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Save Local Business Act: Is tanking the revised joint-employer standard the right move?

September 14th, 2017  |  Pamela Wolf  |  Add a Comment

On September 13, 2017, the House Education and the Workforce Subcommittee on Workforce Protections and the Subcommittee on Health, Employment, Labor, and Pensions held a joint legislative hearing to examine the Save Local Business Act, which would tank the National Labor Relation Board’s revised joint-employer standard. The legislation, H.R. 3441, would roll back what proponents see as an “extreme joint-employer scheme” and clarify that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers. The billl’s opponents contend that by creating a new, narrow definition of a “joint employer” under the National Labor Relations Act and the Fair Labor Standards Act, H.R. 3441 would dismantle legal protections that workers have relied upon for decades, creating chaos and uncertainty for workers.

The bill, which enjoys some bipartisan support, would get rid of the revised joint-employer standard articulated in the 3-2 Browning-Ferris Industries decision, in which the NLRB returned to its pre-1984 standard for determining joint-employer status under the NLRA. In that ruling, the Board announced that it would no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Nor would the Board require that to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.

Tanking the NLRB’s revised definition. Proponents of H.R. 3441 see it as the vehicle through which the NLRB’s revised joint-employer standard should be undone. “To most Americans, the question over who their employer is seems to be an obvious answer. It’s the person who hired them, the one who signs their paycheck,” Representative Bradley Byrne said at the hearing. “As a former labor attorney, I can tell you it used to be very clear in legal terms how you become someone’s employer. But that’s no longer the case since the [NLRB] stepped in.”

“It’s time to settle once and for all what constitutes a joint employer—not through arbitrary and misguided NLRB decisions and rulings by activist judges—but through legislation,” Representative Tim Walberg (R-Mich.) added.

Costing small businesses more. Tamra Kennedy testified on behalf of the Coalition to Save Local Businesses. She is a business owner who started out as a secretary for a local Taco John’s franchise and went on to own several of her own restaurants. Kennedy expressed her concern that the revised joint-employer rule may rob her of the success and independence she worked so hard to achieve. “After two years operating under the expanded joint-employer standard, the impact on my business is clear: joint employer means I must pay more to run my business, and earn less in return, all while worrying if the unclear joint-employer liability rule will continue to erode my autonomy to run my business,” she said.

Kennedy pointed out that her franchisor used to provide standard employee handbooks to franchisees, but because of the expanded joint employment liability, no longer does so, even though the franchisor has the expertise and best practices that would be most helpful for her and her employees. Kennedy said she now must hire an outside attorney to write an employee handbook, which cost her business $9,000 to have outside counsel prepare. She also needs attorneys to update her handbook each time the law changes.

The small business owner also noted that she no longer receives a job application form from her franchisor. She must create her own application and keep it updated. Moreover, Kennedy said, she must recruit employees on her own. For years, her brand company produced and provided franchise owners employee recruiting kits with banners, brochures, fliers, and an employment application form for use in the restaurants.

“All of the materials were created by the brand and presented a unified, consistent quality to our potential employees,” Kennedy said. “Today, because of the fear of joint-employment liability, these essential recruitment tools are no longer available to franchisees. While we are welcome to produce our own materials—both incurring the cost of design and printing—we can no longer expect this support from our brand company. It also creates another barrier to hiring great people, so unfortunately, I’m creating jobs in my community slower than I otherwise would.”

Will small businesses get hurt? Not everyone agrees that H.R. 3441 would help small businesses—some predict that it would hurt more than help. “The proposed narrow definition of ‘joint employer’ would have seriously negative impacts on workers and on small business owners,” according to Michael Rubin, Partner at Altshuler Berzon LLP. “[H.R. 3441] would also leave small business owners in the untenable position of facing the risk of being held solely responsible for labor law compliance and collective bargaining even when they lack the authority or means to fulfill that legal responsibility. . . I am convinced that H.R. 3441 will [not] benefit local businesses.”

Subcontracting in the construction industry. Granger MacDonald, who appeared on behalf of the National Association of Home Builders and is a second-generation home builder from Kerrville, Texas, explained the importance of contracting in his industry, and how the joint-employer scheme limits the ability to contract with other companies.

“Without [contractors], my company and many other family-owned home building firms like it would simply cease to be viable operations,” MacDonald said. But “simply by applying responsible everyday business practices, we could still be held accountable for the labor and employment practices of third-party vendors, suppliers, and contractors over whom we have no direct control.”

MacDonald added that the joint-employer threat to contracting undermines the housing market recovery.

“Congress should consider policies that support a continued housing recovery, starting with undoing the harmful precedent set by the NLRB’s expanded joint-employer doctrine and other policies that reduce labor market flexibility,” he said.

Collective bargaining problem. Employment lawyer Zachary Fasman, a partner in the law firm of Proskauer Rose, LLP, called Browning-Ferris “nothing short of a disaster.” He said the key problem of the Browning-Ferris decision is that it “sweeps virtually every contracting relationship within its boundaries. In practice, it is no standard at all.” He cited the Browning-Ferris dissent: ‘[n]o bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.’

As to H.R. 3441, Fasman disputed claims made by critics, saying, “This bill would not deny any employee the right to join and form a union or to bargain with his or her employer. It would merely establish that the proper employer for bargaining is the employer that actually sets the terms and conditions of employment in the workplace, and not some affiliated entity which has a commercial relationship with the employer.”

Undermining employer accountability. But Representative Mark Takano (D-Calif.) saw it differently. “For decades, joint-employment standards have ensured workers can hold employers accountable for violating wage and hour laws or refusing to collectively bargain. This bill represents a significant and dangerous break from that precedent that would undermine the rights of American workers,” he said. “This legislation rewards companies that rent employees from staffing agencies instead of hiring them directly, and allows them to evade responsibility for upholding the rights of those employees, even though they profit from their work.”

Opponents of H.R. 3441 also contend that it gives unscrupulous employers a roadmap for evading the obligations they owe to workers under current law. Employers can outsource one of the bill’s listed terms of employment, such as determining work schedules, to another entity and evade all responsibilities to collectively bargain with workers or to pay wages owed to workers. Similarly, because a joint employer must exert control “directly, actually, and immediately” under the bill, an employer can convey all employment directions through a third party without ever being considered a joint employer, Subcommittee Democrats suggested.

“This bill is simply an excuse for top corporations to remove any responsibility to their workers. They are subcontracting their consciences to put profits over people,” said Representative Donald Norcross (D-N.J.). “This bill would leave countless hardworking Americans without a voice in their workplace at a time when Congress should be helping to lift up workers by raising wages and improving workplace conditions.”

The “Save Local Business Act” represents a blank check for powerful franchisors to dictate small franchisees’ employment practices, while at the same time leaving franchisees on the hook for any legal violations,” according to opponents of the measure.

