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U.S. makes it harder to sue corporations over franchise wage law violations

By Daniel Wiessner

By Daniel Wiessner

(Reuters) - The Trump administration has made it harder for employees of fast-food restaurants or other big franchises to sue corporations when individual franchise owners violate wage laws, a step that was a top priority for business groups.

The U.S. Department of Labor on Sunday issued a rule that will make it more difficult to prove companies are liable for wage law violations of their contractors or franchisees. The rule takes effect in March, and should help franchisors who have been sued by workers in recent years for wage-law violations by franchisees.

McDonald's Corp has faced a series of high-profile lawsuits claiming it is a so-called "joint employer" of franchise workers. The company won a major victory in October when a federal appeals court in San Francisco said McDonald's was not liable for alleged wage-law violations by a franchise owner.

In 2017, the department repudiated legal guidance from the Obama administration that had expanded circumstances in which a company could be considered a so-called joint employer under the federal Fair Labor Standards Act (FLSA).

Labor Secretary Eugene Scalia in a statement said the rule furthers President Donald Trump's effort to address regulations that hinder economic growth.

"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.

Unions and worker advocacy groups had opposed the rule after the Labor Department proposed it last April. The union-backed National Employment Law Project said on Monday that the rule would allow companies to avoid liability even when they have some control over working conditions, and would prevent many workers from recouping pay they are owed under the FLSA.

The rule returns to an earlier four-part test under which companies are considered joint employers only if they hire, fire, and supervise employees, set pay, and maintain employment records. That would likely exclude many franchisors and companies that hire contract labor.

The Obama administration’s guidance included several other factors, such as the nature of the work being performed and whether workers were integral to a company’s business. The business community complained that approach threatened the franchise business model and would lead to a spike in lawsuits.

Robert Cresanti, president of the International Franchise Association, a trade group, said in a statement the Obama-era guidance was "one of the nation's most harmful economic regulations" and had nearly doubled the number of lawsuits filed against franchise businesses.

The Obama-era regulation was not legally binding, unlike the rule released on Sunday. That could make it more difficult for future administrations to undo, but also could open it up to legal challenges.

The National Labor Relations Board is moving to roll back a separate Obama-era standard for determining joint employment under federal labor law, which governs union organizing and workers’ rights to advocate for better working conditions.


(Reporting by Daniel Wiessner in New York; Editing by David Gregorio)