Activity Before NLRB and WA Supreme Court Highlights Joint Employer Risk

by Fenwick & West LLP
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A recent announcement by the National Labor Relations Board’s (NLRB) General Counsel and a Washington Supreme Court decision underscore the risks of potential joint employer liability:

NLRB General Counsel Seeks to Establish Joint Employer Liability for McDonald’s and Franchisees

In a July 29, 2014 press release, the Office of the General Counsel (OGC) of the NLRB announced its intent to file unfair labor practice charges in 43 cases against both McDonald’s franchisees and franchisor McDonald’s, USA, LLC—as joint employers—due to the franchisees’ responses to employee protests. If the charges are filed, the franchisor will be forced to defend—and face liability for—its franchisees’ actions which allegedly interfered with employee rights under the National Labor Relations Act.

The OGC did not explain its joint employer rationale in the press release, and its position is not otherwise public at this time. However, the OGC filed an amicus brief in an unrelated action—Browning-Ferris Industries—in which the NLRB is considering whether to follow or replace its current joint-employer test. There, the OGC argued the NLRB should apply a broader test that looks to whether, under the “totality of the circumstances,” the purported joint employer has sufficient influence—direct or indirect—over the working conditions such that meaningful bargaining cannot transpire in its absence. A significant factor for consideration would be the structure of the commercial relationship between the purported joint employers and how the relationship impacts, directly or indirectly, the industrial realities of the direct employer’s business. The Browning-Ferris case does not involve a franchise business relationship, but the OGC specifically observed that its proposed test would better capture franchisors.

Hopefully, the NLRB’s ruling in Browning-Ferris will provide much-needed guidance on this issue. In the interim, employers (including private, non-union employers) should be aware that the proposed joint employer test could be quite expansive and, if taken to an extreme, could apply not only to franchise relationships but potentially relationships with contractors and other business partners.

Joint Employer Liability Under WA Wage Statutes; Supreme Court Articulates Test

In Becerra v. Expert Janitorial, LLC, plaintiff night janitors filed a class action alleging failure to pay minimum wage and overtime as required by Washington’s Minimum Wage Act (MWA). In addition to their direct employers, plaintiffs named as defendants Fred Meyer Stores Inc., the ultimate beneficiary of their services, and Expert Janitorial LLC, Fred Meyer’s general contractor that oversaw various subcontractors including plaintiffs’ employers. Plaintiffs claimed that, “as a matter of economic reality, they were Expert’s and Fred Meyer’s employees; and that both companies knew the plaintiffs were misclassified and improperly denied overtime wages.” Fred Meyer and Expert moved for summary judgment, arguing they were not plaintiffs’ employers. The trial court agreed, and plaintiffs appealed.

The Washington Supreme Court reversed the trial court judgment, recognizing that liability under the MWA may be based on a joint employer theory and articulating a non-exhaustive 13-factor “economic reality” test. In doing so, the court observed that other factors were also relevant to the inquiry, including whether (1) a putative employer had knowledge about alleged violations, (2) the amount paid to the subcontractor allowed for a lawful wage, or (3) the arrangement was a “‘subterfuge or sham.’” The supreme court determined the trial court had applied the wrong test and remanded the case for further assessment of the joint employer issue, although it also expressed doubt that summary judgment would be appropriate on the record before it.

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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