The U.S. Department of Labor has proposed a four-factor test based on precedent to determine if two entities meet standards that make them joint employers of a shared labor pool.

THE U.S. DEPARTMENT of Labor has created a new rule that may finally clarify joint-employer status and resolve an issue that has troubled the hospitality industry for several years now. Meanwhile, another federal agency, the National Labor Relations Board, is in the process of preparing its own rules.

The new Labor Department rule essentially establishes a four-factor test based on precedent to determine if two entities meet standards that make them joint employers of a shared labor pool.

The test would establish if each company has the power to hire or fire shared employees; supervise and control the employees schedules and work conditions; determine the employees’ rate and method of payment; and maintain the employees’ employment records. The new rule would be added to The Fair Labor Standards Act and would be the Labor Department’s first major revision of its joint employer regulation since 1958.

“The proposal explains the statutory basis for joint liability, helping to ensure that the Department’s joint employer guidance is fully consistent with the text of the FLSA,” said Keith Sonderling, acting administrator for the Labor Department’s Wage and Hour Division. “The proposed changes would provide courts with a clearer method for determining joint employer status, promote greater uniformity among court decisions, and reduce litigation.”

AAHOA supports the proposed rule, according to a statement from Interim President and CEO Rachel Humphrey, who said it would provide clarity needed by an industry that relies on the franchise business model, such as hotels.

“For an entity to be considered a joint employer, they must have control over working conditions,” Humphrey said. “Making the four-part test outlined in the proposed rule part of the FLSA will help clarify joint employment status. We look forward to the public comment period and encourage hoteliers and small business owners who employ the franchise business model to seize this moment to make their voices heard on this important matter.”

The rule lists several scenarios to illustrate when a company should be considered a joint-employer, and when it should not be. One of those examples relates directly to the type of situation most concerning to AAHOA members.

“Franchisor A is a global organization representing a hospitality brand with several thousand hotels under franchise agreements. Franchisee B owns one of these hotels and is a licensee of A’s brand,” the example says. “In addition, A provides B with a sample employment application, a sample employee handbook, and other forms and documents for use in operating the franchise. The licensing agreement is an industry-standard document explaining that B is solely responsible for all day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment.”

In that example, the rule states, the hospitality franchisor is not a joint-employer with the franchisee.

The Labor Department is now accepting public comments on the proposed rule. Comments can be submitted electronically at in the rulemaking docket RIN 1235-AA26. Comments can be submitted for 60 days after the rule is published in the Federal Register.

Meanwhile, the NLRB has closed the public comment period on its proposed rules after two extensions.

The board’s definition of joint-employer status has been in limbo since Feb. 26, 2018, when the NLRB vacated its 2017 decision in Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co. in response to a court finding that one of the board members had a conflict of interest in that case. As a result, the board’s definition on joint employers under the National Labor Relations Act and the Fair Labor Standards Act reverts to the 2015 Browning-Ferris Industries case, which the Hy-Brand decision had overruled.

On Dec. 28, the U.S. District of Columbia Circuit Court of Appeals’ ruling upheld NLRB’s joint-employer test defined in its 2015 Browning-Ferris decision, saying it was correct to find that a company’s “right to  control  and  indirect  control” could be considered in deciding its joint-employer status. At the same time, it sent the issue back to the board for consideration over the scope of the definition of indirect control.

NLRB Chairman John Ring recently had to answer some concerns from Congress members regarding claims that the board was outsourcing reviewing of the comments it had received. Ring said in a letter to Reps. Bobby Scott (D-Virginia) and Frederica Wilson (D-Florida) that while the board would be directly reviewing the nearly 29,000 comments it received it would employ an outside party to help sort and code the comments.

“This support work will be provided through a [General Services Administration]-approved temporary employment agency, contracted through the GSA bid process and taking all conflict-of-interest issues into consideration,” Ring said. “We will ensure, of course, that appropriate confidentiality protections are in place. Again, I emphasize that this work, which will be overseen by NLRB staff, will not involve any substantive, deliberative review of the comments but will be limited to sorting comments into categories in preparation for their substantive review. The Agency’s own labor-law professionals will perform the first substantive review of the comments.”