Joint-employer liability narrowed out of existence? It’s worth considering whether under H.R. 3441, joint-employer responsibility would be narrowed to the point of nonexistence, and whether that’s a good thing. Rubin said that the practical impact of the bill would be “to eliminate joint-employer responsibility under the NLRA and FLSA altogether.” He explained that the proposed definition of “joint employer” under the bill “so dramatically narrows the common law standard under the NLRA and the ‘suffer or permit’ standard under the FLSA that it will prevent any entity, other than the direct employer itself, from being a ‘joint employer.’” The result would be that H.R. 3441 would “effectively overrule hundreds of court decisions, going back to well before the Supreme Court’s first major joint-employer decision in 1947, which held that a slaughterhouse owner was the statutory employer of the meat deboners it hired through an independent staffing contractor.”

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Senate Appropriations Committee rejects White House proposal to merge OFCCP into EEOC, calls on OFCCP to ‘right size’

September 11th, 2017  |  Cynthia L. Hackerott  |  Add a Comment

The Senate Appropriations Committee has rejected the White House’s proposal to merge the OFCCP into the EEOC and has recommended OFCCP funding at a level significantly higher than the levels recommended by the Trump Administration and the House Appropriations Committee earlier this year. Nevertheless, the Senate Appropriations Committee recommended cutting the OFCCP’s budget, and “strongly urge[d]” the agency to “find efficiencies and cost savings,” instructing it to provide the Committee with an inventory of its current infrastructure and a plan to consolidate and “right size” the agency.

On September 7, 2017, the Committee approved, 29-2, the Fiscal Year (FY) 2018 Labor, Health and Human Services, and Education and Related Agencies Appropriations Bill. The bill calls for $103,476,000 in FY 2018 funding for the OFCCP. By comparison, the White House’s FY 2018 budget proposal, released on May 23, 2017, calls for $88 million in funding for the OFCCP. On July 19, 2017, the House Appropriations Committee approved its draft FY 2018 Labor, Health and Human Services, and Education funding bill which would allot the OFCCP $94.5 million.

In its report on the bill (at page 30), the Committee stated that it “strongly urges OFCCP to find efficiencies and cost savings, including the consolidation of offices, within its current budget structure. This should include a review of the current OFCCP office locations and infrastructure across the country and whether these offices align with current workload needs. OFCCP is directed to report to the Committee with an inventory of current infrastructure and a plan to consolidate and right-size the agency 180 days after enactment of this Act.”

The White House’s FY 2018 budget proposal also calls for the OFCCP to consider reducing the number of its field office locations. Its proposed funding level would include 440 full-time equivalent (FTE) employees, down from the current FY 2017 estimate of 571 FTEs.

The House Appropriations Committee report on its bill is silent as to the merger, instead focusing it comments (on page 12) on a Government Accountability Office (GAO) report issued on September 22, 2016, in which the GAO identified and discussed multiple deficiencies with OFCCP enforcement. Noting that the OFCCP accepted the GAO’s recommendations, the Committee instructed the agency to report to it on its efforts and the status of implementing each of the recommendations.

Congressional action necessary to complete proposed merger. The White House proposed the merger in its Fiscal Year (FY) 2018 budget, released on May 23, 2017, in which the Appendix section detailing the proposed DOL budget provides that the two agencies would work collaboratively to coordinate this transition to the EEOC by the end of FY 2018. Because the EEOC does not currently have the authority to do a number of things that the OFCCP does, Congressional action is an essential component of the merger. To that end, the

DOL’s budget justification as to the OFCCP calls on the agency to draft and review: (1) legislative proposals to amend the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act (Section 503); and (2) a new Executive Order (EO) amending EO 11246. The OFCCP would also need to draft/revise its EO 11246, VEVRAA, and Section 503 regulations to implement the transfer of authority.

Outreach to business community lacking, expert says. From the start, the Administration did not engage in necessary outreach to the business community,” Mickey Silberman, a Shareholder with Fortney & Scott, LLC and Chair of the firm’s Affirmative Action & Pay Equity Practice Group, told Employment Law Daily on September 8. “And when the business community announced their opposition to the proposed merger, it went on life support. With the Senate Appropriations Committee’s clear rejection of the proposal, it’s now dead. Whether its buried for the remainder of Trump’s term is not certain, but I predict it will not be revised by this administration.

“OFCCP anticipated this outcome, announcing several times in the past few months it hopes to work with contractors in a more cooperative and productive way and will consider reforms to the agency’s structure and enforcement methods.”

‘Rugby scrum,’ over OFCCP’s fate continues. “The political Rugby Scrum over the fate of OFCCP is now operating at full power,” said John C. Fox, former OFCCP official and current President of Fox, Wang & Morgan, P.C., in comments to Employment Law Daily the evening of September 7. “Were the Senate Appropriation Committee’s budget proposal for OFCCP to be adopted, it would not be devastating to the agency, but would still render OFCCP too small, in my opinion, to be able to function as an effective federal agency.”

“The Senate Appropriation Committee’s $2 million reduction in proposed budget (from OFCCP’s last year’s approximately $105 million plus budget), combined with about $2 million of increased expenses at OFCCP (pensions and rent increases, etc), would mean a loss, in effect, of approximately 40 compliance officers,” Fox explained, noting that OFCCP compliance officers costs are about $100,000 per employee, or about 10 for $1 million. “Accordingly, OFCCP would shrink, under the Senate Appropriations Committee’s proposal, from 571 authorized positions (at the end of FY 2017) to approximately 530 or so authorized positions by the end of coming FY 2018.”

Reduction in OFCCP offices. “Currently, OFCCP’s employees are spread across approximately 59 brick and mortar offices, including a Headquarters Office (National Office) in Washington D.C., 6 Regional Offices, 49 District Offices and perhaps 3 Area Offices (which operate without an on-site manager),” Fox noted. “That would leave fewer than nine OFCCP employees per office, on average. Currently, most District Offices are already between one-third and one-half empty as the agency has stair-stepped down annually in headcount over the last 8 years from 785 authorized positions in the first year of the Obama Administration to the current 571 authorized positions.”

Number of on-site audits down. “The GAO has recommended for years consolidating offices since OFCCP no longer automatically comes on-site to audit covered government contractors,” Fox continued. “Indeed, OFCCP currently only comes ‘on-site’ to a contractor’s establishment to audit in about 3-5 percent of the agency’s increasingly fewer audits (perhaps only 1,000 or so audit completions by the end of this FY 2017, down from the 4,000-5,000 per year only a few years ago.). The resulting thirty to fifty OFCCP on-site audits we expect to see reported in this FY 2017  (or even 250 on-site audits per year) hardly justifies having dispersed OFCCP offices throughout the United States and the concomitant leasehold expense.”

Operating changes have reduced travel needs. “[In addition], OFCCP must travel from its existing dispersed offices to contractor sites to conduct audits in over half of their existing on-site audits, so the advantages of ‘offices near the contractor’ have now been overtaken by the change in OFCCP’s operating philosophy (in 1996 in the Clinton Administration) to no longer automatically and routinely go on-site in each and every OFCCP audit, and by advances in technology,” Fox observed. “Rather, OFCCP today carries out most audits (about 95-97 percent depending on what year one examines) via telephone and via e-mail without any on-site presence at the contractor’s establishment. As a result, there is a strong operational argument to consolidate OFCCP offices, as the Senate Appropriations Committee is urging OFCCP to do, with its shrunken budget. However, there is an even more compelling argument to immediately close all OFCCP District and Area offices, and to perhaps close all OFCCP Regional Offices, too, and thus, house all OFCCP personnel in one office in the Washington DC area. Standing against that common sense operational and budget result is the political issues of Members of Congress losing federal investments in their states and cities and the hardship to the over 500 OFCCP employees who would have to either move, quit or be fired.”

