The Trump administration is issuing a new federal rule that will insulate McDonald’s and other franchise-based companies from worker lawsuits, delivering a major regulatory win to industries like fast food and temporary staffing.
The long-expected “joint employer” rule, as it’s known, raises the bar for workers to prove that two employers are responsible for their working conditions. A worker at a franchised McDonald’s store, for example, would therefore have a tougher time suing McDonald’s ― as opposed to just the franchisee ― over minimum wage or overtime violations.
The new rule from Donald Trump’s Labor Department undermines legal guidance put out by the agency under former President Barack Obama that was more friendly to workers and hated by business groups. By issuing it as a formal rule, the White House also makes it more difficult for a future administration to change it.
It’s possible worker advocacy groups will sue in an attempt to keep the rule from going into effect, but senior officials at the Labor Department said they believed issuing it was well within their authority. The language of the rule was released Sunday; it is scheduled to be finalized March 16.
Labor Secretary Eugene Scalia said in a statement that the rule was part of Trump’s campaign to “address regulations that hinder the American economy,” an apparent reference to the Obama-era legal guidance. “By giving greater clarity to businesses who want to work together, we promote an entrepreneurial culture that has driven American prosperity for decades,” Scalia said.
The joint employer rule doesn’t affect every workplace, but it says a lot about the ideological shift in labor regulations since the Obama years. Democrats had tried to make franchisers like McDonald’s more accountable to workers on the ground floor, even if the restaurant they worked in was run by a franchisee. The legal changes they sought would have made it easier for such workers to unionize or recoup lost wages, putting bigger corporations on the hook for violations.
The franchise industry portrayed those efforts as a mortal threat to their businesses. McDonald’s went on trial as a joint employer at the National Labor Relations Board, in what had the potential to be a landmark case. But after Trump reshaped the board with a Republican majority, it ordered the case to be settled in what was a de facto victory for McDonald’s.
The new rule at the Labor Department delivers another joint employer win for the industry, in a different legal arena. Whereas the NLRB case had big implications for collective bargaining, the new rule serves to limit legal liabilities in wage and hour cases. Fast-food restaurants, for instance, are sued every day over minimum wage claims. The Labor Department regulation will make it tougher to bundle claims together for workers employed by different franchisees.
The same goes for the temporary staffing industry. It’s common these days for a worker employed by a temp firm to do work that benefits a much larger corporation, like, say, the arrangement in an Amazon warehouse. Under the new standard, it will be harder for workers to hold the bigger company accountable when they believe they’ve been shorted on pay.
The fast-food industry, in particular, should be very happy with the Trump administration so far. The White House has significantly watered down Obama’s overtime reforms, qualifying fewer store managers for time-and-a-half pay, and steered clear of any raises to the federal minimum wage. (Trump even tried to install a fast-food executive as labor secretary, but former CKE Restaurants CEO Andy Puzder’s nomination imploded in controversy.)
The new joint employer rule checks another box on the industry’s wish list. It uses four criteria to determine if an entity qualifies as a joint employer: whether the firm hires or fires the worker; supervises and controls the work and schedule “to a substantial degree”; sets the pay rate; or maintains the employment records. But the rule makes clear that simply having a franchiser-franchisee relationship does not establish joint employment.
Business groups pushed hard for the new rule. The International Franchise Association, a trade group for the industry, issued a statement applauding the changes by the Trump administration. Robert Cresanti, the group’s president, said the new rule “returns to the traditional standard of business that has fundamentally supported and encouraged franchise entrepreneurship for decades.”