Franchisors Vulnerable to Unfair Labor Practice Allegations

Originally posted on 09/09/2015, content updated on 11/09/2023

The National Labor Relations Board (NLRB) broadened the definition of joint employer in a 3-2 decision, adopting the joint employment standard recommended by the NLRB’s General Counsel.  The ruling was issued on August 27, 2015, in the case of Browning-Ferris Industries of California, Inc. (BFI).

The Browning-Ferris case did not involve franchising, but it will have an important impact on franchising.  Franchisors are now more likely to be deemed joint employers of their franchisees’ employees for purposes of compliance with the National Labor Relations Act.  This is a shock to the franchise industry.

BFI had engaged a staffing company called Leadpoint Business Services as an independent contractor to provide workers at BFI’s recycling facility.  The NLRB held that BFI was a joint employer of Leadpoint’s employees.  The NLRB also ruled that a finding of joint employment would require only the authority to control the terms and conditions of the service provider’s employees.  Actual exercise of that control is no longer necessary.

“Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry….  Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly – such as through an intermediary – may establish joint-employer status.”

The dissent viewed this change with alarm:

“Today, in the most sweeping of recent major decisions, the Board majority rewrites the decades-old test for determining who the “employer” is…. This change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.”

“… [T]he new joint-employer test fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships under the Act.”

This decision in Browning-Ferris provides guidance in determining the joint employment liability of the franchisor in the pending McDonald’s case. In December 2014, the NLRB’s General Counsel filed thirteen complaints against McDonald’s as a joint employer of employees of certain of its franchisees. The General Counsel appeared to be claiming that the franchise relationship alone is sufficient to cause the franchisor to be a joint employer of the franchisee’s employees.

Each complaint stated simply that (a) McDonald’s had a franchise agreement with the franchisee, (b) McDonald’s possessed or exercised control over the franchisee’s labor relations policies, and (c) McDonald’s was a joint employer together with the franchisee. There was no allegation that the franchisor controlled the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm.

McDonald’s requested a bill of particulars because the complaints did not explain the basis on which the General Counsel viewed McDonald’s as a joint employer. The Administrative Law Judge (ALJ) denied McDonald’s motion for a bill of particulars in January 2015. On August 14, 2015, the NLRB issued a decision affirming the ALJ’s decision denying the motion for a bill of particulars.

Two board members dissented, noting that “this complaint language provides no notice regarding the new joint employer standard upon which the General Counsel intends to rely in the alternative, nor what facts the General Counsel believes will prove joint employer status under the alternative standard.” As such, the dissenters stated that this denial presents an “acute due process problem”.

The change wrought by the Browning-Ferris case is dramatic, but not absolute. It appears that the NLRB will not deem all franchisors to be joint employers with their franchisees. On April 28, 2015, the NLRB Office of the General Counsel issued an Advice Memorandum in cases involving the Freshii franchise system. In the summer of 2014, a Freshii franchisee in Chicago terminated two employees for attempting to unionize the workforce. The Region found merit to unfair labor practice allegations but requested advice as to whether the franchisee was a joint employer with the franchisor. In the Advice Memorandum, the Office of General Counsel stated that:

“… the franchise agreement specifies that System Standards do not include ‘any personnel policies or procedures,’ which Freshii may make available for franchisees’ optional use, and that the franchisee alone will ‘determine to what extent, if any, these policies and procedures might apply’ to its restaurant operations. The franchise agreement also states that Freshii ‘neither dictates nor controls labor or employment matters for franchisees and their employees’….”

The Office of the General Counsel concluded that the franchisor and franchisee were not joint employers under either the traditional standard or the General Counsel’s proposed standard:

“Thus, because Freshii does not directly or indirectly control or otherwise restrict the employees’ core terms and conditions of employment, meaningful collective bargaining between Nutritionality and any potential collective-bargaining representative of the employees could occur in Freshii’s absence.”

The Chicago Regional Director issued a dismissal letter in the Freshii case May 14, 2015.

Richard Griffin, the NLRB General Counsel, will be a featured speaker at the American Bar Association’s annual Forum on Franchising in mid-October 2015 in New Orleans.  He will be joined by Dr. David Weil, Administrator of the Wage & Hour Division of the U.S. Department of Labor and author of The Fissured Workplace. I am looking forward to hearing their explanations of why a new, sweepingly broad approach to franchisor liability is a good thing.

Tom Pitegoff,
Tom.Pitegoff@offitkurman.com