Franchisers: Health Plan Rule Needs Joint-Employer Protection

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Madison Alder and Chris Opfer

A franchise group and three lawmakers want to make sure that franchises and small businesses wouldn’t be put in jeopardy of joint-employer liability under a proposed Labor Department rule to expand association health plans.

The proposed rule would change the definition of “employer” to make it easier for individuals and employers in the same industry or geography to band together in an association and form their own health plan. The DOL created the rule after President Donald Trump asked it to consider revising the rules for association health plans in an October 2017 executive order. The comment period for the proposed rule ends March 6.

The International Franchise Association and Reps. Bradley Byrne (R-Ala.), Henry Cuellar (D-Texas), and Tim Walberg (R-Mich.) are telling the department they support the proposed regulation but want a “safe harbor” from any new joint-employer liability as a result of participating in a plan. That liability is a heavily debated and largely unresolved legal question. It centers on how much control a business must exert over another business’s workers to be considered their joint employer under various labor and employment laws.

In a pair of letters sent to the DOL March 1, Byrne, Cuellar, and Walberg cautioned that if the department doesn’t adopt protective language, those in the franchise industry “will be reluctant to even consider offering” one of the health plans made more easily obtainable under the proposed rule.

Similarly, in a draft of comment obtained by Bloomberg Law, the IFA said that broad definition of joint employer makes many franchise businesses wary of entering into relationships that could subject them to joint-employer liability. As a result, IFA said, it’s “essential” that DOL include a provision clarifying that the new definition of “employer” doesn’t imply joint-employer liability.

Joint-Employer History

The joint employment issue generally revolves around the question of whether one business is on the hook for legal claims by workers employed by another business. The IFA has been sounding the alarm on that question since the National Labor Relations Board signaled it would revisit joint-employer liability in 2014.

The 14,000 member IFA represents both franchisers—like McDonald’s, Domino’s, Dunkin’ Donuts, Supercuts, Hilton, and Choice Hotels—and franchisee operators. Two of the companies— McDonald’s and Domino’s—have been the subject of high-profile joint-employer lawsuits since the board’s decision. The IFA spent at least $1 million a year on federal lobbying from 2014 to 2016 and is on track to do the same this year.

The group and its supporters in Congress often pose efforts to expand liability for businesses in franchise, staffing, and contract relationships as an existential threat. The IFA says broad joint-employer liability would make franchisers responsible for franchisee workers that they don’t actually control.

The NLRB in 2015 expanded its legal test to make it easier to tag multiple businesses as joint employers for collective bargaining purposes, even if they exert only indirect control over each other’s workers. That test, meant to reflect modern work arrangements that include complicated contractual arrangements, is still in effect for the time being. The board recently scrapped a decision in which a Republican-majority reverted to a more limited joint-employment test. The move came in response to conflict-of-interest concerns related to member William Emanuel’s (R) participation in the decision.

The House last year passed an IFA-backed bill to tighten the joint-employment standard under federal labor law and a separate wage and hour law administered by the Labor Department. That measure is unlikely to get the Democratic support needed to move in the Senate. Republicans control the chamber by a 51-49 margin but would need at least nine Democrats to cross the aisle to get the 60 votes necessary to avoid a filibuster.

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