follow operating standards from a larger brand. It is a basic premise of the franchiser/franchisee relationship that the franchisee controls its labor force including hiring, firing, benefits, wages and incentives. Executives in McDonald’s Chicago office have no control over who fries the fries in your local McDonald’s. 

Under the expanded joint employer rules, franchisers suddenly found themselves potentially liable for their franchisees’ employment practices and targets for unionization if they had even a tangential connection to their franchisees’ employees. Understandably, this increased exposure hurt both parties.

A recent report by the International Franchise Association and the U.S. Chamber of Commerce, found that franchises saw a 93% increase in lawsuits following changes to the joint employer standard, while 92% of respondents said it led to reduced support from franchisers, who were now concerned about incurring liability for making even innocuous suggestions that might impact a franchisee’s employees.

President Trump’s promise to eliminate job killing regulations was one of the reasons business optimism surged following his election. In June of 2017, Labor Secretary Alex Acosta took a step towards fulfilling Trump’s promise and withdrew the Obama era joint employer AI stating that the DOL intended to replace it with a full-fledged rule. 

America’s 733,000 franchised small businesses — that add more the $400 billion to US GDP - breathed a collective sigh of relief.  

On April 1st, as promised, the DOL issued a Notice of Proposed Rulemaking with respect to the joint employer rule. Under the proposed rule, joint employer liability would exist only for entities that can “hire or fire an employee; supervise and control employees’ work schedules or conditions of employment; determine employees’ rates and method of payment; and maintain employees’ employment records.” In other words, employers. The proposed rule and the DOL news release make it clear that the mere existence of a franchiser/franchisee relationship would not make a joint employer relationship more or less likely.

Acosta deserves credit for pursuing a rational joint employer rule that will allow franchising to thrive and franchise ownership to continue to be a pathway to prosperity for hundreds of thousands of Americans from all walks of life. 

But, the administration and the DOL still have important work to do. The public comment period is open — which means that the lengthy period of reviewing, analyzing, and responding to the public’s input has just begun. The NLRB is further along in a similar process and is expected to revise its joint employer rule this year, returning to the traditional standard. Clearly, there should be one clear rule that reflects the realities of running a business and upon which employers can rely when assessing their potential liability under federal law — no matter the agency involved. 

Some Progressive Democrats, especially those running for President, are vigorously opposing these changes.  It isn’t hard to see why.

Thanks in great part to both deregulation and tax cuts, the unemployment rate and initial claims for unemployment benefits are sitting near 50 year lows. With employers competing for employees, year over year wage growth has been at or above 3 percent for eight consecutive months. Hardworking Americans are experiencing how common-sense, business friendly economic policies lead to job creation and increased wages. Eliminating the Obama-era’s expanded joint employer rule is a part of that effort.

Andy Puzder was chief executive officer of CKE Restaurants for more than 16 years, following a career as an attorney. He was nominated by President Trump to serve as U.S. labor secretary. In 2011, Puzder co-authored "Job Creation: How It Really Works and Why Government Doesn't Understand It." His latest book is "The Capitalist Comeback: The Trump Boom and the Left's Plot to Stop It" (Center Street, April 24, 2018). 

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