Hashing out the differences between the House and Senate bills. “Given the rumors of the last several days coming out of The White House that President Trump may delay a threatened federal government shutdown on October 1 in hopes of negotiating by December 1 an agreement to fund the building of ‘The Wall’ on the Mexican border, it appears that a two-month Continuing Resolution might soon be in the offing as of October 1,” Fox said. “If that were to occur, the Senate and the House would have an additional two months to hash out their large differences in approach to OFCCP’s budget and future direction. The Senate Appropriations Committee’s proposed OFCCP budget is approximately $9 and a half million higher than the House’s proposed budget for coming FY 2018 ($103,476,000 versus $94,000,000). That approximately $9 million difference represents another 90 lost OFCCP positions. However, if the House and the Senate were to ‘split the baby in half’ and agree upon a $99 million budget for OFCCP (or about a $6 million loss from OFCCP’s current over $105,000,000 funding level), OFCCP’s FY 2018 headcount would shrink about 60 heads from its current 571 authorized level to about 510 authorized positions, nationwide. At that level, OFCCP is approaching an average of only about 8 employees per office. While one could operate an agency that small in size, the number of audits would shrink drastically since a large Headquarters staff is necessary to hire and train compliance officers, do the accounting and bookkeeping and carry out a regulatory agenda. If the OFCCP were to shrink to below 550 employees in size, nationwide, not only would office closures/consolidations be absolutely necessary, but the idea of merger suddenly becomes much more tantalizing to OFCCP personnel in need of quality and continuous training and supervision.”

Difficulty of winding down the OFCCP. According to Fox, “[t]he federal government does not ‘sunset” agencies or federal programs well. What we are witnessing is the writhing of an anguished Congress struggling to find a way to wind down OFCCP in a graceful and orderly way. There will be little agreement among principals about the ‘right way’ to wind down OFCCP, even while all recognize that it must be done and is being done, little by little: death by a thousand small lashes….like watching a mortally wounded Titanic sink under the waves….in ultra-slow motion.”

[Wolters Kluwer Note: For an in-depth discussion of the merger proposal, see the September 8 post on this blog.]

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While many specifics of proposed OFCCP merger into EEOC remain unclear, experts discuss range of issues presented

September 8th, 2017  |  Cynthia L. Hackerott  |  Add a Comment

Because many blanks are yet to be filled in as to the White House’s proposal to merge the OFCCP into the EEOC, Employment Law Daily reached out to three labor and employment law experts, including two former OFCCP officials, to get their thoughts on the mechanics of how the merger might occur as well as its implications for employers. In separate interviews, the three attorneysLawrence Z. Lorber, Senior Counsel in the Washington, DC office of Seyfarth Shaw, and former OFCCP Director; John C. Fox, former OFCCP official and current President of Fox, Wang & Morgan, P.C. in Los Gatos, California; and David Gabor, a Partner in Boston, Massachusetts office of The Wagner Law Groupdiscussed the legal, technical, practical, and political issues presented by the proposed merger. Among the topics covered were: potential budget savings, efficiencies, and other improvements to enforcement functions that might be achieved by the proposal; what will become of the affirmative action component of the OFCCP’s mission; whether the proposed merger timeline is realistic; and options for the agencies to work together even if political considerations ultimately doom the merger.

Proposed merger. The White House’s proposed Fiscal Year (FY) 2018 budget, released on May 23, 2017, would decrease OFCCP funding by about $17 million and merge the agency into the EEOC by the end of FY 2018. The Appendix section for the proposed DOL budget, at page 749, states: “The 2018 Budget proposes merging OFCCP into the Equal Employment Opportunity Commission (EEOC), creating one agency to combat employment discrimination. OFCCP and EEOC will work collaboratively to coordinate this transition to the EEOC by the end of FY 2018. This builds on the existing tradition of operational coordination between the two agencies. The transition of OFCCP and integration of these two agencies will reduce operational redundancies, promote efficiencies, improve services to citizens, and strengthen civil rights enforcement.”

Proposal not well-received among stakeholders. Even before getting into the technical aspects of what would be required to undergo the merger, there is the issue of how the mere idea of such a merger is being received. As previously reported in Employment Law Daily, this proposal has also not been well-received among business/employer groups, who fear that the proposed merger could result in a ‘super EEO enforcement agency’ empowered by broader jurisdiction and the ability to impose greater remedies for non-compliance. In addition, the National Industry Liaison Group (NILG) sent a letter to Secretary of Labor Alexander Acosta and Office of Management and Budget Director Mick Mulvaney, on June 12, 2017, expressing its opposition to the proposal stating in part: “We fear that by eliminating the OFCCP, the focus of audits will become full blown EEOC lawsuits.” The NILG letter also expressed concern that budget reductions will “create a situation where compliance is no longer a significant concern for most federal contractors,” and that the substantial work required by the government to combine the agencies “will have deleterious effects on both the federal government’s procurement process and federal contractor compliance.”

Civil rights groups have also expressed opposition. For example, 73 national civil rights organizations, including the ACLU, the NAACP, and the American Association for Access, Equity and Diversity, have signed onto a letter addressed to Secretary Acosta and OMB Director Mulvaney calling on the Trump Administration to abandon the proposal. Acting Commission Chair Victoria Lipnic was copied on the letter, dated May 26, 2017. The proposal “would impede the work of both the OFCCP and the EEOC as each have distinct missions and expertise, and would thereby undermine the civil rights protections that employers and workers have relied on for almost fifty years,” the letter states.

Issues affecting consideration. “There are three issues which affect consideration [of this proposal],” Fox noted. First, “as a purely technical and administrative decision, it is hard to argue against. If you were a Martian landing on earth and one day stumbled upon the OFCCP and the EEOC, you would wonder why these civil rights agency twins had ever been separated at birth. One can find technical issues to debate, but those are details with multiple potential solutions. Unfortunately for those opposing the merger, there are no “deal stoppers” [with regard to this merger proposal].”

Second, “as a political proposition, the merger is very difficult and will continue to be poorly received as proposed because it drives together ‘strange bedfellows’ in opposition,” Fox continued. “Indeed, the precise form of the merger (all of OFCCP, not parts of its authority and budget) may be so politically unpalatable that the merger proposal may well be ‘Dead on Arrival.’ In addition, the 16.5 percent budget reduction the White House has proposed for the OFCCP is hard to separate in the minds of most government contractors and civil rights groups from the political decision—even though the White House is treating OFCCP better than most other USDOL agencies as to which the White House has proposed more than a 16.5 percent budget cut.”

