A new Labor Department rule will make it more difficult for workers to claim to have two employers simultaneously in cases where they are challenging wages and overtime, easing regulatory burdens for large franchised brands and companies using staffing firms.
The Labor Department on Sunday published the final language of its anticipated joint-employment rule, which determines when two businesses could simultaneously be liable for complying with labor laws such as minimum wage and overtime rules.
In the case of a national restaurant brand and its local franchise owner, responsibility for complying with overtime pay and other labor rules would likely only fall to the local owner and not the national brand. This could have the effect of limiting the liability of national brands and restraining their exposure to labor lawsuits.
“By giving greater clarity to businesses who want to work together, we promote an entrepreneurial culture that has driven American prosperity for decades,” Labor Secretary Eugene Scalia said in a statement.
Business groups lobbied the Trump administration for the joint-employment rule after the Obama administration sought to expand the department’s scope to consider two firms responsible for the same employee. The new rule more permanently establishes an employer-friendly policy stance.
“This resolution provides much-needed clarity for the 733,000 franchise establishments across America,” International Franchise Association President Robert Cresanti said in a statement.
The regulation is to go into effect March 16, though it is possible it could be challenged in the courts.
National Employment Law Project, a worker advocacy group, is considering legal action, General Counsel Catherine Ruckelshaus said Sunday.
“The rule sends a message that an employer can insert a temp staffing or contracting agency and walk away from any responsibility to follow minimum wage or child-labor laws,” she said.
To determine whether a worker is jointly employed by two businesses, the department will consider four factors. Does the potential second employer:
• Have the power to hire or fire the employee?
• Supervise and control the employee’s work schedule or conditions?
• Determine the employee’s pay rate and method of payment?
• Maintain the worker’s employment records?
A Labor Department official said it is unlikely that meeting a single factor would create a joint-employment finding. The official also said that a business holding the right to control a worker’s schedule or conditions isn’t sufficient. The second employer must assert that control to be a joint employer.
The rule is limited to laws under the Fair Labor Standards Act, which concerns wage, hour and child-labor laws. It doesn’t pertain to laws around workplace safety, discrimination, sexual harassment or the ability to unionize. The National Labor Relations Board has proposed a separate joint-employment rule concerning collective bargaining.
Write to Eric Morath at eric.morath@wsj.com
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