Today, it is increasingly common for companies to contract with outside firms for many functions that would previously have been taken care of by traditional payroll employees. A law firm, for example, might hire custodial and building security services from contractors or a staffing firm.
Who do those custodians and security guards work for? On the one hand, they are paid by the staffing firm. At the same time, the law firm determines their schedules, the quality standards they need to meet, and the way they do their jobs. If they are owed overtime and don’t get it, who is legally responsible?
A similar situation exists with franchises. Does the cashier at a local, franchised McDonald’s restaurant work solely for the physical location she reports to each day. Or does she also work for McDonald’s Corporation? Or both?
The Obama administration adopted an expansive view of situations in which multiple employers — in these examples, both the law firm and the staffing agency; both the local franchise and McDonald’s HQ — were responsible for compliance with employment law. On Sunday, the Trump administration brought common sense and much-needed clarity to these situations, as I discuss in my latest Bloomberg column:
The new rules — which will affect the behavior of workers and employers, and will influence court decisions — are a victory for common sense. They more clearly define the roles and responsibilities of different parties, which will make it easier for them to work together productively and efficiently. Indirect employers will know what steps to take to avoid legal liability and compliance costs and record-keeping costs. National brands will be shielded from litigation over employment issues in local franchises they could not control. Court decisions will become more uniform, which will help businesses. By reducing compliance costs, employers in the low-wage labor market will have more resources to grow their businesses.
“This resolution provides much-needed clarity for the 733,000 franchise establishments across America,” Robert Cresanti, president of the International Franchise Association (the largest organization representing franchises worldwide) said in a statement, “and returns to the traditional standard of business that has fundamentally supported and encouraged franchise entrepreneurship for decades.”
IFA argues that the broader, Obama-era criteria cost U.S. franchisees between $17 and $33 billion per year.
If you’re looking for a specific example of the Trump administration’s often-praised deregulatory actions, start here.