Third, “as an emotional proposition, the merger is also difficult for many government contractors to accept because people are always and inherently resistant to change. Moreover, the government contractor community is quite accustomed to the OFCCP it knows and currently also fears what it does not know (which is all the details of the proposed merger).”

“So, depending on which of the above three issue(s) drives one’s thinking, you are either pro or con the merger proposal,” Fox observed.

Would the combined agencies be more efficient? As stated above, the White House asserts that combining the agencies will “reduce operational redundancies” and “promote efficiencies.” The experts differed on the extent to which efficiencies would result from the merger.

“The significant differences in authority, procedures and enforcement processes, call into question what efficiencies and savings the merger would achieve if the current functions of both agencies are to remain,” said Lorber. “The agencies actually have complimentary but different missions. The OFCCP and its predecessors were established with the primary mission of promoting and enhancing affirmative action outreach efforts aimed at increasing the pool of qualified employees from historically disadvantaged groups available to work on federal contracts.  It is an audit based agency which does not establish rights to pursue private law suits, but instead reviews contractor establishments to determine compliance.

“The EEOC, on the other hand, is a discrimination charge based agency with a mandate to conciliate charges but who may also establish rights to bring private litigation.  While the two statutes and Executive Order which guide OFCCP’s actions do prohibit discrimination, they are not part of federal government’s core responsibility to combat discrimination. That responsibility derives from Title VII, the ADA and USERRA, among other laws, which each establish specific prohibitions against discrimination. Title VII, the ADA, and other laws are administered by the EEOC.”

How the merger is actually carried will be key a factor in the extent of efficiencies that might occur, according to Gabor. “Without knowing the specifics, it sounds like a merger of EEOC and OFCCP makes a great deal of sense,” he said. “They perform related functions and a merger might create efficiencies and consistency in administration. One of the challenges that companies often face is conflicting messages from different agencies. How effective a merger might be is dependent on how it is executed. There will need to be solid communication between teams from the EEOC and the OFCCP. If that fails and the framework of the merger is not solid, then the merger will not be effective.”

Realistic timeline for merger? The merger plan calls for the OFCCP and the EEOC to establish a transition workgroup to strategically plan and implement the transition process throughout FY 2018 and for the merger to be completed by the beginning of FY 2019. Considering that the proposed transfer of operations would touch upon every aspect of the OFCCP’s operations including compliance evaluations, compliance assistance, policy, training, stakeholder outreach and education, personnel, contracting and procurement, and information technology, some stakeholders have questioned whether the timeline specified in the White House’s budget documents is realistic. Indeed, in a recent letter to the Institute for Workplace Equality (IWE), Acting OFCCP Director/Deputy Director Thomas M. Dowd acknowledged that the proposal “includes several challenging transition issues,” and indicated that the legislative and regulatory actions necessary to effectuate  the proposed merger “will likely prove time consuming and could delay the expected FY 2019 start for the proposed consolidation.”

“The Congress and the agencies would have to determine the efficacy of the timeline for the merger and how resources would be allocated,” Lorber said, adding “[t]he timeline does seem to be somewhat ambitious.”

“I do not believe that the timeline is realistic unless adequate resources are available to manage the transition,” Gabor said. “To that end, it appears that this plan is contingent on a number of other things happening. If one of those things fails, there may be a domino effect.”

Yet, Fox pointed out that “[b]usiness mergers of billion dollar companies sometime happen in less than two weeks. It won’t be pretty and the OFCCP may go into an ‘enforcement pause’ for a year or so.”

“If there is a Continuing Resolution of the FY 2018 Budget, the continuing uncertainty of the Congress’ direction could also slow transition planning because of the uncertainty of the Congress’ eventual approval of the merger proposal,” Fox continued. “However, I strongly suspect that Ms. Lipnic and Secretary of Labor Acosta will continue to plan the transfer of the OFCCP to the EEOC despite any Continuing Resolution and absent direction from the Congress that it will not support and fund the merger.”

Budget savings. All three attorneys agreed there would be some budget savings if a merger occurs, but not right away.

“If it goes forward there should be budget savings inasmuch as this would eliminate duplication of services,” Gabor said.

“Any budget savings would be determined by how the merger is effectuated and how the responsibilities and resources are reallocated,” Lorber stated. “There would seem to be a need to cross-train OFCCP compliance staff and EEOC investigators and intake staff on the functions and procedures of the other agency. It may therefore be difficult to realize immediate savings.”

“It is hard to quantify, but my sense is probably $20 million per year even apart from the increased enforcement capability of an OFCCP owned and operated by the EEOC,” Fox said, noting that economies of scale will be a factor.

Delving into some detail, Fox noted that in terms of financial efficiency, “[t]here is no doubt the combined agencies would save a substantial amount of money.” He explained that there would be just one budget for discrimination law enforcement, statistics, recordkeeping, and interviewing training. Money will also be saved via “the elimination of 60 some-odd offices currently co-located throughout the country and presumably (but not necessarily)  elimination of the Office of Administrative Law Judge process at USDOL in exchange for the EEOC’s traditional access to the federal courts.”

“The savings in leasehold expense will be very large as OFCCP has shrunk in recent years by over 30 personnel from almost 800 employees to about 550 on roll today and heading, perhaps to an authorized payroll of only 440 employees) leaving the agency with many offices which are 50 percent or more empty,” he continued.

“There will, however, be a large one-time cost to intake the OFCCP personnel into the EEOC,” he noted, adding that, ”[t]he EEOC should treat the OFCCP personnel as new hires off the street and train them in every law and system at the EEOC to disengage OFCCP’s bad habits and fill in the many gaps in OFCCP training.”

Operational efficiency. Looking at operational efficiency, Fox observed that “[t]he EEOC is a very well run agency by most measures and the OFCCP is among the very lowest performing agencies in the federal government. The strong training and organizational tradition of the EEOC would greatly increase the OFCCP’s operational and enforcement efficiency through sturdy and reliable discrimination training programs the EEOC has large staffs to update and deliver.” In contrast, “the OFCCP has not offered training programs in three years and most of its employees have never been trained in discrimination law, investigation procedures, interview techniques, statistics, recordkeeping during investigations, etc.

“As one example, the EEOC during the Obama Administration launched a pilot ‘systemic discrimination’ program in selected EEOC offices to mirror the systemic program at OFCCP. In only three years, the EEOC systemic program, with about the same number of employees as OFCCP employs, has last fiscal year collected over three times more than the OFCCP’s entire back pay collection.” [Wolters Kluwer Note: According to the agencies’ statistics for FY 2016, the EEOC obtained approximately $38 million in relief for victims of systemic discrimination, while the OFCCP obtained just over $10.5 million total from compliance evaluations and complaint investigations.]

“Indeed, one of the contractor community’s fears about the transfer of the OFCCP to the EEOC is that the EEOC would undoubtedly make the OFCCP a more efficient, functional and fearsome agency instead of the heavily damaged and burdened agency it now is,” Fox explained, adding that the OFCCP is an agency “which does not strike much fear currently in corporate General Counsel offices throughout the United States.”

