Recently the General Counsel (GC) of the National Labor Relations Board (NLRB) announced that he has directed the issuance of complaints in 43 unfair labor practice cases, alleging that McDonald’s franchisees and their franchisor, McDonald’s USA LLC, were joint employers. The decision could have implications beyond the fast food business, for all chain retailers that use outsourcing, franchising or sub-contracting.
This newsletter will analyze this development in the Joint Employer Rule and consider what business owners must be mindful of in this changing legal landscape.
Pursuant to the National Labor Relations Act (NLRA), joint employers exist where two separate legal entities share the ability to control or co-determine essential terms and conditions of employment, such as hiring, firing, disciplining, supervising and directing employees. Where a joint employment relationship is found, both entities must comply with the various federal, state and local labor and employment laws with respect to the employees at issue and are liable as employers under these laws.
The NLRB applies the same test in the franchise context; however, it traditionally has been mindful of factors that distinguish the franchisor-franchisee relationship from the conventional employer-independent contractor relationship, such as the need of a franchisor to preserve the quality and good will of the franchisor’s brand and the franchisor’s interest in eliminating unfair competition among its franchisees.
Currently, legally separate business entities are joint employers only when they actually share the control or co-determine the essential terms and conditions of employment (i.e., hiring, firing, wages, hours and working conditions, discipline, supervision, and direction of employees). The test requires the putative joint employer’s control over these employment conditions to be direct and immediate.
Corporations have long argued that they are merely licensing their brands and products to franchisees, who are then responsible for complying with laws regarding hiring, wages, hours, and the like. This view of the joint employer rule has served the franchisor-franchisee model well, but recent decisions have signaled a new approach to the old standard.
A Change in Trends
New interpretations of the joint employer standard have been revised as recently as September 2014, when the NLRB revised its interpretation of the joint employer rule in In CNN Am., Inc., 361 N.L.R.B. No. 47 (2014). The NLRB found CNN to be a joint employer with its contractor Team Video Services, even though CNN did not directly control employment decisions affecting Team Video Services employees. Importantly, the NLRB rejected the prior standard, pursuant to which a joint employer determination required that the purported joint employer’s control over employment matters be “direct and immediate.” CNN has appealed the NLRB’s decision to the US Court of Appeals for the DC Circuit.
Of further note, a federal court in California recently held Wal-Mart to be a joint-employer of temporary warehouse workers in a class-action lawsuit based on a similar argument — that Wal-Mart controls the employment conditions in the supply chain in which subcontractors and temporary staffing agencies operate.
We are seeing a shift in the winds with regard to the joint employer standard.
The trend strongly suggests the NLRB will uphold the GC’s interpretation of the joint employer rule and employ a broader standard for a joint employer determination.
The Equal Employment Opportunity Commission has also indicated that it fully supports the broader standard, and the Department of Labor (DOL) has embarked on the same enforcement strategy under the leadership of David Weil, recently appointed to run the Wage and Hour Division. He is the author of The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It. Using the broader joint employer standard, the DOL is prosecuting companies that use outsourcing, franchising, or sub-contracting for “wage theft” when the businesses performing the outsourced work violate wage and hour laws.
Each of the three key federal government prosecutors of labor, employment and wage-hour violations express an intent to expand the traditional definitions of “joint employer.” This shift in prosecutorial discretion now must be factored into business decision-making, including transactional due diligence.
Clients should be advised to review their policies, procedures, business relationships and practice to limit their risk.
Franchisors and other businesses should consider their business goals and how to structure their commercial relationships to achieve business goals while avoiding involvement in the essential terms and conditions of employment, with specific attention to hiring, firing, discipline, supervision and direction.
If you are interested in learning more about the joint employer rule, and how this may affect you, then please contact Larry Horwitz at firstname.lastname@example.org.