On Tuesday, November 7, 2017, the U.S. House of Representatives advanced a bill that seeks to reverse the Obama administration’s expanded theory of joint employment liability for labor law and wage-hour violations. The Save Local Business Act (H.R. 3441) (the “Act”) would amend the National Labor Relations Act and the Fair Labor Standards Act so that a company would be jointly liable for a business partner’s labor law or wage-hour violations only where the company has “direct control” over the business partner’s workers.
The Act is aimed at reversing the 2015 National Labor Relations Board (“Board”) decision in Browning-Ferris Industries of California Inc., in which the Board held that organizations with indirect control over contractors or staffing agency employees may be considered their employer for labor violations and would need to share collective bargaining responsibility. Although Browning-Ferris did not involve a franchise relationship, the joint employer arguments from that decision have been claimed to be analogous to the franchise relationship given the possibility of “indirect” or potential, even if not actually exercised, controls that impact certain of the relationships between franchisors, franchisees and workers employed by franchisees.
The Act is also aimed at amending the FLSA, with is the federal law requiring employers to, among other things, pay employees minimum wage and overtime. The Obama Department of Labor (“DOL”) had issued guidance in 2016 seeking to expand potential liability under the FLSA by making it possible for a putative joint employer, who does not necessarily exercise direct control over another employer’s workers, to be deemed liable for violations of wage and hour laws. This was a lot like the theory in Browning-Ferris. The Trump DOL, however, withdrew that guidance on June 7, 2017. Nonetheless, the plaintiffs’ bar has continued to target potential joint employers in wage and hour lawsuits. The Save Local Business Act would undercut these types of actions when asserted by franchisee workers against franchisors for wage violations allegedly committed by the franchisee, where the franchisor does not assert direct control over the workers.
The Save Local Business Act passed the House with the support of Republican members plus several Democrats. A companion bill has not yet been introduced in the Senate, where Republicans will need to sway enough Democratic senators to avoid a filibuster. Observers are optimistic that such a bill will be introduced shortly. Quarles & Brady will continue to monitor and report on this situation.