“Also, the EEOC would get the OFCCP on schedule,” he continued. “[The] OFCCP is chronically tardy, brings lawsuits often 10 years after the events in question without explanation or remorse, [it] has thousands of audits now 4-8 years old and has no internal operating deadlines whatsoever (since FY 2016). [Thus,] the EEOC’s structured and mature infrastructure will help organize the decayed OFCCP management structure.”

What’s driving the opposition? Fox identified three primary drivers behind the government contractor community galvanizing in opposition to the merger. The first is the fear that “the EEOC will make the OFCCP a much more effective and feared agency the contractor community can no longer control,” he said, adding that is the great “elephant in the room” that few are discussing publicly because it is “not a compelling reason to oppose the merger.”

The second driver is “distrust of the White House’s intentions as to civil rights, causing an automatic reflex ‘knee-jerk’ reaction to resist anything the White House does [in this area].” Elaborating on this point, he said “just imagine how differently the civil rights and government contractor communities might have received the White House’s merger proposal had the Trump White House recommended, let’s say, a doubling of the OFCCP’s budget AND merger with the EEOC; thus, engendering confidence that the White House was well-intentioned as to its merger decision.”

The third driver is the “fear that the transfer means a diminished role for the OFCCP. [Thereby,] threatening the livelihoods of hundreds of vendors, thousands of corporate affirmative action personnel and thousands of lawyers servicing government contractors.”  However, Secretary Acosta’s June 7 testimony at the House subcommittee hearing should now remove this third concern, he said. “The 16.5 percent reduction the White House has proposed to the OFCCP’s budget does not diminish the integrity of the merger decision since the White House is not differentially reducing the OFCCP’s budget. Rather, the White House has launched a broad-frontal attack on the budget of the entire federal Executive Branch—not just the OFCCP— with only a few exceptions, such as defense and veterans programs,” he noted.

“There are usually varied reasons for disparate groups to take positions on legislative or policy proposals,” Lorber said. “Civil Rights organizations have traditionally argued that government contractors should face enhanced oversight of their personnel practices. Employer and contractor organizations seem to argue that the OFCCP should focus its efforts on affirmative action, diversity and inclusion and recognize the long standing Memorandum of Understanding (MOU) with the EEOC which charges the EEOC with the responsibility for discrimination reviews. There is a concern that the mingling of different authorities and responsibilities could lead to the EEOC using the OFCCP authority to have unlimited access to all personnel records and threaten procurement action in Title VII or ADA complaint situations and the OFCCP using the EEOC authority to demand punitive and compensatory damages and access to federal courts to further put pressure on contractors it has under review.”

“The only way a ‘Super EEO Enforcement Agency’ would be created would be if the authorities of the two agencies were intermingled,” Lorber continued.  “It would perhaps be helpful if the decision makers reviewed the legislative history of the 1972 Equal Employment Opportunity Act to familiarize themselves with the arguments which led to the defeat of the proposal then to merge the agencies.”

“The current administration is under terrific pressure from all sides,” Gabor said. “It is difficult to predict how that pressure will influence its decision making. At the same time, it is not always clear what will ultimately influence its decisions.”

Affirmative action. Neither the Appendix section regarding the OFCCP nor the DOL Budget Justification for the OFCCP mention what the combined agency would do regarding affirmative action. At a House Appropriations Labor, Health and Human Services, Education, and Related Agencies Subcommittee hearing on June 7, 2017, Secretary of Labor Alexander Acosta indicated that there would not be a reduction in the scope of EO 11246.

Among the issues with merging the two agencies is the fact that the EEOC doesn’t have statutory authority to enforce EO 11246, VEVRAA or Section 503 of the Rehab Act. While the non-discrimination requirements of the laws enforced by the OFCCP largely overlap with the those of the laws enforced by the EEOC, whether the affirmative action areas that are unique to OFCCP enforcement will stay within the DOL, be transferred to the EEOC, or be eliminated entirely, is still an issue, Fox has explained. Any of these options would require some Congressional action as well as the President amending EO 11246. All three attorneys said there was a lack of clear direction on this issue.

“We all wait to learn more about directives from Washington,” Gabor observed. “It is extremely difficult to predict what will happen down the road.”

“There has been no guidance as to how the affirmative action functions would continue and what changes would be made in EO 11246, Section 503 of the Rehabilitation Act or VEVRAA other than that the responsibility would be shifted to the EEOC,” Lorber noted. “It is somewhat implicit in the Budget guidance that the OFCCP’s authority over procurement would be even more directed at addressing discrimination since the justification suggested that the agencies had the same responsibilities but there has been no further explanation.  The absence of any more specifics may reflect the fact that implementing this change would require legislative changes.”

“The White House has purposely not thought through the details of the transfer,” Fox said. “This may turn out in retrospect to be a poor strategic decision from the White House’s perspective since the fear of the unknown is rallying opposition to the merger proposal among the government contractor community. The White House was ‘painting’ the merger idea with a broad and simple brush: just merge two civil rights agencies in a time the federal government can no longer financially afford the luxury of redundant agencies. The White House thinks of this transfer as a simple, obvious, streamlining activity like any of the thousands of business mergers which occur each year in America. Politics did not drive the White House’s merger decision. Rather, the White House has left it to senior Department of Labor officials and EEOC Acting Chair Lipnic to spend the next year planning the details of the merger.”

As to those details, “there are many ways to ‘skin the cat,’’ Fox noted. “Ms. Lipnic is likely going to be the key architect of the transfer and will decide: (1) whether she will create separate affirmative action teams different from the Commission’s discrimination investigation teams; and (2) whether the OFCCP program will be run centrallyperhaps only from Washington D.C. (as the Government Accountability Office (GAO) has charged the OFCCP to consider) or through EEOC regional officesor whether to continue the OFCCP’s decentralized enforcement design.”

Required Congressional actions. On top of the affirmative action issue, the EEOC does not currently have the authority to do several other things that the OFCCP does, including bringing administrative actions to debar federal contractors. The DOL’s budget justification as to the OFCCP calls on the agency to draft and review: (1) legislative proposals to amend VEVRAA and Section 503; and (2) a new Executive Order amending EO 11246. In addition, the agency would need to draft/revise its EO 11246, VEVRAA, and Section 503 regulations to implement the transfer of authority. The attorneys all agreed that no changes to the statutes enforced by the EEOC would be required to effectuate this transition.

Opportunity to change laws enforced by the EEOC? Even so, Employment Law Daily asked if Congress might still take such a merger process as an opportunity to make changes to the laws enforced by the EEOC. “No,” Fox said. “Not in a modern Republican Administration which is not intent on expanding the administrative state. The last Republican who believed in and supported the administrative state was Richard Nixon.”

“Also, the tide seems to have turned in America against ‘big government’ and a smaller federal government  now appears to very much be a national goal, except among progressive Democrats. The FY 2018 budget will be a telling referendum on the fate of the administrative state. This debate is important because OFCCP’s budget is caught up, like most federal executive agencies currently, in that over-arching political debate in Washington D.C.”

