Sharing Labor, Compliance & Liability

Recently, the concept of “Joint Employers” has been rapidly evolving, based on several court rulings and new guidance issued from the Department of Labor. Joint employers in employment law are found to exist where two separate legal entities share the ability to control or determine essential terms and conditions of employment, including hiring, firing, disciplining, supervising, scheduling and directing employees.

When a joint employment relationship is found to exist, both entities must comply with the applicable laws (such as overtime regulations, Family and Medical Leave Act and the Affordable Care Act). What this means is that there is a lot at stake if a court determines that a company is a joint employer with another company.

The Department of Labor recently issued guidance specific to situations where two (or more) employers each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee. This type of joint employment is sometimes referred to as horizontal joint employment. The focus of the horizontal joint employment analysis is the degree of association between the two potential joint employers even if they are formally separate legal entities and the degree to which they share control of the employee. The following factors may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
do the potential joint employers have any overlapping officers, directors, executives, or managers;
do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
does one potential joint employer supervise the work of the other;
do the potential joint employers share supervisory authority for the employee;
do the potential joint employers treat the employees as a pool of employees available to both of them;
do the potential joint employers share clients or customers; and
are there any agreements between the potential joint employers

To reduce the possibility of being considered joint employers, it is important to limit the above, particularly the appearance that one entity has any control over the dealings with the employees of another entity. When outsourcing payroll, HR, benefits and/or Risk Management, it is likely that the Service Agreement specifies that the worksite employer retains the responsibility for managing the day to day operations and employees. Below are some suggestions to avoid potential risk. The recommendations listed below refer to franchisees and franchisors, but could apply to any company with shared employee relationships.

1. Employee Handbooks & Templates. It’s best to make your own decisions about your handbook content, rather than basing your policies on what another franchisee has in their handbook. Also, the franchisor should avoid providing franchisees with employment applications or other employee forms or templates that they are required to use. A good HR Consultant can work with you to customize your Employee Handbook and provide customizable templates that satisfy your employee management needs, thus avoiding the appearance of an outside entity having control over how your staff is hired and managed.

2. Employment Decisions. As good risk minimizing best practice for a franchisor is to avoid involvement in a franchisee’s employment decisions, including hiring, firing, disciplining, scheduling, setting wages and establishing working conditions. Because the franchise is a separate business entity, a franchisor should not set specific work schedules or pay structure for the franchisee’s workers. The franchisee should set its own schedules, hours of work and pay rates. Employee information should not be shared between franchises. And if hiring an employee, who also works for another franchisee, complete the same selection processes as you would with any other applicant.

3. Don’t Direct Franchisee’s Employees. Franchisors should give directions to the franchisee ownership, not the franchisee employees themselves. The franchisor does not want to create any appearance that it has any control over the day-to-day operations of the franchisee.

4. Train Your Employees Yourself. Franchisee owners should train their own employees. The franchisor should only train the franchisee-owner, and training for anyone below the ownership level should be optional, if it is offered at all.

The best recipe for minimizing risk when a joint employment relationship may look to exist is to draw a clear line between of what is one organization’s responsibility with day to day employee management as compared to another. In the franchising world if there is a separate legal entity involved, that is the dividing line.

Many new franchise owners believe they “bought” HR systems and processes when they bought the unit. But in reality franchisors don’t want to share risk in something they can’t control. They aren’t at the unit day in and day out to make hiring, managing and labor law compliance decisions – the franchisee owner and the staff they choose to hire are.

Click the link to view our recent blog: “I’m a New Employee Here… I Think” Part Two or check back for more on human resources, payroll, insurance and benefits.