Confirmation of WHD Administrator Could Spell Trouble for Franchisors, Employers of Independent Contractors

Author: Michael Cardman, XpertHR Legal Editor

April 29, 2014

The US Senate on April 28 voted 51-42 to confirm David Weil as the new administrator of the US Department of Labor's Wage and Hour Division (WHD).

Weil will direct an agency with about 1,800 employees and a budget of about $224 million in enforcing many federal employment laws, including the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA).

It remains to be seen how Weil's confirmation will affect employers. Many of the WHD's enforcement strategies and complaint investigation priorities are already based on recommendations he made in a 2010 report.

Weil is expected to continue the WHD's policy of targeting enforcement efforts at what he calls "fissured industries," in which the use of franchising, independent contractors, subcontracting and third-party intermediaries such as temporary employment agencies or labor brokers has distanced employers from their workers. According to Weil's report, these targeted industries include restaurants, hotels and motels, residential construction, janitorial services, moving companies, agricultural products, landscaping, health care and home health care services, grocery stores and retail stores.

Tammy D. McCutchen, a principal with Littler who held the post of WHD administrator from 2001 to 2004, told XpertHR she believes that what happened to unpaid internships in 2013 might soon happen to franchising: a once-accepted business practice becomes far more risky in the face of federal enforcement and copycat lawsuits.

She noted that employees of McDonald's franchises in three states recently filed lawsuits against both the parent company and local franchise owners.

According to McCutchen, Weil plans to send investigators out to dozens of a franchise's store fronts with the goal of forcing the parent franchisor to change its franchisees' wage and hour practices. This presents a Catch-22 to the franchisor, she said, because once the franchisor tries to control its franchisees, it becomes a joint employer liable for their violations.

The International Franchise Association denounced Weil's confirmation, saying he "has demonstrated hostility and bias towards the franchise industry and towards employers in general."

In testimony before a Senate committee last year, Weil said that he recognizes the legitimacy of franchising. "My concern with franchising … is where that's being used in ways that are not legitimate forms of franchising (in the pursuit of branding and the other reasons that franchisors successfully use that business model) but instead are used as a way to subvert the law."