On December 14, 2017, the National Labor Relations Board (Board) in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017) expressly overruled the divisive joint-employer standard adopted by Browning-Ferris Industries, 362 NLRB No. 186 (2015).
The Browning-Ferris decision departed from decades of precedent by issuing a new joint-employer test, holding that two entities could be joint employers based on a reserved right to control terms and conditions of employment. The decision provided no concrete guidelines for businesses to evaluate whether their specific relationships would result in joint-employer status. Under the Browning-Ferris standard, a franchisor that had indirect or potential control over employees of its franchisees through typical brand controls found in franchise agreements could be considered a joint employer of those employees.
Franchisors were gravely concerned about ramifications of Browning-Ferris on the franchise business model.
In overruling Browning-Ferris, the Board reinstated the prior joint-employer standard. Going forward, the Board clarified that one entity would be deemed the joint employer of another entity's employees only if it exercised actual, direct control over "essential employment terms." Potential or reserved control alone is no longer enough. Moreover, that control must be exercised in a manner that is not "limited and routine."
While this decision is welcome news for franchisors, it does not eliminate the possibility that a franchisor will be found to be a joint employer with its franchisee and thus jointly liable for actions of the franchisee's employees.
Franchisors should remain careful when drafting documents that set controls over franchisees' employees, such as payroll practices, setting work schedules or disciplinary guidelines. After Hy-Brand, the mere fact that a franchisor reserves the right to exercise control over a franchisee's employees will no longer mean joint employment exists, but if that right to control is frequently exercised, there might still be a finding of joint employment.
Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017)
