Thursday, December 12, 2019: NLRB Returns to Pre-Obama Era Legal Test for “Joint-Employer” Status
The National Labor Relations Board (“NLRB”) last Thursday published a ruling approving an approximately $170,000.00 settlement between the employees of McDonald’s franchisees (not employees of McDonald’s restaurants which McDonald’s owned) and the workers of McDonald’s licensee restaurants. NOTE: McDonald’s currently operates almost 2,800 company-owned (i.e. “corporate”) restaurants and has signed license agreements around the world with over 35,000 franchised restaurants bearing the McDonald’s name.
The NLRB’s acceptance of the settlement signaled another move by the NLRB to overturn the “joint employer” doctrine the NLRB had previously adopted under President Barack Obama in an unrelated case known as BFI Newby Island Recyclery, 362 N.L.R.B. No. 186 (2015) (the “Browning-Ferris decision”). The new case decision is McDonald’s USA, LLC, a joint employer, et al., 368 N.L.R.B. No. 134 (December 12, 2019) (the “McDonald’s decision”).
[The McDonald’s case was the largest case the NLRB has tried in its 84-year history. It was also the centerpiece of the Obama NLRB and the nation’s unions to broaden the reach of organized labor beyond just the franchise companies in the United States into the franchisor companies which own the brands and indirectly control the labor relations policies, including pay to employees and their terms and conditions of employment, via franchise contracts, of hundreds of thousands of franchise stores and restaurants. The Browning-Ferris case and its ensuing decision, was integral to the Obama and union strategy to expand union influence to the franchisors because it had held that an employer’s “right to control” third party workers BY CONTRACT, as well as any “indirect control exercised” over the workers via contract, as among a number of factors relevant to determine joint-employer status (between the franchisors, like McDonald’s, and its franchisee store owners].
By approving the settlements between McDonald’s franchisees and the workers of the franchisees, the NLRB rejected the previous decision of NLRB Administrative Law Judge Lauren Esposito, which had previously rejected the proposed 2015 settlement. Judge Esposito had found that McDonald’s had failed to fully remedy restaurant employees working for McDonald’s restaurants not owned by McDonald’s, but rather licensed to independent store owners operating the restaurants under the McDonald’s strict, detailed and directory franchise requirements. (The unions and the Obama NLRB singled out McDonald’s because it is the one of the oldest, largest and most profitable franchisor companies in America. Moreover, McDonald’s franchise contracts were (and are) especially long and highly detailed as to how the franchisee corporation had to run its restaurants carrying the McDonald’s name (down to small details about employee attire and the air pressure within McDonald’s restaurant buildings—to control flies). McDonald’s dictates all the fine details for its franchise restaurants to make all McDonald’s restaurants, whether owned by McDonald’s or owned by independent franchise restaurant corporations, operate in the identical way to insure a consistent dining experience whether the customer is in El Paso or New York City.
Judge Esposito had found McDonald’s proposed settlement to be inadequate and unreasonable under the circumstances and set it aside. McDonald’s appealed and a newly constituted NLRB under Donald Trump heard the appeal, and reversed. (As then newly-elected President Obama once famously quipped when questioned about an about-face turn in federal government policy he had ordered shortly after taking office: “Elections have consequences.” And, of course, the federal Courts have long criticized the NLRB and have often refused to grant its decisions any deference as NLRB decisions predictably swing back and forth like a child’s swing favoring union and employee interests almost uncritically when Democrats run the Board and likewise favor almost uncritically business interests when Republicans run the Board.
The NLRB’s new McDonald’s decision, rather than complying with the current standard expressed in the Browning-Ferris decision, instead seeks to conform Board policy with the pending proposed Rule the NLRB has announced setting the standard to determine joint-employer status under the National Labor Relations Act (“NLRA”). See, 83 Fed. Reg. 46681 (September 14, 2018). This is despite the fact that the definition of “joint employer” from the Browning-Ferris decision still currently stands until the proposed Rule becomes final.
More Background on the McDonald’s Fight with the Unions and the Unions’ Support for the Browning-Ferris “Joint-Employer” Standard
Union-affiliated groups began filing unfair labor practice charges against McDonald’s Corporation and its franchisees in 2012. The unions argued that McDonald’s Corporation, as the franchisor, was a “joint employer” subject to liability, too, along with the franchise operators of McDonald’s restaurants when the franchisee corporation violated the National Labor Relation Act (“NLRA”) because McDonald’s Corporation shared control over the workers in its franchisees’ restaurants. The NLRB’s ruling in the Browning-Ferris decision, which held that two or more statutory employers are joint employers of the same employees if “they share or co-determine those matters governing the essential terms and conditions of employment,” bolstered the union’s fight.
Specifically, the Browning-Ferris decision implemented a two part test to determine whether a joint employer relationship exists: (1) first, “whether there is a common-law employment relationship with the employees in question;” and (2) second, “whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.” Id. In applying both prongs of the test, the NLRB had determined in Browning-Ferris that it would no longer require that a joint employer both possess and exercise the authority to control an employee’s terms and conditions of employment. Rather, under the Browning-Ferris case law precedent, the NLRB would consider both reserved control and indirect control as potentially relevant in the joint-employer analysis. In other words, joint-employer status under Browning-Ferris considers not only the control an employer actually exercises over workers, but also the employer’s reserved but unexercised right to control the workers and their essential terms and conditions of employment which franchisors (like McDonald’s) often hold by way of a franchise agreement contract. Browning-Ferris Industries of California v. NLRB, 911 F.3d 11954, 1209 (D.C. Cir. 2018). (Emphasis added) [1]
Last week’s McDonald’s decision is a further attempt by the NLRB, since the election of President Donald Trump and his selection of new NLRB Board Members, to overturn the Browning-Ferris standard. First, as noted above, on September 14, 2018 the NLRB proposed a Rule seeking to add 29 C.F.R. § 103.40, which would set the standard to determine joint-employer status under the NLRA. Under the proposed Rule, an employer may be considered a “joint employer” of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. 83 Fed. Reg. at 46696 (emphasis added). A putative joint employer under the proposed Rule must thus possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine. 83 Fed. Reg. at 46697 (emphasis added).
The NLRB Rule is not yet final, however, but the NLRB’s McDonald’s decision attempts to give weight to the proposed Rule by Board decision before the Rule becomes final. However, it is anticipated that the union-affiliated groups which initially brought this fight against the McDonald’s Corporation will most likely appeal the expected Trump NLRB Final Rule when it comes. We expect the unions will seek to rely upon the Browning-Ferris decision’s standard to determine joint-employer status given that neither the NLRB nor the federal courts have yet to vacate or overrule the Browning-Ferris decision. Thus, employers can expect continued upheaval as to the definition of joint-employer in the NLRA context as unions will continue to seek to apply the Browning-Ferris decision until either the proposed Rule at 83 Fed. Reg. 46681 becomes final, or the courts explicitly overturn the Browning-Ferris decision.
[1] The NLRB initially attempted to overrule the Browning-Ferris decision in its decision in Hy-Brand Industrial Contractors, Ltd., 365 N.L.R.B. No. 156 (December 14, 2017). However, the Hy-Brand decision itself was overruled upon a finding that one of the Board Members deciding the Hy-Brand matter should have been disqualified from participating in the NLRB’s decision. 366 N.L.R.B. No. 26 (February 26, 2018).
