Wrestling with the Definition of Employee
Apr 3, 2019


The U.S. Department of Labor (DOL) issued a proposal that would make it more difficult to hold companies liable for employee obligations for employees of its franchisees.  We break down the DOL’s proposed rule.



Labor Secretary Acosta’s proposal seeks to clarify the test to determine whether employees of a franchisee are jointly employees of the franchisor, for purposes of compliance with employer requirements like minimum-wage and overtime laws.  According to the new proposal, four factors are involved in establishing joint employment: (1) whether the upstream company exercises the power to hire and fire employees; (2) whether it supervises them and controls their schedules; (3) whether it sets their pay; and (4) whether it keeps up their employment records.  If a company doesn’t engage in most or all of these activities, it is unlikely that it would be deemed a joint employer.



The proposal, which will require a 60-day public comment period before it can be finalized, could affect the ability of millions of workers to pursue wage claims under a concept called joint employment.  Leading advocates in the restaurant and staffing industries lauded the Secretary’s announcement, which would bring “clarity over the definition of joint employment, where the lack of a uniform employment test has led to diverging interpretations by courts and the National Labor Relations Board.”



This week’s proposal is a sharp departure from the joint-employer criteria that the Labor Department laid out in 2016 under the Obama administration.  Under those guidelines, a franchising company could be held liable for minimum-wage violations committed by a franchisee even if it did not directly supervise workers or hire and fire them.  The Obama era rule maintained that, exerting some forms of indirect control, like providing software or developing policies on which a franchisee relies, could make the larger corporation liable.  Monday's revamped rule by the DOL would set the narrower requirement that the company must "actually" exercise power over the other's policies. This is similar to the "direct" control, though the new version would appear to allow somewhat more flexibility.



Critics of the measure assert that the DOL is setting a step-by-step guide to employers seeking to avoid violations even when they have substantial control over workers hired by their franchisees and contractors.  We’re ringside for the debate, and we will follow this issue as it heads into its later rounds, and plays out around the country.


Dueling Employee Definitions


In the blue corner, California employee classification bill, Assembly Bill 5, seeks to codify and clarify a groundbreaking state Supreme Court decision from last year called Dynamex, which set forth a three-part standard (the ABC test) that says a worker is an independent contractor only if (a) the company hiring the worker does not direct how the work is performed, (b) the work is in a field different from the hiring company’s business, and (c) the worker runs a business doing the same kind of work performed for the hiring company.  The sponsors of AB 5 published an update to the bill this week exempting doctors, insurance agents, financial advisers, and direct sellers.  However, the sponsors have not granted exemptions for gig economy companies



And in the red corner, the Tennessee General Assembly unanimously approved House Bill 539, a measure that requires the Department of Labor and Workforce Development to use the 20-factor test used by the Internal Revenue Service to determine whether an employer-employee relationship exists for the purposes of OSHA, wage and hour laws, and for making determinations as to whether a person is an independent contractor or an employee under state’s workers’ compensation laws.  The bill now goes to the governor’s desk for signature.  We will keep an eye on the way states continue to grapple with this issue.  


Making Our Way Around the Country


The House Financial Services Committee approved H.R. 1595, the Secure and Fair Enforcement Banking Act of 2019, which would ensure access to financial services for cannabis-related legitimate businesses and service providers, including insurers and payers.  Commenting on the committee’s adoption of the bill, House Financial Services Committee Chair Maxine Waters (D-CA) said, “[t]his bill addresses an urgent public safety concern for legitimate businesses that currently have no recourse, but to operate with just cash… and this bill is part of a holistic approach toward providing criminal justice reform.”  The bill heads to the House floor.



The Federal Motor Carrier Safety Administration (FMCSA) published a Notice of Application for Exemption and Request for Comments for industrywide hours of service exemption in the electronic logging device (ELD) mandate for the waste hauling and recycling industry.  Waste industry advocates applauded the administration’ consideration, stating that the waste and recycling industry is different from most other transportation sectors, stating that an industrywide exemption would lead safer roadway and employment conditions.



Lawmakers in the U.S. Senate introduced legislation, S.B. 904, which would make the U.S. Department of Labor’s Voluntary Protection Program Act (VPP) a permanent workplace health and safety program for both public and private employers.  The VPP, which has been in existence since 1982 and is operated by the U.S. Occupational Safety and Health Administration, encourages workplaces to incorporate voluntary programs to protect worker safety and health and reduces OSHA inspections on workplaces that prove a commitment to safety and have a record of compliance with standards.



The Centers for Medicare and Medicaid Services (CMS) announced the that Non-Group Health Plans (NGHP), which include liability insurers (including self-insured entities), no-fault insurers, and workers' compensation entities are now able to submit payments for demands via the Medicare Secondary Payer Recovery Portal (MSPRP) and to track that the payment is accurately applied.  The MSPRP will interface with Pay.gov, an online payment system run by the Department of Treasury, which allows multiple forms of payment and there is no fee.  We’ll report back on the effectiveness of this new functionality.



We return to our main story this week.  Our readers in earshot of MetLife Stadium in East Rutherford, New Jersey, may hear the faint sounds of the crowd chanting for “Workers’ Compensation” during Wrestlemania 35 on Saturday night.  On Sunday, Emmy Award winning comedian and political influencer, John Oliver used his HBO comedy show, Last Week Tonight, to discuss workers’ compensation and employee benefits for the independent contractors inside professional wrestling.  He challenged fans expected to attend the professional wrestling event to chant for “retirement accounts, workers’ comp and Family Medical Leave,” in reference to the contractor status of Pro Wresters who participate in the event.  It would appear that employee classification issues are running wild, brother.


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