Trump Administration Finalizes Rule Limiting Companies’ Joint-Employer Risk

The U.S. Department of Labor (DOL) has released a final rule on joint employment which would limit the situations in which multiple employers share liability for paying workers their wages. The new rule takes effect on March 16, 2020.

The rule will apply a four-part test to determine whether a company is a joint employer of another company’s workers, examining whether that company can exercises “direct control” over those workers such as:

1. Hiring or firing employees;
2. Supervising or controlling work schedules;
3. Setting pay rates; and
4. Maintaining employment records.

The new rule reverses an Obama-era rule that effectively broadened the definition of joint employment to include any circumstance in which a company could have indirect control over the way work is performed. This particularly affected companies with franchisees, like McDonald’s, but also impacted any company that uses subcontracted workers. 

Supporters say the new rule will make it easier for companies to help and guide their business partners, particularly small businesses, without being put on the hook for shorting workers’ paychecks. Opponents, on the other hand, say the rule will allow large companies, that often dictate the terms that cover subcontractor and franchisee workers, to avoid responsibility when those employees are not properly paid.

Meanwhile, the National Labor Relations Board (NLRB) is also finalizing a proposal that would similarly limit shared responsibility, but for the purposes of collective bargaining and unfair labor practices.

Subcontracting and the 3PL Industry

Subcontracting is a critical part of how TIA members serve their customers and grow their businesses. Many 3PLs use contracts to secure services in modes that are not a core competency, such as air or ocean freight, or act as subcontractors themselves for the inland legs of international freight movements. 3PLs may also use subcontracting for internal needs like technology assistance or facility maintenance. 

For this reason, TIA participates actively in the Labor Relations Committee of the U.S. Chamber of Commerce to support the business community on the issue of joint employment and on related matters of major importance to business owners.

TIA members should be aware of their relationships with the employees of their contractual partners. The costs of collective bargaining and workplace organizing, employee misclassification issues, or wage and hour violations could potentially be disastrous for the thousands of small- and medium- sized companies in the North American 3PL industry. DOL’s new rule could help provide relief for 3PLs that would have been identified as joint employers under the previous, broader “indirect control” standard.

TIA is closely watching developments related to the joint employment standard. If you have any questions or want to share your thoughts on this rule, please contact TIA Advocacy at advocacy@tianet.org or 703.299.5700.