Joint Employer Test Expanded:
On August 27, 2015 the NLRB expanded its joint-employer test, which union supporters hope will apply to franchising. For background of this case see our January 2015 blog at www.waronFranchising.com.
In a 3-2 decision, 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 available here.
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 will Try to Apply this Test to Pending McDonalds Cases:
The NLRB has also charged McDonald’s as a joint employer, and this new broader test will be used in those 13 pending cases. The NLRB pointed to McDonald’s comprehensive computer system, which tracks labor usage and costs, and schedules franchisee’s employees, as one means of controlling the franchisee’s operations, including employment decisions. McDonald’s and its franchisees deny that these support systems amount to control of franchisee employees.
Adding to the uncertainty, the Browning Ferris case will be appealed, so that case is not over. Footnotes in the Browning Ferris opinion (Fn. 94 and 120) distinguish franchising from the case of staffing companies, and make 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. The NLRB general counsel’s brief states that minimal controls necessary to protect a brand will not cause a franchisor to become a joint employer, but excessive controls might.
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 NLRB, 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.
In short, the NLRB will be testing franchise systems on a case-by-case basis, under its new joint employer standard, to see if franchisors are "indirectly" controlling their franchisee's employees.
Other Vicarious Liability Risks are Created When a Franchisor Uses Excessive Control:
Joint liability is a type of vicarious liability, is a not a new issue for franchisors, as discussed in our February www.WaronFranchising.com blog post. Many franchisors have been held liable over the past 50 years to those with claims against franchisees, for taxes, injury claims, contract breaches, and other third-party claims. Most of these could have been avoided, if the franchisor did not exert too much control over a franchisee. Liability risks are high for claims for certain types of claims, in addition to those related to employment law, e.g. personally injury claims, hazardous waste claims, privacy and data protection claims, Americans with Disabilities Act claims, and many others.
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, IT systems, field staff communications, supply chain rules, etc. Only control areas essential to the franchisors key systems. We can have our contract lawyers using document evaluation software review your manuals and systems at a reasonable cost to reduce risks.
- Avoid controls in high risk legal areas, including employment matters. If training is necessary relating to labor and employment issues, e.g. food handling safety, ADA compliance, etc., use third party trainers for certified training, where possible.
- Beware of intrusive monitoring systems in high risk legal areas, such as cameras and monitoring of individual employee performance. Even if monitoring is deemed necessary, leave enforcement to franchisee.
- Where franchisors provide a franchisee key forms touching on legal subjects, add a disclaimer that a franchisee should get its own legal advice and customize the form to comply with laws. (e.g. customer enrollment forms, employee confidentiality agreements.)
- Generally, to reduce risk of vicarious liability claims:
- Support is better than control;
- Information, especially third party information is better than control; and
- Controls should be coupled with franchisee enforcement against employees.