Jack Mozloom, 202-406-4450 or 609-462-5610 (cell)
Department
of Labor document encourages larger firms to bring services in house and sever
relationships with small contractors
Washington,
D.C. (January 20, 2016) – If a building management firm is potentially on
the hook for labor violations alleged by employees of their office cleaning
subcontractor, then what’s the point in farming out that work? A lot of firms are asking that question today
after the Department of Labor all but warned that companies could be liable for
the employment practices of other businesses they hire, said the National Federation of Independent Business
(NFIB).
“This is a warning shot aimed just over the heads
of businesses that hire other businesses,” said NFIB Sr. Counsel Beth Milito.
“It’s not a regulation, but it will have the same effect because many
firms are going to rethink their exposure and the result will be disruptive for
small businesses.”
Joint employer is a legal theory pushed by
organized labor under which businesses can be liable for labor violations
committed by other companies with which they have relationships. The most common example is the franchise
model, under which franchisees operate independently of the parent company
except for the branding. But the theory
can apply to any business that contracts for services with other businesses.
“If you’re a general contractor you can be drawn
into lawsuits against your subcontractors,” said Milito. That creates a real dilemma for businesses of
every size.
“If you hire other firms for certain types of
work, you may try to limit your exposure by discontinuing those relations and
hiring direct employees to perform those services. Obviously that hurts the subcontractors who
are mostly small businesses. But it also
hurts the larger firms since their payroll costs are very likely to
increase. It creates pressures on both
sides of the contract.”
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