News & Articles

Final Rule on Joint Employer Status

Published on 1/24/2020

There is a new four-part balancing test to determine joint employer status with an effective date of March 16, 2020. This is known as the Final Rule and it specifies that an employer having a franchisor, brand and supply agreement, or similar business model does not in itself make joint employer status more or less likely. The determination depends upon all the facts in a particular case.

Why is this important? If one is determined to be a joint employer, one may be liable for paying minimum wage or overtime, withholding taxes, unemployment taxes, workers’ compensation, income taxes, and/or vicarious third party claims (i.e. tortious acts, employment discrimination, etc.).

The four-factors are as follows:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the  employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

There may be other factors showing the potential employer is exercising significant control over the terms and conditions of the employee’s work.

Other factors are delineated which are identified as not being relevant. These include whether:

  • The employee is economically dependent on the potential joint employer including factors traditionally used to determine if a worker is a bona fide independent contractor;
  • The employer has a franchisor, is entering into a brand and supply agreement, or is using a similar business model;
  • The potential joint employer has contractual agreements with the employer requiring the employee to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public; and
  • The potential joint employer has a practice of providing the employer with a sample employee handbook, or other forms, of allowing the employer to operate a business on its premises (including “store with a store” arrangements), of offering an association health plan or association retirement plan to the employer or of participating in such a plan with the employer, of jointly participating in an apprenticeship program with the employer, or of any other similar business practice.

The new Final Rule adds clarity to the determination of what determines one to be a joint employer and seems to remove the per se rules of trying to make franchisors or others joint employers despite the determination of control.

If one desires examples of how the Final Rule should be applied in various factual circumstances, one may view

Kevin J. Collette is the Chair of Ryan Swanson’s Franchise & Distribution Group and can be reached at 206-654-2252 or [email protected].

Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances. Ryan, Swanson & Cleveland, PLLC is a full-service law firm located in Seattle, Washington.

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