Last week, the NLRB General Counsel’s Office authorized 43 complaints of unfair labor practices brought by McDonald’s workers, naming both the McDonald’s Corporation and its franchisees as joint employers which would hold them jointly responsible for the unlawful actions. In other words, for the first time in decades, corporate fast-food franchisors may be held liable for the actions of their franchises. This is a significant departure from NLRB precedent, and its impact could go far beyond the world of burgers and fries.
The Board itself has been clear for decades: a franchisor is not the employer of the individuals hired by its franchisees. Under a standard established in the early 1980s, a company is a “joint employer” of a separate entity’s employees only if it exercises “direct control … over the terms and conditions of the workers.” Diverse franchisors, from restaurants to hotels to retailors to car dealerships, have relied on this standard to structure their businesses. Companies allowed franchisees to make every day employment decisions (hiring, discharge, and supervision), relying on the notion that the franchisor would not be held liable for any unlawful conduct.
Labor unions, recognizing the NLRB’s most union-friendly composition in years, have targeted the Board’s joint-employer standard for “revisiting.” This May, the NLRB invited unions and employers to submit amicus briefs in Browning-Ferris Industries, Case. No. 32-RC-109684, a case involving a corporation and its subcontractor, rather than a franchisor-franchisee relationship. In response, business organizations argued that an expanded standard would subject companies to liability for the unlawful conduct of suppliers and contractors they do not, and cannot, control. Labor organizations urged the Board to relax the standard in order to eliminate common business practices such as outsourcing and subcontracting, and allow the Board to hold a wider range of potential employers liable for alleged unfair labor practices.
This move by the General Counsel clearly signals the direction in which this Board is heading. While the NLRB has yet to issue a decision in Browning-Ferris, we should expect that it will significantly broaden the joint employer standard. Businesses with subcontracting agreements and franchisors of every kind would be wise to avoid the kind of control, advice, and oversight which might subject them to joint employer liability. The more discretion a business can vest in its subcontractor or franchisee, the more likely it will be able to avoid a potentially damaging joint employer determination.