Member Article

The National Labor Relations Board’s (“NLRB” or the “Board”) general counsel Richard Griffin announced July 29, 2014 that he had authorized complaints in 43 unfair labor practice cases alleging that franchisor McDonald’s, USA, LLC is a joint employer with its franchisees. This move, which coincides with the NLRB’s pending reconsideration of the joint employer analysis it has used for the past 30 years, could have far-ranging implications for franchisors and businesses using contracted or outsourced employees.

The Board’s General Counsel Advocates a Broad Joint Employment Test

The general counsel’s written directive authorizing complaints against McDonald’s is not publicly available, but his amicus brief in Browning-Ferris Indus. of Cal., Inc. provides a roadmap to his views on joint employer relationships under the National Labor Relations Act. Browning-Ferris involves a union challenge to an NLRB regional director’s decision excluding a recycling plant’s regular employees from voting in a union election with employees of a staffing company working in the same plant. The NLRB agreed to review the decision to determine if the plant and the staffing company were joint employers, and interested parties filed amici briefs in June 2014.

Generally, the Board’s current standard looks to whether the putative joint employer exerts a direct and immediate degree of control over “essential” terms and conditions of employment such as hiring, firing, discipline, supervision, and direction. See Laerco Transportation, 269 NLRB 324 (1984). In his amicus brief, the general counsel argues that this standard “undermines meaningful collective bargaining” because it allows franchisors and other entities to “insert[] an intermediary between it and the workers and designate[] the intermediary as the workers’ sole ‘employer.’” Accordingly, he urges the Board to return to what he calls the Board’s pre-1984 “traditional” standard that would find a joint employment relationship where “under the totality of the circumstances, including the way the separate entities have structured their commercial relationship, the putative joint employer wields significant influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.” This standard, according to the brief, “would make no distinction between direct, indirect, and potential control over working conditions,” and would find unexercised “potential control . . . sufficient to find joint-employer status” (emphasis in original).

While franchisors and contractors generally avoid joint employer status by leaving questions of wages and other terms and conditions of employment to the direct control of franchisees and independent contractors, this approach would likely be insufficient if the NLRB adopts the general counsel’s reasoning, which rejects the argument that franchisors “have no influence over the wages franchisees pay to their employees.” Rather, according to the general counsel, “some franchisors effectively control such wages by controlling every other variable in the business.” In support of this argument, the general counsel cites the following indicia of franchisor control:

• Keeping track of data on sales, inventory, and labor costs;
• Calculating the labor needs of franchisees;
• Setting and policing work schedules;
• Tracking franchisee wage reviews;
• Tracking employee performance such as time to fill customer orders; and
• Accepting and screening employment applications through the franchisor’s system.

Many of these indicia may be commonplace means for some franchisors to protect their products or brands. By calling these protections into question, however, the general counsel’s position will require franchisors to weigh the risk of modifying or foregoing certain practices against the risk of being deemed a joint employer, even where they exercise no direct control over their franchisees’ employees.

Next Steps

The general counsel’s announcement places franchisors in the difficult position of attempting to make informed decisions about how to structure their businesses in the absence of affirmative guidance from the NLRB or the courts. Although the general counsel has authorized the issuance of complaints naming franchisor McDonald’s, USA, LLC as a joint employer, the NLRB’s regional directors will only issue complaints in matters where the parties do not reach a settlement. Even in these cases, a complaint is only the first step in the NLRB’s adjudication process. If the parties do not reach a settlement following issuance, the complaint will first be tried before an administrative law judge, and will only go to the NLRB if a party files exceptions to the judge’s decision. Even then, because NLRB orders are not self-enforcing, the NLRB will have to petition a federal circuit court to enforce its order, which will likely lead to further litigation, and possibly an appeal to the Supreme Court. This lengthy process means that it could be years before the state of the law is clear. In the meantime, we will continue to monitor this area for further developments and provide updated recommendations to franchisors as additional information becomes available.

 

Footnotes: Matthew T. Deffebach 713.547.2064 [email protected] Rob Lauer 512.867.8505 [email protected] Deb Coldwell 214.651.5260 [email protected] Suzanne Trigg 214.651.5098 [email protected] Alex Stevens 214.651.5475 [email protected]