The Trump administration is making it harder for franchise employees to sue corporations over their wages.
The Department of Labor issued a rule on Sunday that makes it harder to prove that companies are responsible when individual franchise owners or contractors violate wage laws.
Labor Secretary Eugene Scalia said in a statement that the rule responds to the president’s aim to reduce regulations that limit 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.
The rule, proposed in April, has been praised by business groups and condemned by unions and worker advocates.
At issue is a question over when corporations can be considered “joint employers” for a franchise worker. In many cases, corporations have been sued by workers for wage laws broken by franchisees.
The Trump rule now makes it harder to designate companies as joint employers for franchise workers, and implements an earlier, tougher standard. Under the rule, companies are joint employers if they hire, fire and supervise employees, set pay and maintain employment records, according to the statement.
The rule is set to go into effect 60 days after Sunday.
The Obama administration had sought to expand the definition of joint employers, but business groups complained that move could threaten franchise businesses. The Trump administration previously rejected legal guidance from the Obama administration allowing these companies to be designated as joint employers.
The International Franchise Association (IFA), a trade group, said in a press release that the previous rules amounted to “one of the nation’s most harmful economic regulations,” almost doubling lawsuits against franchise businesses.
“This resolution provides much-needed clarity for the 733,000 franchise establishments across America, and returns to the traditional standard of business that has fundamentally supported and encouraged franchise entrepreneurship for decades,” IFA President and CEO Robert Cresanti said in the statement.
McDonald’s has been one of the companies affected by these lawsuits, but a federal appeals court in San Francisco ruled the company was not responsible for the wage law violations of franchise owners in October.
The National Employment Law Project (NELP), supported by unions, opposed the rule.
“On Sunday, the U.S. Department of Labor announced a final rule that interprets the ‘joint employment’ standard in a way that makes it easier for corporations to cheat their workers and look the other way when workplace violations occur,” said Rebecca Dixon, executive director of the NELP, in a statement.
“The DOL’s final interpretation dramatically and improperly narrows companies’ joint responsibility for respecting fair pay and child labor laws, exposing millions of workers to wage theft.”
–Updated at 3:56 p.m.