In a rule that was proposed last year by the Labor Department, workers of franchisees would have an extremely difficult time successfully winning litigation cases against parent companies over pay violations. Fortunately, a federal judge repealed this rule so these individuals could have a fair chance at winning a judgment against major corporations. The cancellation of key portions of the Trump administration rule is a massive win for many laborers. All employed workers may now have the opportunity to sue large companies, franchises, and contractors to recover the wages that are owed to them.
How Trump’s Labor Department Differed from Obama’s
Before it was challenged, Trump’s Labor Department required evidence of control for a parent company to be liable as a joint employer. This means that the parent company must have participated in the act of hiring and firing employees, supervised these workers, dictated their schedules, set their pay, or monitored their employment records to be held liable. Judge Gregory H. Woods, a U.S. District Court judge in New York, believed that this criteria was restrictive and unfairly tipped the scales in favor of the franchisor.
Under the Obama Labor Department, the rules better catered to the needs of workers employed under franchisees. The criteria to be liable as a joint employer included a broad range of circumstances, including the direct control of workers as well as administering facilities and equipment that the workers may use.
Reasons for Challenging Labor Department Rule
Often, the contractors and franchisee owners who employee these workers do not have the money or resources to pay large wage violation claims. As a result, suing the larger parent companies typically turns out to be the better option when trying to recover lost wages.
When the new rule from the Labor Department made this option harder for workers to pursue, courts across the country took action. Judge Woods challenged Trump’s Labor Department rule along with 15 other states. Judge Woods believes that through this rule the Labor Department exercised excessive control over minimum-wage and overtime rules without adequate justification. When the Labor Department was considering this rule, Judge Woods said they failed to “make more than a perfunctory attempt” since the rule did not adequately think about the costs the new workers would face since there is minimal liability for violations committed by the contractors or franchises.
“Franchisors should always be aware of their legal obligations in relation to franchisees and their employees.” said Attorney Jason Power of Franchise.Law. “Properly vetting your potential franchisees is a great way to make sure they are well equipped to handle any issues that could arise with finances. Many franchisors choose to require a franchisee to have a certain amount in liquid capital to have a buffer for payroll in the event of an issue.”
Looking Ahead
A spokeswoman from the Trump Labor Department stated that they will review their legal actions since the decision of Judge Gregory H. Woods was disappointing. This means that we will likely see an effort to appeal this decision. While it is likely we will not see the outcome of this appeal until after the transition of power, our franchise attorneys continue to fight for franchisors and franchisees alike. If you are struggling with a legal franchising issue, reach out to our dedicated attorneys today. You may schedule a consultation with one of our lawyers by calling our office.
