Cooperative Agreement on Wage and Hour Rules Could Backfire on Employers

As I discussed earlier this week, Subway came to terms with the Department of Labor (DOL) in what is being considered a cooperative agreement. Its stated purpose is to ensure wage and hour compliance at Subway franchisees.

However, as the International Franchise Association noted in a statement, the agreement may become problematic for Subway in the future. “Without assurances that their compliance efforts will not be used against them by another government agency, or plaintiff attorneys, franchisors are caught in an inevitable catch-22.”

The IFA is referencing the National Labor Relations Board (NLRB) and how it may use Subway’s agreement to tag them as a joint employer. But it is still up in the air whether this is case because the NLRB crafted an extremely vague joint employer standard.

As I commented yesterday, it wasn’t always so hard to figure out when two companies are considered a joint employer and liable for each other’s labor violations.

Previously, it was pretty easy to determine joint employer liability. All one needed to know was whether an employer exerts direct control over another company’s workers. For example, does one company directly control hiring and firing, supervising, or set wages of another employer’s employees? Now the NLRB joint employer liability may be established if one company exhibits indirect or unexercised potential control of another company’s workforce. If you are not sure what that entails, you are not alone.

But now, the NLRB’s joint employer standard is hopelessly unclear. The business community does not know what actions it may take that establishes a joint employer relationship. As I indicated yesterday, a provision in the Subway and DOL agreement is similar to a McDonald’s Corporation practice of installing software at franchisees that monitors wages and hours of employees.

The NLRB alleges, in part, that McDonald’s installing software at franchisees that tracks workers establishes a joint employer relationship. Here is the catch that IFA notes, Subway is coming to an agreement with the DOL and the NLRB could use that against Subway to label them as a joint employer with franchisees, which greatly expands the franchisor’s liability.

In a recent report, I note this phenomenon. The DOL is pushing employers into settlement agreements that require the larger employer to ensure compliance of those further down the supply chain. A settlement that requires one company to exert more control over another company and its workers could very well be used against them by the NLRB to label the company as a joint employer with their contractors.

Here is the segment of my report that outlines the DOL enforcement strategy and an example settlement that could run afoul of the NLRB’s joint employer standard:

An increasingly common settlement provision pushed by the Labor Department is a requirement that the large company put in to place safeguards to ensure future FLSA compliance of contractors and subcontractors. FLSA settlements that require one company to ensure future compliance of contractors and subcontractors could be enough to find joint employment under the Browning-Ferris decision.

DOL Wage and Hour Administrator David Weil explains in October 2014 blog post that the strategic enforcement strategy of the agency is to target the top of a supply chain and hold them responsible for ensuring future compliance with the FLSA of those further down the chain. For example, in a 2014 settlement between Paul Johnson Drywall and the DOL, the settlement terms forced the company to “hire a third-party monitor to ensure compliance by the company and require any drywall subcontractors to conduct regular training of supervisors and employees regarding the requirements under the FLSA.”

DOL settlement agreements where an employer is required to oversee or train a contractor or subcontractor’s supervisors and employees about issues of wages and hours may well establish a finding of joint employer status under the NLRB’s new vague standard.

If such agreements are seen as indirect control of another employer’s workforce, the NLRB’s joint employer standard will simply give larger companies another reason not to contract with smaller firms in the future or enter into settlement agreements to quickly resolve FLSA violations.”

It is a sad state of affairs that it may backfire on companies when they try to do the right thing by settling wage and hour violations and take steps to have it not happen again. The NLRB needs to clarify its joint employer standard so the business community understands the rules of the game. Until then, businesses may be wary of agreeing to settlements with the DOL that could increase their liability via the NLRB’s joint employer standard.