Understanding the Joint Employer Definition

By Rick Bisio, FranChoice

What franchises need to know about a key policy.

It feels as though every few years, panic concerning joint employment and the future of franchising rears its ugly head.

Much of the alarm born from news about joint employment stems from a lack of understanding of the issue. This is particularly true regarding what a joint employer is and is not. Educating franchisors and franchisees on what it means to be a joint employer, and how it will or won’t affect them, is the best way to prevent the spread of misinformation and assuage any potential fears. So, what is a joint employer, and why doesn’t that include your franchise?

What is a Joint Employer?

First, it’s important to understand what constitutes a joint employer. A joint employer is any business that shares the control of an employee’s supervision with another business. One such example would be the sharing of contract employees between a staffing agency and its client.

Specifically, there are two different kinds of joint employment. They are defined as vertical joint employment and horizontal joint employment. Each of these are defined by distinctly different criteria that have different ramifications regarding the employer and employee relationship.

Vertical Joint Employment

Vertical joint employment is when one company provides employees to another company. The key measure regarding vertical joint employment is that the employee in question financially relies on both companies. This is the case with the relationship between staffing agencies and their clients.

Horizontal Joint Employment

Horizontal joint employment is a bit different. In horizontal employment, an employee works directly for two separate businesses that are still connected in some way. An example of this might be a server who works at two separate restaurants within a larger restaurant group. Horizontal joint employment may mean that all the hours worked at either location are defined as the same pool of hours regarding overtime.

The definition of what constitutes a joint employer relationship is constantly changing or threatening to change. That’s why it’s important for employers to stay vigilant in reviewing their employee relationships and ensuring that they know what does and does not constitute joint employment. Because of this, it’s no surprise that many franchisors are keeping a close eye on the latest developments regarding redefining what it means to be a joint employer.

What is the New Proposal for Joint Employers?

The newly proposed joint employer rule suggests that a joint employer relationship be determined based on the application of a four-factor test. The test looks at the power a company has in relation to the employee. The four questions are:

Does it supervise or determine an employee’s schedule or working conditions?

Can it fire or hire an employee?

Can it set an employee’s pay rate or how they are paid?

Does it keep track or maintain an employee’s records?

Furthermore, the Department of Labor has suggested clarifying specific aspects of the relationship that do not influence the joint employer determination. These include having a franchisor business model or a franchisor providing a franchisee with a sample employee handbook. Of course, regardless of whether or not the new rules are adapted, the suggested changes are having a profound impact across the franchising landscape.

New Joint Employer Rules Redefine Franchisor and Franchisee Relationships

The truth is that many of the proposed changes to the joint employer relationship may disrupt the existing relationships between franchisors and franchisees. If franchisors are forced to worry about franchisee relationships with their employees, this has the potential to redefine the relationship in a few ways.

Among these changes is the level of support and involvement franchisors may be willing to supply for franchisees. If franchisors are concerned about the added liability of falling on the wrong side of the joint employer definition, they may be apprehensive to become too involved in the business of their franchisees. One possibility would be a scaling back of direct involvement. This may include training or advice as part of the business model. As a result, franchisees would be deprived of valuable support they previously relied on.

One the other side of the coin, redefining the joint employer relationship could also undermine the value of a franchisee as an independent business owner. Part of the appeal in franchising comes from the ownership of your own business. A redefinition of the joint employer relationship could very well define franchisees as something other than independent businesses, reducing their power and autonomy.

Franchising is Here to Stay Regardless of the Definition

Ultimately, the fact that we’re discussing the joint employer rule again reinforces why it is so important that both franchisors and franchisees examine their own relationships and what it means. 

 

Rick Bisio is an Amazon best-seller and franchise coach with FranChoice. For more information on FranChoice, visit franchise.org/suppliers/franchoice.