Save Local Business Act Passes the House: Bill Brings Clarity to Confusing Joint Employment Law

Mike Staebell, Dickinson Law Firm, Des Moines Iowa, Iowa Employment & Labor Law, Iowa Wage & Hour Watch

Posted on 12/19/2017 at 02:55 PM by Mike Staebell

On November 8, the U.S. House of Representatives passed HR 3441, the Save Local Business Act.   If passed by the Senate and signed into law by President Trump, HR 3441 would have a significant impact on two major federal workplace statues: the Fair Labor Standards Act (FLSA) and the National Labor Relations Act (NLRA).

The legislation would establish that joint employment could only be found if an entity “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over essential terms and conditions of employment” of a worker. If enacted, the law would both provide stability to the question of “joint employer” across statutes (the same standards would be applied under the NLRA and the FLSA), and more certainty to the courts, as the legal standards would be consistent.

During most of my career at the Wage and Hour Division of the Department of Labor, we found a joint employer status existed under the FLSA where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment.  If joint employment was found, both entities could be held jointly liable for violations of wage & hour laws.

Rulings and agency interpretations by the Obama Administration’s DOL, as well as the National Labor Relations Board, upended the traditional test, however.  Employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves under more intense scrutiny from federal regulators and plaintiff’s attorneys. 

The DOL, which enforces the FLSA, issued a 2016 Administrative Interpretation that also called for a broader-than-the-traditional standard when assessing joint employment relationships.  Although the Trump Administration rescinded this interpretation in June 2017, concerns remained that the courts, along with DOL and NLRB investigators, would continue to apply an expansive view of who are joint employers.  See my Wage and Hour watch blogs on the issuance and later withdrawal of the DOL’s joint employment interpretation here.  

The Save Local Business Act sets at least five factors courts and regulators would have to use to determine whether businesses are considered joint employers.   If it passes, HR 3441 would ensure that joint employment could be found only if a business entity with a relationship to an employer directly, actually, and immediately controlled such aspects of an individual’s employment as:

  • Hiring and firing;

  • Determining individual employee pay rates and benefits;

  • Day-to-day supervision of employees;

  • Assigning work schedules, positions, and tasks; and

  • Administering employee discipline.

In essence, the Save Local Business Act limits joint employer liability to entities who have actual, as opposed to potential, control over essential terms and conditions of employment.

Although eight Democrats voted for it in the House, H.R. 3441 may not garner enough Democratic support to pass in the Senate.  Nevertheless, the bill signals Congressional interest in rolling back the expansive joint employment standard that was advocated under the Obama Administration. 

Regardless of the outcome for the Save Local Business Act, employers, particularly those in industries that make use of franchises, subcontractors, and staffing agencies, should stay focused on evolving joint employment issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.

While the focus of this blog post – and the focus of the Wage and Hour Watch blog – is the Department of Labor, note that on December 14, 2017, in a 3-2 decision, the National Labor Relations Board returned to what had been a long-established standard for joint-employer liability under the National Labor Relations Act, overruling its 3-2 2015 decision in Browning-Ferris Industries, 362 NLRB No. 186 (2015)

For any questions regarding Employment and Labor Law please contact Mike Staebell

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Mike Staebell


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