Listen to this post

On August 1, 2016, the U.S. Department of Labor and Doctors Associates Inc. (Subway Restaurants) announced a voluntary agreement formalizing their ongoing collaboration.  This agreement is a first of its kind and seeks to ensure that franchise owners have the tools necessary to comply with wage and hour laws.  Since 2012, Subway has made available a platform for the DOL to provide training and resources to franchisees.  Despite the DOL’s efforts, other companies have reportedly been reluctant to enter into similar agreements due to fears that other government agencies will use such an agreement as evidence of a joint employer relationship.  Interestingly, Subway has been collaborating with the DOL for over three years and although this collaboration has been very much in the public eye, no agency has indicated that such a relationship would make them a joint employer.  The DOL hopes the fact that Subway, the world’s largest franchisor, entered into the compliance agreement will encourage other companies to follow suit.  Given the various government agencies’ joint employer efforts, all companies, whether franchisors or not, should analyze their own specific circumstances before entering into a similar agreement.

What Does the Compliance Agreement Entail?

Under the agreement, Subway will disseminate to its franchisees DOL-prepared training materials, the DOL will share enforcement data with Subway, and both parties will meet regularly to explore ways to use technology to support franchisee compliance.  Through the new compliance agreement, Subway hopes that the training and resources provided by the DOL will help franchisees comply with wage and hour laws, which could ultimately reduce Subway’s chances of being sued as a joint employer.  Prior to this agreement being executed, the DOL had already provided training to Subway franchisees on the recently increased salary level requirements for certain FLSA exemptions.

Is the DOL Focused on Franchisors?

The DOL will likely seek to enter into similar agreements with other companies, and not just franchisors.  According to the DOL, it believes the agreement with Subway “breaks new ground in how [the DOL] can work with the regulated community.” The DOL indicated its desire that employers “channel their influence to ensure that all employers along a supply chain or otherwise linked in commerce play by the rules.” The DOL’s approach of targeting high-influence companies is consistent with comments the DOL previously made regarding joint employers under the FLSA.  In addition to franchisors, this could include companies that use temporary worker sourcing firms, are contractors or subcontractors, are a parent company with subsidiaries, or regularly use vendors or service providers.

What Are the Joint Employer Issues?

According to the International Franchise Association, other companies are hesitant to execute similar agreements because the agreement may bring additional risks by furthering any appearance of a joint employer relationship.  As previously discussed, last year, the NLRB adopted an aggressive joint employer standard, which purports to allow for joint employment even when a company may only indirectly control workers or has merely reserved the right to do so.  While the Board’s joint employer standard has been criticized by several business groups, there is no indication that the Board intends to voluntarily change its stance anytime soon.  Accordingly, companies should analyze their own specific circumstances and business model when dealing with the various government agencies, as dealings with one agency could affect other matters.