The Attack On Franchising: An Analysis

by Constangy, Brooks, Smith & Prophete, LLP
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Richard F. Griffin, General Counsel for the National Labor Relations Board and former General Counsel for the International Union of Operating Engineers, has decided to assert that McDonald's Corporation and its franchisees are "joint employers." Contrary to the impression created by the media, the General Counsel has no power to make "rulings." He makes claims, claims which may or may not have factual or legal merit.

For decades, the courts and administrative agencies have said that two separate companies are "joint employers" only if both actually control the wages and hours of the employees, as well as other terms and conditions of their employment. Applying this rule, courts and administrative agencies consistently and properly have ruled that franchisors and franchisees are separate employers in most circumstances. The reason is simple—although franchisors set standards to protect the brand, they are almost never directly involved in employee matters at franchisee operations.

The General Counsel wants the Board to adopt a new standard, one that says a franchisor and franchisee are "joint employers" if the franchisor has "significant control" over employee matters at franchisee operations. No one knows what "significant control" really means. In NLRB proceedings, NLRB employees are investigators, prosecutors and judges. There are no independent participants, except of course the accused employer, until the case gets to the Court of Appeals, which can take years.

Mr. Griffin's current appointment is valid, but you may recall that he was initially appointed to the NLRB by the President as a "recess appointment." Even after a Court of Appeals ruled that his appointment was invalid, the Board insisted that it would conduct business as usual, openly defying the ruling. The Supreme Court agreed with the Court of Appeals, and as a result, hundreds of Board decisions were invalidated, a mess that will take years and thousands of hours to sort out. The point? Just because the General Counsel says it, that doesn't make it so.

The real concern here is that franchisors and franchisees in all sorts of businesses are going to have to deal with copycat claims, claims that will loudly proclaim that "the federal government has ruled" the companies are joint employers. That assertion is simply false.

Nonetheless, the General Counsel's proposed new standard is likely to result in hundreds of claims against franchisors. Although the Board's authority to interpret federal statutes is limited to the National Labor Relations Act and related laws, it is very possible that other federal agencies, including the Department of Labor and the Equal Employment Opportunity Commission, will be influenced by the Board and will adopt similar standards, allowing them to name franchisors as defendants in cases involving, for example, alleged wage-and-hour violations and discrimination.

We expect to see a political backlash against this politically motivated attempt by a union-dominated agency to change the law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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