The U.S. Department of Labor (“DOL”) announced two proposals last week to modify its current regulations.
First, the DOL has proposed to withdraw its January 6, 2021 rule, which we summarized here, that provides a test to determine whether a worker is an employee under the Fair Labor Standards Act (“FLSA”). The rule sets out a five-factor “economic realities” test used to classify a worker as either an employee or independent contractor. Employers are only obligated to comply with FLSA for their employees, but not for independent contractors. The test imposed under the rule provides a significant degree of flexibility and subjectivity, enabling employers to more easily classify workers as independent contractors when appropriate, and is on balance, positive for the franchising industry.
Second, the DOL has proposed rescission of its January 2020 “joint employer rule,” which took effect March 16, 2020, and that we summarized here. This rule established a standard for when, and under what circumstances, two or more entities are considered “joint employers” of an employee for purposes of liability under labor laws. This new standard was positive for the franchising industry, as it emphasized the actual, direct control that an employer exerts over a worker in determining whether an entity is a joint employer.