The restaurant industry is notoriously known for wage and hour violations.  In 2015 The U.S. Department of Labor’s Wage and Hour Division found more than $38 million in back wages for nearly 47,000 restaurant workers—almost exclusively due to minimum wage and overtime violations.  And now last week, Wage and Hour announced that it has partnered with Subway to help ensure the sandwich maker's franchises comply with wage-and-hour laws.  Read on to find out how this could affect many joint employer situations.

A review of the company's outlets by the Department of Labor from October 1, 2012, through September 30, 2015 showed more than 800 compliance issues. Subway franchises were ordered to pay $2 million in back wages to more than 6,000 workers, an average of about $300 per worker.

This partnership would fly under the radar if Subway owned all its stores, but it doesn’t.  It’s the largest franchisor in the country, and this agreement tentatively covers its franchisees as well.  That’s the problem.  This agreement, in effect, reinforces the NLRB and DOL push to hold joint employers equally liable under various laws. 

Specifically, the agreement will have Wage and Hour provide technical assistance and training to Subway’s franchisees. It also provides a method for information-sharing between Wage and Hour and the franchisee.  Wage and Hour’s investigation data and data from Subway will be shared between the two. 

The agreement also provides wage and hour compliance and training materials to the company and its franchisees, and finds ways to use technology and data to improve franchisee adherence to the Fair Labor Standards Act (FLSA). The department and Subway also agreed to meet regularly to discuss franchisee compliance trends and problems.

David Weil, DOL's Wage and Hour division administrator, said in a blog post that the agreement breaks new ground for cooperation with regulated companies. "This agreement takes collaboration to the next level; we're not simply stating our good intentions and agreeing that everyone has an interest in complying with the law," Weil wrote. "We're using our limited resources to affect the most good."

Most troubling, though, is that the agreement appears to hold the company liable for franchisee’s Wage and Hour issues and states specifically that the company can terminate a franchisee for these violations.  In other words, this “new” approach creates an appearance of control and responsibility of a franchisor over franchisee operations to such an extent that the question of what a franchise really is comes into question.  This approach amplifies the holding in the NLRB's August 2015 ruling in Browning-Ferris Industries, which held that employers, including franchisors and franchisees, are jointly accountable for alleged labor law violations.  Browning-Ferris is currently being appealed.

Michael Lotito, a partner at Littler Mendelson, said he's particularly concerned about a provision in the agreement that says Subway and the Labor Department should explore ways to ensure franchisee compliance through technology, such as company payroll and scheduling platforms.  Lotito points out that one of the key elements of joint employment cited by the NLRB is the shared use of scheduling software platforms between franchisor and franchisee.

DOL spokesman Jason Surbey downplays any connection to the NLRB by noting that the Labor Department and Labor Board are agencies operating independently under different statutes.  Surbey also points out that under the FLSA an economic reality test is used to determine joint employment relationship.  Joint employment in the DOL world is more commonly found in industries that use labor providers, such as home health care, construction and agriculture, rather than in the restaurant space.

This approach is being used by the current administration to push enforcement onto HR under the Fair Pay and Safe Workplaces Executive Order.  Another example is that OSHA compliance for temporary employees appears to be the responsibility of the host employers.  The outcome of this approach is that it forces HR to act as an adjunct government compliance officer.  Under the Bush administration, I-9 enforcement and illegal worker identification was pushed to be the responsibility of the HR representative of the host employer.

Moreover, although the DOL downplayed the NLRB’s Browning-Ferris decision, if this approach becomes the norm, all workers, regardless of the employer of record, could be subject to a single organizing campaign by a union.  Any unfair labor practices by temporary employees could be the problem of the “joint employer” host organization.  The end result is that HR needs to work with legal counsel to identify and head off these unexpected claims against the employer.

Sources: Corporate Counsel 8/3/16, Hartford Courant 8/1/16, DOLB Blog 7/31/16