On August 27, 2015 the NLRB expanded its joint-employer test, which union supporters hope will apply to franchising. See January 2015 WaronFranchising.com blog entry for background. In a 3-2 decision on partisan lines, the NLRB ruled that Browning-Ferris was a joint employer of workers employed by an independent staffing company that supplied it workers. Browning-Ferris owned a recycling facility and contracted with an independent staffing company to provide employees of the staffing company to run the facility. A link to the 50 page decision is at: https://www.nlrb.gov/case/32-RC-109684.

The old test of joint employer that had been in effect for over 30 years was that the joint employer had authority to control terms and conditions of the employees’ employment and to also exercise the authority “directly” and “immediately.”

The new test announced by the NLRB is this case is that a company need only assert “indirect control” over the terms and conditions of employment, to be found to be a joint employer.

The NLRB has also charged McDonald’s as a joint employer, and this new broader test will be used in that case. The NLRB pointed to McDonald’s comprehensive computer system, which tracks labor usage and costs, as one means of controlling the franchisee’s operations, including employment decisions.

Adding to the uncertainty, the Browning Ferris case will be appealed, so the case is not over. Footnotes in the Browning Ferris opinion (Fn. 94 and 120) distinguish franchising from the case of staffing companies, and made it clear that the Browning Ferris case did not decide the franchise cases, which will be taken on a case by case basis. In the Browning-Ferris case, the company owned the work site, had on-site supervisors to oversee the work, and controlled the speed at which work was performed on the site. None of this is true in typical franchising. However, the dissent, at pp 45-46 points out that franchisors must control franchisees, in order to maintain consistency to protect customers and to maintain the goodwill in its trademarks. Controls are essential to franchising under law.

McDonalds and its franchisees are fighting the actions against them. The next step will be litigated before NLRB administrative law judges. The outcome of those proceedings may be appealed to the five-member labor board, and then to a circuit court of appeals, which could take several years.

In the meantime, on September 8th two Republican Congressmen introduced legislation to roll back the Browning Ferris NLRB decision. The two paragraph bill entitled Protecting Local Business Opportunity Act would overturn the new joint employer standard by stating that two businesses are only considered joint employers if they share “actual, direct and immediate control over essential terms and conditions of employment.” IFA President and CEO Steven Caldeira and other business leaders quickly applauded the legislative proposal.

Joint liability is a type of vicarious liability, is a not a new issue for franchisors, as discussed in our February WaronFranchising.com blog post. Many franchisors have been held liable, for taxes, injury claims, and contract claims, for exerting too much control over a franchisee.

DORSEY DO’S AND DON’TS

To reduce the risk of becoming liable jointly or vicariously franchisors should, while

maintaining essential quality controls:

• Reduce or eliminate unnecessary controls on franchisees, whether in franchise agreements, manuals, or IT systems. Only control areas essential to the franchisors key systems.

• Avoid controls in high risk areas, including employment matters. If training is necessary relating to labor and employment issues, e.g. ADA, ACA, issues, use third party trainers.
• Beware of intrusive monitoring systems such as cameras and monitoring of individual employee performance. Even if monitoring is deemed necessary, leave enforcement to franchisee.
• Where franchisors provide a franchisee forms add a disclaimer that a franchisee should get its own legal advice and customize the form to comply with laws.