The issue of franchisor/franchisee joint employer status continues to evolve. On August 27, 2015, the National Labor Relations Board (“NLRB”) issued a decision, commonly referred to as Browning-Ferris, which altered the NLRB’s standard for determining joint-employer status under the National Labor Relations Act (the “Act”). Although this case does not involve a franchisor-franchisee relationship, this decision is important to franchisors because this case opens the door for a legal argument to be made that franchisors and franchisees are joint employers of the franchisees’ employees. A franchisor deemed to be a joint employer would be required to negotiate with a union consisting of the franchisee’s employees and could be liable for violations of rights of those employees.
Under the newly adopted standard, as discussed in Browning-Ferris, a company that hires a contractor to staff the company’s facility may be a joint employer of the contractor’s employees at that facility if the company exerts control over or has the right to exert control over the contractor’s employees (even if control is not exerted). The prior standard typically required a company to actually exert direct and immediate control over the worker in order to be held to be a joint employer.
In Browning-Ferris, BFI hired Leadpoint, a staffing agency, to provide workers for BFI’s recycling facility. The NLRB noted that the agreement between BFI and Leadpoint reserved for BFI rights concerning (i) the hiring and firing of Leadpoint’s employees; (ii) the processes that affect employees’ day-to-day work; (iii) the number of workers per shift; (iv) the timing of each shift; (v) the determination of when overtime is necessary; and (vi) afforded BFI a significant role in determining employee wages. The NLRB found that BFI is a joint employer and that a union consisting of Leadpoint’s employees at the facility could negotiate with both Leadpoint and BFI.
Although the decision in Browning-Ferris is limited to that specific set of facts, the decision may impact franchisors. Franchise agreements and/or operating manuals generally mandate or recommend certain employment requirements or standards for employee work, employee schedules and other employment matters. Footnote 94 to the decision provides that a franchise differs from a staffing relationship and that none of the features of a franchisor-franchisee relationship are present in Browning-Ferris. Footnote 120 states that the decision does not fundamentally alter the law with regard to employment relationships that may arise under the franchisor-franchisee relationship. Despite the assurances of these footnotes, franchisors should be wary of how the NLRB will apply the new standard to the next franchising case.
It is important to note that under the former standard, the Division of Advice for the Office of the NLRB General Counsel issued an advice memorandum on April 28, 2015 concluding that franchisor Freshii was not a joint employer of the employees of its franchisees. Despite that advice memorandum, the NLRB continues to pursue an action against McDonald’s in which the NLRB alleges that McDonald’s is a joint employer of the employees of its franchisees. The differing approach taken by the NLRB with respect to Freshii and McDonald’s suggests that the issue of whether a franchisor meets the definition of a joint employer is fact specific under the former standard. We will continue to follow the NLRB action against McDonald’s as that case is likely to provide insight as to how the new standard will be applied to franchisor-franchisee relationships.
The question for franchisors now is whether their documents afford the franchisor sufficient control over the franchisee’s employees to raise a concern that they may at some point be considered a joint employer. The law is unsettled and may remain so even after McDonald’s is resolved. Trying to guess what is too much control in an effort to avoid joint employer status may be an exercise of the tail wagging the dog, as it may be best for companies to exercise good business judgment in terms of how much control makes sense and then adjust to whatever legal standard is ultimately created.
The complete text of the decision in Browning-Ferris, as well as other court filings for this matter, may be obtained here: https://www.nlrb.gov/case/32-RC-109684