NLRB Moves Toward New Standard to Hold Franchisors Are Joint Employers of Their Franchisees' Employees

by FordHarrison

Executive Summary: Over the last two years fast-food workers have engaged in walkouts and other activities protesting their wages and seeking an increase to $15/hr.  Numerous unfair labor practice charges have been filed with the National Labor Relations Board (NLRB) against restaurant franchisors and franchisees accusing them of illegally firing, threatening or otherwise retaliating against workers for activities protected by the National Labor Relations Act (NLRA).

On July 29, 2014, the General Counsel (GC) of the NLRB issued a directive to the regional offices handling charges against one such franchisor, McDonald's, stating that McDonald's could be held liable as a joint employer of the employees of its franchisees for any unfair labor practices committed.  Absent settlement, the NLRB will issue complaints against McDonald's and its franchisees as joint employers.  The written directive by the GC has not been made available to the public.  Consequently, the specific grounds on which the GC made his determination are unknown.

The fast-food workers alleged that McDonald's is a joint employer on the grounds that it directs its franchisees to adhere to its rules on food, cleanliness and employment practices.  Additionally, McDonald's frequently owns the restaurants in which its franchisees operate.  McDonald's strongly disputes that it is a joint employer and vowed to litigate the issue. 

It is important to understand that the GC's determination is not legally binding.  A complaint will be litigated before an administrative law judge who will issue a decision.  That ruling is appealable to the NLRB.  Any decision by the NLRB may be appealed to a federal court of appeals.  The losing party can seek a discretionary appeal to the U.S. Supreme Court.  The litigation process likely will take several years.

An unrelated case involving Browning-Ferris Industries (BFI) is pending before the NLRB.  The case arose out of a union election and involves whether BFI and a staffing agency are joint employers.  The NLRB invited parties to submit briefs on whether the NLRB should adhere to its existing joint employer standard or adopt a new one.  The current test is whether two entities share the ability to directly and immediately control or determine essential terms and conditions of employment such as hiring, discipline, termination, supervision and direction.

The GC filed a brief in the BFI case arguing what the new rule should be.  The GC's brief may be instructive as to how he analyzed whether McDonald's is a joint employer of its franchisees' workers.

Under the GC's proposed new test a joint-employer determination will be based on the totality of circumstances, including how the potential joint employers structure their commercial dealings with each other.  If a franchisor wields sufficient influence over the working conditions of the franchisee's employees, then the franchisor can be found to be a joint employer.  The GC proposes making no distinction between direct, indirect and potential (unexercised ability) control over working conditions.

Among the factors mentioned in the GC's brief are franchisors: keeping track of data on sales, inventory and labor costs; calculating the labor needs of the franchisees; setting and monitoring employee work schedules; tracking franchisee wage reviews; tracking how long it takes for employees to fill customer orders; accepting employment applications through the franchisor's system; and screening applicants through that system.

The GC notes that technological advances permit franchisors to exercise significant control over franchisees through scheduling and labor management programs that go further than simply protecting the franchisor's product or brand.

It appears likely that the NLRB is moving toward a joint employer standard that will make it easier to find that a franchisor and its franchisees are joint employers.  Whatever standard is used, determinations will be fact specific.

Employers' Bottom Line

Franchisors should review their policies, practices and documents regarding the degree of direct and indirect control they exercise over the working conditions of their franchisees' employees.  Among the things franchisors should not be involved in include: hiring, disciplining or terminating franchisees' employees; supervising or controlling those employees' work schedules or conditions of employment; determining rates or methods of payment; monitoring those employees' performance; or exercising control over franchisees' timekeeping or payroll practices.  The NLRB has signaled that franchisors should not exercise control beyond what is necessary to protect their product or brand.

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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