NLRB General Counsel Announcement on Joint Employer Status for Franchisors Could Have Significant Implications

by Littler

In a move that could have a dramatic impact on numerous businesses across the country, National Labor Relations Board General Counsel Richard Griffin announced on July 29, 2014, that his office intends to name a parent franchisor as a respondent in cases involving alleged unfair labor practices committed by franchisees, if the parties are unable to reach a settlement.  According to the General Counsel, the agency is investigating the various charges, and may name the franchisor company as a joint employer if a complaint is issued.  

This decision comes as the Board is reviewing amicus briefs filed in a separate matter, Browning-Ferris, in which the Board is reconsidering its long-established joint employer test.  Browning Ferris involves a Teamsters union's appeal of a NLRB Regional Director's determination that only independent staffing company employees are eligible to vote in a representation election at a recycling plant in Milpitas, California, not regular plant employees too, because the staffing company is a sole employer.  The Board solicited briefs from interested parties addressing whether to retain its current test or adopt a new joint-employer standard. 

The current legal standard, endorsed by Congress and the courts, has existed for 30 years. Generally, under the current standard, only legally separate entities that exert a significant and direct degree of control over employees and the employees' essential terms and conditions of employment are considered joint employers under the National Labor Relations Act.  The "essential terms and conditions of employment" are those involving such matters as hiring, firing, discipline, supervision and direction of employment.1

During a recent House subcommittee hearing to address this issue, one witness opined that the joint employer model should not apply to franchisors and their franchisees, as the franchisor-franchisee relationship is built on a division of roles and responsibilities, with individual franchises independently running their businesses.  While franchisors set standards to protect their trademark and maintain product consistency, franchisees are in charge of hiring, firing, and managing nearly all other aspects of the workplace.  If found to be joint employers with their franchisees, franchisors would be liable for the decisions and employment practices of the individual franchisees.  That exposure, in turn, would put the franchisors in the position of having to exert control over day-to-day operations and workplace decisions to limit their own potential liability.  Such a change could result in a complete overhaul of the franchise model.  In fact, any change in the joint employer test could significantly alter the face of American business and impact every level of the supply chain, as multiple businesses have contractual relationships based on this decades-old standard.

The NLRB has yet to release any memorandum or decision outlining its new approach.  However, a look at the General Counsel's amicus brief in Browning-Ferris illuminates the underlying rationale.  In that brief, the General Counsel asserts that "the Board should abandon its existing joint-employer standard because it undermines the fundamental policy of the Act to encourage stable and meaningful collective bargaining." The General Counsel advocates a return to the pre-1984 "traditional" approach, whereby an "entity was a joint employer where it exercised direct or indirect control over significant terms and conditions of employment of another entity's employees, where it possessed the unexercised potential to control such terms and conditions of employment, or where 'industrial realities' otherwise made it an essential party to meaningful collective bargaining."

The General Counsel suggests in his Browning-Ferris brief that the Board adopt former member Liebman's "industrial realities" test, articulated in her concurrence in Airborne Express (which was specifically rejected by the overall Board in that case). The current test focuses on whether one company's control over employment matters of the other company is direct and immediate.  Former member Liebman's proposed test requires an assessment of the degree of "economic dependence" between the companies.  The focus is not whether the company exercises control through direct "hiring, firing, discipline, supervision and direction" of the other companies' employees, but whether the company imposes its own, highly standardized operational requirements and monitors and retains effective control over those operations. The General Counsel asserts in the brief that companies may effectively control wages by controlling every other variable in the business.  According to the General Counsel, indicia of control include: tracking data on sales; inventory and labor costs; calculating labor needs; setting and policing employee work schedules; tracking wage reviews; tracking time needed for employees to fill customer orders; acceptance of employment applications through company systems; reimbursement of wages; retention of right to approve employees; requiring the company and its employees to follow safety rules; and making recommendations during the collective bargaining process or retaining the right to provide such input.  This expanded test would create many new joint employment relationships on a local and national level.

The NLRB is not the only agency to have taken an interest in the franchise industry. David Weil, the new Wage and Hour Division Administrator at the Department of Labor, was the principal investigator on a report for the DOL: Improving Workplace Conditions through Strategic Enforcement: Report to the Wage and Hour Division Strategic Enforcement. In this paper, Weil claims that the "fissuring" of the employment relationship, particularly via franchises, contributes to wage and hour law noncompliance.  During a Senate committee hearing to consider his nomination last year, Weil clarified that his concern is not with the franchise model per se, but rather with employers using franchising improperly as a means of subverting the law.

The General Counsel's proposed approach is not limited to franchise operations – it would have far reaching impact across industries and many business models. The General Counsel specifically identifies temporary service workers, outsourced and subcontracted services, and franchising as target areas for the expanded joint employer concept.  While the franchisor has not yet been named in an official complaint, the readiness of the NLRB General Counsel to consider it a joint employer should give employers pause.  

Anticipated next steps include the issuance of a complaint against the franchisor and its franchisees in the NLRB Regions where cases are pending, followed by a trial or trials before an administrative law judge. The case will then move to the Board for a decision, which will likely be appealed to one of the federal circuit courts of appeal.  This process could take several years.  During that period of time, there will be considerable uncertainty as to how business is to conduct itself under the Board's anticipated "new" joint employer standard. 

When the actual complaint against the franchisor is issued, and when the Browning-Ferris decision is released, we will provide a more detailed explanation of the General Counsel's theory of joint employment and advise accordingly.  Of course, these NLRB developments must be considered as part of the Board's unprecedented initiatives involving quickie elections, micro bargaining units, what constitutes concerted activity, permissible employer policies, and employee use of company email and other access rights to company property.  The General Counsel's announcement is another potential pro-labor reversal of long-standing precedent to encourage organizing at the expense of companies' rights to make business decisions regarding organizational structure.

1 TLI, Inc. 271 NLRB 798 (1984); Laerco Transportation, 269 NLRB 324 (1984).

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.

© Littler | Attorney Advertising

Written by:


Littler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.