A looming surge of cases threatens to expand the joint employment doctrine and fundamentally alter the operations of franchisors, retailers, and businesses utilizing independent contractors within the four walls of their offices, warehouses, and storefronts. Businesses should carefully examine their independent contractor and vendor relationships to assess how expanded definitions of joint employment in the labor relations and wage and hour contexts may present litigation risks and impact the bottom line.

The NLRB is poised to fundamentally alter the joint employment doctrine under the National Labor Relations Act. In December 2014, the NLRB General Counsel issued 13 complaints involving 78 unfair labor practice charges against McDonald's USA, LLC, alleging that McDonald's and its franchisees illegally retaliated against employees for participating in union-related activities to attempt to increase wages and improve working conditions. Although many of the alleged labor violations were committed by independent franchise owners, the NLRB General Counsel seeks to hold McDonald's liable for those actions under a novel joint employer theory: one that presumes that a franchisor controls a franchisee's employment decisions where the franchisor regulates many other aspects of the franchisee's operations, even if such regulations are necessary to protect the value of the franchisor's brand. Under this theory, franchisors could be liable for any unfair labor practice tangentially implicating the franchisor's operational directives. Absent settlement, the initial litigation of these charges will commence in New York on March 30, 2015, followed by proceedings in Chicago and Los Angeles.

Meanwhile, employers must also be wary of expanding notions of joint employment as applied to wage and hour laws. In April 2014, David Weil, the Chief of the United States Department of Labor Wage and Hour Division, faulted the "fissured" workplace created by franchise relationships for widespread wage and hour violations. Weil has publicly committed to accelerate efforts to hold franchisors liable.

Some states have already expanded the definition of joint employment under their wage and hour laws, affecting all businesses utilizing independent contractors. On January 14, 2015, a unanimous New Jersey Supreme Court ruled in Hargrove v. Sleepy's, LLC, that the proper test for determining independent contractor status under New Jersey wage and hour laws is the "ABC test," arguably the most stringent test for employers to satisfy, which previously only applied in the context of unemployment compensation in New Jersey. Unlike the "right of control" and "economic realities" tests customarily applied on federal wage and hour and anti-discrimination claims, under which the employee has the burden of proving a joint employment relationship under a multi-factor, totality of the circumstances framework, the ABC Test presumes that an individual is an employee unless the business proves that the individual:

(A) is free from the company's control in performing the services;

(B) performs work outside the usual course of the company's business or outside the company's place of business; and

(C) is engaged in an independently established business.

The New Jersey Supreme Court reasoned that the rigorous ABC test applied to the New Jersey wage and hour laws because those laws were remedial and should be construed broadly to benefit workers. The Court further noted that the objectivity of the ABC test would foster more predictable results than the traditional tests for joint employment. Such a generic rationale is susceptible to being adopted in the interpretation of other states' wage and hour laws.

Broadening a test for joint employment may immediately trigger lawsuits. Within two weeks of the ruling in Sleepy's, two wage and hour class action lawsuits were filed in the Superior Court of Middlesex County, New Jersey, against two retail giants as alleged joint employers. In Torres-Martinez v. BES Trucking Corp. et al., No. L-385-15, a putative class of Staples warehouse delivery drivers and helpers claimed that they are entitled to unpaid wages from Staples as a joint employer. Similarly, in Miranda-Rivera v. TK Cleaning Corp., Case No. L-383-15, overnight custodians working in a Home Depot retail store claim that they were misclassified as independent contractors and are owed unpaid wages from The Home Depot.

Employers with operations in New Jersey and other pro-employee states likely to adopt more permissive tests for joint employment should carefully examine their independent contractor relationships in order to mitigate the risks associated with an expanded joint employment theory. Experienced counsel can help to decipher the nuances of each state's employment laws and how they may be interpreted in an evolving, pro-employee environment.