Noting his previous comment regarding the MOU between the two agencies, Lorber said, “it would be helpful if the OFCCP followed the Memorandum of Understanding and did not try to replicate the functions of charge driven investigation and enforcement. Functions would not have to be merged if the existing protocols and procedures were followed. The agencies could certainly be more cooperative if these policies were followed and if the agencies followed the prescripts of Section 715 of Title VII [Equal Employment Opportunity Coordinating Council] and Section 12117(b) of the ADA [which covers the coordination of the EEOC’s ADA enforcement and the OFCCP’s Section 503 enforcement].

“There has been a push to amend the ADEA to make it more consistent with Title VII in order to avoid disparate impact and illegal hiring practices,” Gabor noted. “The ADEA was written roughly three years after Title VII and left out some of the language contained in Title VII.”

Skilled Regional Centers. The proposed budget allows for the OFCCP to continue with its plan to establish two Skilled Regional Centers located in the Pacific (San Francisco) and Northeast (New York) regions. These centers would have highly skilled and specialized compliance officers capable of handling various large, complex compliance evaluations in specific industries, such as financial services or information technology. In addition, they would reduce the need for a network of field area and district offices, according to the proposal.

“If the agencies were merged, operational differences or initiatives such as the Skilled Regional Centers would obviously have to be reconsidered,” Lorber noted.  “The key question is ‘what is the purpose of the merger?’ If the purpose of the merger is to achieve some degree of economy of scale, then agency specific functions such as the Skilled Regional Centers would have to be reviewed for continued viability.”

“This [merger] will logically present logistical challenges that may impact [the combined agencies’] ability to cover the nation.” Gabor observed. “I don’t think that employers should be wary of a Super EEO Enforcement Agency. The greater question would be the resources that the agency has.”

“Ms. Lipnic will work this issue through,” Fox said, noting again that there are many ways to approach this task. “However, the EEOC already has ready and harmonious administrative vehicles to accommodate the OFCCP’s two Skill Centers in that the EEOC has already created specialized systemic discrimination units in San Francisco and New York,” he observed.

EEO-1 Report. Federal regulations currently require that all employers in the private sector with 100 or more employees, and some federal contractors with 50 or more employees, annually file the EEO-1 Report, with the Joint Reporting Committee — a joint committee consisting of the EEOC and the OFCCP.

“Another effect of the merger would undoubtedly be to examine how the EEO-1 Report would be compiled as there are different standards for government contractors and Title VII covered employers,” Lorber said.

A controversial pay data reporting requirement, added to the EEO-1 by the Obama Administration back in September 2016, was stayed by the Trump Administration on August 29, 2017. Neomi Rao, Administrator of the OMB’s Office of Information and Regulatory Affairs informed the EEOC via a memo that the OMB, pursuant to  its authority under the Paperwork Reduction Act, is initiating a review of the effectiveness of that pay data collection component.

That compensation data reporting requirement would have required employers “to present a tremendous amount of information to the EEOC that employers have never before been required to produce,” Gabor stated. “To me, [such a requirement would have presented a] much greater risk of enforcement action.”

Both the OMB and the EEOC had the power to reverse course on the compensation reporting component, Fox has noted; but the action came from the OMB because the Republicans won’t have a 3-2 majority on the Commission, and presumably the votes withdraw the requirement, until President Trump has all his appointments in place. Currently still pending Senate confirmation are President Trump’s selection of Janet Dhillon, to be EEOC Chair, and Daniel M. Gade to be a Commissioner. Acting EEOC Chair Lipnic voted against the pay data reporting requirement when it was before the Commission during the Obama Administration.

Issues identified by 2016 GAO report. On September 22, 2016, the GAO issued a report identifying and discussing multiple deficiencies with OFCCP enforcement. The report concluded that the OFCCP’s process in selecting federal contractors for compliance evaluations, the agency’s primary tool for enforcement, is not designed to focus on contractors with the greatest risk of noncompliance. Among its other findings, the report determined that the OFCCP is not providing consistency in its enforcement efforts across its offices because it is failing to timely train new compliance officers and provide essential ongoing professional training for all of its compliance officers. The proposed merger would “[a]bsolutely” help remedy some of the problems identified in the report, Fox said.

“The OFCCP would have to devote resources to adequately train its compliance officers in response to the GAO report regardless of the merger,” Lorber noted.  “EEOC personnel assigned to OFCCP functions would have to be trained in the full gamut of OFCCP activities.”

“One of the benefits from the merger would be the prospect of better education and training that would help employers avoid potential conflicts,” Gabor said.

Other ways to improve efficiencies? Even if this full merger doesn’t happen, are there ways the two agencies could work together to improve efficiencies?

“Yes,” Fox said, “but the efficiencies and cost savings of the two agencies working more closely together but without merging are ‘small change.’”

“From a procedural standpoint, it would be great of the agencies would have joint mission statements and joint enforcement memoranda,” Gabor said. “This would also be true of other agencies such as the NLRB and the DOL. Imagine if employers could ‘one stop shop’ to remain current on what is coming out of Washington.”

“The OFCCP could again exercise its discretion, interrupted in the waning days of the Obama Administration, to refer as much of its complaint docket to the EEOC as possible,” Fox explained. As an example, he said the OFCCP could return to the “historic policy” of referring individual complaints of discrimination under EO 11246 and Section 503 to the EEOC for investigation and prosecution.

“But, remember, the White House consciously chose not to bifurcate the OFCCP’s authority and did NOT propose to send OFCCP’s discrimination law authority to the EEOC while keeping the affirmative action authority at the DOL. So, if the merger fails, I believe The White House will continue to try to treat the OFCCP like it is treating almost all other federal agencies: by substantially reducing it in size.”

Budget will continue to be a concern. “Also, if merger fails, OFCCP still has all the same administrative, training and enforcement problems it has now and with inadequate budget and no plan to fix the agency,” Fox pointed out. “The EEOC merger proposal may well look, at this point in time, like Carpathia unto Titanic to OFCCP personnel.”

The White House’s FY 2018 budget proposal calls for $88 million in funding for the OFCCP, down from the current $105 million funding level. This funding level would include 440 full-time equivalent (FTE) employees, down from the current FY 2017 estimate of 571 FTEs. On top of reducing the overall number of FTEs, the proposed budget calls for the OFCCP to consider reducing the number of its field office locations. On July 19, 2017, the House Appropriations Committee approved the draft FY 2018 Labor, Health and Human Services, and Education funding bill which would allot the OFCCP $94.5 million. The Senate has yet to propose its FY 2018 budget for the DOL/OFCCP.

“If the White House’s FY 2018 budget proposal for OFCCP comes to pass, the merger will not be the primary concern as to OFCCP,” Fox said. “Rather, the small size of the agency will drive civil rights concerns and government contractor vendor concern since the agency, at an $88M budget figure and with only 440 resulting employees, would cease to be large enough to function effectively…like cutting the roots while the plant above the ground otherwise appears to be healthy, for the moment. Even at OFCCP’s current 551 authorized employee headcount (571 minus the 20 employee loss occasioned by the recently passed FY 2017 budget), OFCCP is too small to function effectively and efficiently. This is another reason why a merger with the EEOC (and OFCCP’s overnight acquisition of the EEOC’s mature infrastructure, significantly better managerial staff, and extensive training college) would make great sense from an administrative point of view, even if not a compelling political action.”

