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Feds Fast-Forward “Fissured” Focus: Subcontracting, Franchising, and an Extended Supply Chain

As David Weil, the still relatively new United States Department of Labor (DOL) Wage and Hour Administrator describes it, an industry is “fissured” when large companies no longer directly employ the workers that produce their products or services. Fissuring occurs through subcontracting, franchising, and an extended supply chain, and is especially prevalent in the restaurant, hospitality, and construction industries. As the theory goes, this undermines responsibility for, and compliance with, labor laws, in part because government agencies do not have the resources to police small companies. The solution: Focus enforcement actions on companies at the top of the pyramid, even when current joint employment laws do not support liability.

The federal agencies have made no secret of their intention to effectuate this strategy, first advocated by Weil when he was a professor and union advocate. One example is the National Labor Relations Board’s (NLRB) recent decision to add six more unfair labor practice complaints, asserting joint employer status against one of the country’s major franchisors with its franchisees under the National Labor Relations Act and, therefore, it is responsible for its alleged violations. Another is the DOL’s recent request for a $49 million budget increase, justified in large part to support its fissured industry enforcement initiative. Administrator Weil’s blog entitled, “The Fissured Workplace” also provides fair warning to employers that subcontract, franchise, or use an extended supply chain. Not to be outdone, the U.S. Equal Employment Opportunity Commission (EEOC) has focused on vulnerable workers in fissured industries. Finally, unions applaud the expansion of the joint employer concept, as corporate campaigns often target the top of the employer pyramid.

What should employers do in response? First, if you are in a “fissured” industry, understand that you are a potential target. Second, realize that if an agency requests information about your contractors, subcontractors, suppliers, or franchisees, the ultimate goal may be to hold you responsible for their employment law compliance. Additionally, whatever information you provide may end up in the hands of a union. Therefore, carefully evaluate your obligation to disclose and the scope of such an obligation. Third, in responding to any audit or investigation that includes inquiries about contractors and subcontractors and their employers, clearly state from the outset that you are not a joint employer. Finally, demand that your contractors and subcontractors comply with labor and employment law without exercising control over their human resources activities.

© 2019 Foley & Lardner LLP

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About this Author

John Birmingham, Employment Attorney, Foley Law Firm
Partner

John F. Birmingham, Jr. is an employment lawyer, a member of Foley’s Management Committee, former chair of the firm’s Labor & Employment Practice and a partner in the Detroit office. Mr. Birmingham concentrates on class actions, non-competition and trade secrets matters, employment-related litigation, and labor law. He regularly counsels clients on a vast array of labor and employment issues and develops problem prevention and resolution strategies. In addition, he is a member of the Privacy, Security & Information Management and Immigration, Nationality &...

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