Legal Alerts Jul 10, 2018

DOL Exempts Franchise Business Owners from Joint-Employer Liability

New Rule a Welcome Change to Franchise Owners and Small Businesses

DOL Exempts Franchise Business Owners from Joint-Employer Liability

Under a recent Department of Labor ruling, franchise business owners that band together to form Association Health Plans are precluded from joint-employer liability that may arise from that relationship. AHPs are an attractive option for small business owners that do not qualify for large group plan rates in the insurance market. By joining forces with other employers, small business owners are able to provide health care benefits for their employees and their employees’ families at lower rates.
 
The Department of Labor declared June 19 that participating in an AHP will not be used as a factor to determine joint-employer liability. Generally, joint-employer liability may expose a franchisor to lawsuits for wrongs committed by employees of other franchises if the owner is perceived to share “direct and immediate control” over the same employees. The new rule eliminates this fear. Franchisors may now provide affordable health care coverage for its employees without exposing itself to joint-employer liability.
 
The new rule also addresses the concerns of small business owners and self-proprietors. Traditionally, only employers with a “commonality of interest” that was unrelated to providing health care benefits were able to form an AHP under section 3(5) of the Employment Retirement Income Security Act, or ERISA. Under this narrow definition, small businesses were required to team up with other small businesses engaged in a similar line of work to access the benefits of an AHP.
 
Now, employers satisfy the commonality of interest criteria if they are in the same line of business, trade, industry, profession or maintain their principal place of business in a region that does not exceed the boundaries of the same state, or in the same metropolitan area. This means that a family-owned restaurant may team up with a local bookstore solely for the purpose of providing affordable health care to its employees.
 
Ultimately, the rule presents great news for employers and employees alike. More employees will be able to obtain affordable health care coverage through their employer. And employers will be able to associate with other businesses more freely without incurring joint-employer liability from that relationship.
 
For more information about joint employment relationships and how they may relate to your organization, contact the author of this Legal Alert listed at right in the firm’s Labor & Employment practice group, or your BB&K attorney.
 
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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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