Buyouts. In addition, Fox noted that the OFCCP’s union estimates that as many as 50-75 OFCCP employees from across all OFCCP offices and ranks could leave the agency as a result of two buyout offers (Voluntary Separation Incentive Payments and Voluntary Early Retirement Authority) detailed by Acting Director/Deputy Director Dowd in an August 18, 2017 memo sent to agency employees (Fox posted the memo as part of his August 28 blog for Direct Employer’s OFCCP Week in Review). The OFCCP will have to reduce staff out of necessity due to budget reductions and increased agency operating costs, he explained. Interestingly, “Secretary Acosta has decided to down-size OFCCP EVEN BEFORE the Senate weighs in with its FY 2018 budget for the DOL and the OFCCP,” Fox observed.

Given these anticipated staff reductions, which will likely result in the elimination of some of the agency’s brick and mortar offices, “a merger of OFCCP and EEOC is almost pre-ordained,” Fox concluded. “The question then becomes not whether, but only when.”

[Wolters Kluwer Note: After press time on September 7, 2017, the date this article was published in Employment Law Daily, the Senate Appropriations Committee announced its approval, by a 29-2 vote, of the FY 2018 Labor, Health and Human Services, and Education and Related Agencies Appropriations Bill. In its report on the bill, posted the following day, the Committee rejected the proposed merger and recommended $103,476,000 in FY 2018 funding for the OFCCP. It also instructed the OFCCP to report to the Committee within 180 days with an inventory of its current infrastructure and a plan to consolidate and “right size” the agency. See the September 11 post on this blog for more details, including expert commentary, about that development.]

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Company pays more than $100,000 to resolve INA discrimination claims

September 6th, 2017  |  Deborah Hammonds  |  Add a Comment

A Louisiana company has paid more than $100,000 to settle allegations that it failed to consider or improperly rejected U.S. workers because of their citizenship. According to the Justice Department, the payment was part of a settlement reached with Barrios Street Realty, LLC, a company based in Lockport, Louisiana, to resolve claims the company violated the Immigration and Nationality Act (INA).

In its investigation leading up to the settlement, the Justice Department determined that from 2014 through 2015, the company and its agent, Jorge Arturo Guerrero Rodriguez, failed to consider or improperly rejected U.S. workers who applied for positions as sheet metal roofers or laborers, and then sought to fill the vacancies with foreign workers under the H-2B visa program. According to the Department, the company’s petition for foreign workers falsely claimed that it could not find qualified U.S. workers. Refusing to consider or hire qualified U.S. workers because of their citizenship violates the anti-discrimination provision of the INA.

The settlement required Barrios to pay $30,000 in civil penalties and up to $115,000 in back pay to compensate U.S. workers who were denied employment because of the company’s reliance on H-2B visa workers. After entering the settlement, DOJ determined that 12 U.S. workers were entitled to receive back pay totaling approximately $108,000, and the company made the final payments to the workers in August.

Acting Assistant Attorney General John Gore of the Civil Rights Division stated the DOJ will not tolerate employers misusing visa programs to discriminate against U.S. workers.  “We will vigorously prosecute claims against companies that place U.S. workers in a disfavored status.”

Formally known as the Office of Special Counsel for Immigration-Related Unfair Employment Practices, the Civil Rights Division’s Immigrant and Employee Rights Section (IER) is responsible for enforcing the anti-discrimination provision of the INA.

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Reality check: When is a franchisor a joint employer of franchisee employees?

August 29th, 2017  |  Lorene Park  |  Add a Comment

By Lorene D. Park, J.D.

The increase in court battles over franchisors’ liability as “joint employers” when franchisees violate Title VII, the Fair Labor Standards Act, or other labor laws could reflect the ongoing search by plaintiffs for deep pockets, or increased efforts by businesses to skirt labor laws—depending on your point of view. Many believe it reflects our political divide and the uncertainty of a changing “patchwork” of tests for joint-employer status issued by courts and agencies.

Changes are coming . . . It appears lawmakers are making headway toward a uniform standard, given the July 12 hearing before the House Committee on Education and the Workforce and its introduction on July 27, 2017, of the Save Local Business Act. The Act would amend the NLRA and the FLSA to restore what the bill’s sponsors called “the commonsense definition of what it means to be an employer.” The bill (H.R. 3441), which has bipartisan support, would toss the standard articulated in the NLRB’s recent Browning-Ferris Industries decision and clarify that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers. As we await the outcome of these efforts, and regardless of your point of view, it’s worth looking at recent court decisions on when franchisors may be liable under a joint employment theory—for the moment, at least.

First, the patchwork. To provide some context for the court decisions, it helps to understand the tests for joint employer status—they vary by statute and jurisdiction. As noted in a now-withdrawn interpretation by former WHD administrator David Weil, joint employment is defined more broadly under the FLSA and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) than under the common law relied on by courts in the context of Title VII and other statutes. The common law focuses on the control a franchisor exercises over franchisee employees on a day-to-day basis, including how and where the work is done. Courts consider the terms of the franchise agreement or policies; mandatory training; mandatory recordkeeping; whether the franchisor inspects or audits; and the right to terminate, among other things.

In FLSA and MSPA cases, courts look broadly at an individual’s economic dependence on the company (the “suffer or permit to work” language), but the right to control is still important; increased control signals economic dependence. Other factors include: control of employment conditions (method of pay, power to fire); the permanency of the relationship; the skill required (little training indicates greater dependence); whether the work is integral to the business; and whether the franchisor performs administrative functions (e.g., payroll, workers’ comp, taxes).

There is also a “hybrid” test used by the Fourth and Fifth Circuits, among other courts, with respect to Title VII, ADEA, and other statutes. The hybrid test considers elements of both the common law and the economic reality tests. In the Fourth Circuit, for example, nine factors are considered, but three are most important: authority to hire and fire; day-to-day supervision and control of the putative employee; and where and how the work takes place.

Recent cases on franchisor liability. Clearly there is overlap in the various tests. Thus, while employers should focus on cases in their jurisdictions, much can be learned from other as well:

Fourth Circuit has nine factors for ADEA, six for FLSA. In one case, a federal court in Maryland found that a pizza restaurant manager sufficiently alleged that franchisor Ledo Pizza Systems was his joint employer. As to his ADEA claim that he was fired in retaliation for refusing to terminate an older worker, the court looked to the nine-factor hybrid test from the Fourth Circuit in Butler v. Drive Automotive Industries of America, Inc. The allegations suggested Ledo, acting through its corporate employee, had control over hiring and firing, day-to-day supervision, and formal or informal training. Also refusing to dismiss the FLSA retaliation claim, the court found joint employer status well-pleaded through allegations of significant ties between the franchisor and franchisee, suggesting a long-lasting relationship and control by the franchisor. The plaintiff claimed Ledo had at least some power to control and supervise workers and to hire, fire, or modify employment conditions. For example, Ledo required him to provide daily and weekly reports, told him what to stock in the bar, set employee schedules, hired a bartender, and told the plaintiff he was fired. To the court, at least the first four of the six factors set forth by the Fourth Circuit in Salinas v. Commercial Interiors, Inc., could weigh in the plaintiff’s favor (Lora v. Ledo Pizza Systems, Inc.).

