Recently, some plaintiffs - employees of franchisees - have tried to hold franchisors responsible for unpaid overtime and other claimed violations by franchisees they work for. They use the theory that franchisors are their joint employer, along with the franchisee who hires, pays and directs them.

In the latest development of the changing standard for joint employer liability, the U.S. Department of Labor (DOL) issued an Administrator's Interpretation ("AI") stating the analysis the DOL plans to apply in these cases.

The AI first distinguishes "horizontal" and "vertical" joint employment. Horizontal is where an employee works at the same time for two separate but related or overlapping employers. Vertical means the work an employee does for one direct or "intermediary employer" also benefits another company, the "potential joint employer." The benefit exists because the direct or intermediary employer provides services benefitting another company that may include labor and some employer functions, like hiring and payroll. The DOL believes a franchise is vertical, in which the franchisee is an intermediary employer that makes the franchisor a potential joint employer. In the DOL's view, a franchisee provides a labor force that benefits the franchisor by getting the franchisor's product, whether foods or merchandise or services, to consumers.

The AI says that a vertical joint employment analysis "must be an economic realities analysis and cannot focus only on control." It provides seven factors to be considered in determining if an employee "is economically dependent on the potential joint employer." The factors suggesting economic dependence, and joint employment, are:

1. The employee's work is directed, controlled, or supervised by the potential joint employer.

2. The potential joint employer may hire, fire, or modify the employee's employment conditions.

3. The employee's work that benefits the potential joint employer is full-time, of long duration, or permanent.

4. The employee's work is repetitive or rote, requiring little skill or training.

5. The employee's work is an integral part of the potential joint employer's business.

6. The employee works on premises owned or controlled by the potential joint employer.

7. The potential joint employer performs administrative functions for the employee that would typically be performed by an employer, like handling payroll or providing transportation.

Some of these factors resemble the relationship between a franchisor and employees of its franchisees. But in a set of frequently asked questions accompanying the AI the DOL states that "the existence of a franchise relationship, in and of itself, does not create joint employment." Which franchise relationships do create joint employment will be developed in future guidance and decisions. 

Read: U.S. Department of Labor Administrator's Interpretation No. 2016-1