Functional control indicates employer status. A federal court in New York refused to dismiss an FLSA collective action by servers, housemen, waiters, housekeepers, and other employees of a hotel franchisee who plausibly claimed the franchisor defendants asserted “functional control” over hotel staff to be liable as joint employers (formal control was not addressed). To establish functional control, they alleged the franchisor defendants: (1) imposed mandatory training programs for hotel staff; (2) maintained the right to inspect the hotel; (3) imposed mandatory recordkeeping requirements; (4) established “standards, specifications[,] and policies for construction, furnishing, operation, appearance, and service of the Hotel;” (5) required that a particular software be used to track hotel revenue and operations; (6) retained the unlimited right to change the manner in which the hotel was operated; (7) performed audits and inspections of compliance with franchisor standards; (8) maintained the right to terminate the franchise, which could cause the termination of staff; and (9) knew the plaintiffs were not paid gratuities but failed to stop the unlawful practices. To the court, this was enough to plausibly allege that the franchisor defendants were joint employers under the FLSA and NYLL (Ocampo v. 455 Hospitality LLC).

Logos and uniforms showed control over franchise, but not workers. An employee of a landscaping franchisee could not show the franchisor exercised enough control over her employment or that other factors suggested it should be held liable as a “joint employer” or “single, integrated employer” under Title VII for the alleged unlawful acts of the franchisee. She relied on the franchisor’s control over logos, uniforms, letterhead, and vehicle color, but a federal court in Virginia explained that control over the franchisee was not relevant and it was control over the plaintiff’s employment that mattered—which was lacking here. The court reviewed the nine factors set forth by the Fourth Circuit in Butler and noted that while not one factor is dispositive, the “common-law element of control remains the principal guidepost’ in the analysis.” (Wright v. Mountain View Lawn Care, LLC).

Franchisor’s training program not enough for joint employer status. In a suit by a Church’s Chicken employee in Alabama who claimed she was not paid proper minimum wages and overtime, a federal court concluded that her general assertion that two franchisors had a management role in a franchisee’s restaurant operations did not render those entities her “employer” under the FLSA. Although a franchise agreement required the franchisee to send its employees to attend a “manager training” program conducted by the franchisors, the training program alone did not turn the franchisors into the employee’s employer. The employee did not allege any facts showing that the franchisors had the power to hire or fire, or make personnel decisions, supervise work schedules, determine pay rate, or maintain records of the franchisee’s employees (Rodriguez v. America’s Favorite Chicken Co. dba Church’s Chicken).

“Ministerial functions” of payroll not enough for liability. In a suit filed under the FLSA and Oregon wage and hour law, a federal court found that Jack in the Box was not the plaintiffs’ “joint employer” after the date it franchised several corporate-owned restaurants to franchisee Northwest Group, Inc. Applying the “economic reality” factors outlined by the Ninth Circuit, the court found that Jack in the Box established that it did not have the power to hire and fire franchisee employees, and it was not involved in franchise employee work schedules, salaries, insurance, fringe benefits, or hours. Although the franchisee was required to use Jack in the Box’s payroll system, such “ministerial functions are insufficient to support plaintiffs’ argument that [defendant] controls labor relations.” Summary judgment was granted for Jack in the Box on this issue (Gessele v. Jack in the Box, Inc.).

Recommending personnel policies not enough. A window cleaning franchisor did not become a joint employer of its franchisee’s employees merely by recommending personnel policies, held a federal district court in Wisconsin, granting summary judgment in favor of the franchisor on employee wage-hour claims. To prove the franchisor was their joint employer, the employees had to show more than that they received a copy of the franchisor’s employee manual and that the franchisee followed the franchisor’s recommendation to pay them on a commission basis. The “critical issue” was that the franchisee was not obligated to follow the manual as drafted. In addition, the franchisor did not have the power to hire and fire them and did not maintain employment records for them. In sum, the court found the minimal control exerted by the franchisor here “nothing like” what would be necessary to demonstrate employer status (Pope v. Espeseth, Inc.).

Creating master franchise plan not enough absent day-to-day control. A national franchisor that created a master franchise plan for commercial cleaning businesses was not the employer of unit franchisee owners under California law, ruled a federal district court in California. The unit franchisees failed to offer any evidence of the franchisor’s actual control over their day-to-day activities, or that it reserved the right to exercise such control. Nor was there evidence that the franchisor controlled their wages or had the authority to stop them from working. Consequently, the court granted the franchisor’s motion for summary judgment (Roman v. Jan-Pro Franchising International, Inc.).

Jani-King cases. Cleaning service franchisor Jani-King is defending suits in several jurisdictions, the main dispute being whether it misclassified franchisees as independent contractors. In one, the Third Circuit affirmed that whether the franchise agreement and manuals gave Jani-King sufficient day-to-day control to make franchisees “employees” will be determined on a class-wide basis. Rule 23’s commonality and predominance requirements were met because the dispute could be resolved by common evidence, including the agreement and manuals, which put controls on franchisees including: where to solicit business, how often to communicate with customers, what to wear, what records to keep, how to advertise, and more. The documents also addressed the nature of the work, tools, and termination (Williams v. Jani-King of Philadelphia, Inc.). Jani-King did score a win in Oklahoma, though, when a DOL enforcement action was dismissed with prejudice because in claiming that all franchisees were “employees,” the agency lumped together the franchisors who were individuals and those franchised through corporate entities, which cannot be “employees” as defined by the FLSA (Acosta v. Jani-King of Oklahoma, Inc.).

Minimizing liability. These decisions suggest steps franchisors can take to decrease the chance of being liable, as a joint employer of franchisee workers, for employment law violations:

Make intent clear. Put it in the franchisor agreement that the franchisor is not the employer, does not have the power to hire, promote, or fire franchisee employees. Have franchisees state in job applications that individuals are hired by the franchisee, not the franchisor.

Stay true to franchise model. Stick to controlling product and service standards on a general level. It is okay to require the use of certain templates or to maintain the brand (e.g., logos, uniforms, letterhead, typical customer greetings, and the like), but don’t micromanage. Remember, courts look to control over an individual’s employment, not over the franchisee.

Leave HR functions to franchisees. In practice, leave to the franchisees the typical human resources and employer functions, such as: hiring/firing, wage rates, scheduling, payroll, staffing levels, performance evaluations, promotions, workers’ compensation insurance, taxes, employee complaints, discipline, and recordkeeping. To the extent template personnel policies are provided to franchisees, make clear that the policies are optional.

Train judiciously. Train your franchisee owners and managers on policies and provide resources for training, but otherwise leave training and rule enforcement to franchisees.

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