Thursday, May 14, 2015

NLRB offers some good news for franchisors, or does it?

We are in the middle of class war in America, and your local fast-food restaurant is ground zero. Workers are fighting for higher wages and better working conditions. And, they are getting some help from the federal government.

Last summer, the NLRB Office of General Counsel authorized complaints against 43 different McDonald’s franchises, along with the restaurant’s franchisor, McDonald’s, USA, LLC. In each case, the franchisor did not own the restaurant or employ the workers. Instead, McDonald’s merely licenses its trademarks and operating procedures to the local franchisees. The franchisees, in turn, hire, fire, discipline, pay, and take all other responsibilities for the employees. As a “joint employer,” however, McDonald’s will share liability with the direct employer as if it stands in their shoes, because if a franchisor is a joint employer with its franchisee, the franchisor would share liability for all the franchisee's employment and other sins.

This week, however, we received some news on this front from the same NLRB Office of General Counsel. In Nutritionality, Inc. d/b/a Freshii [pdf], the OGC issued an advice memorandum concluding that the franchisor is not a joint employer with the franchisee.

Nevertheless, it’s not all happy meals for franchisors. The OCG compared two possible legal test for “joint employers,” the Board’s current standard and the “industrial realities” test.

Under the Board’s current standard—

The Board will find that two separate entities are joint employers of a single workforce if they “share or codetermine those matters governing the essential terms and conditions of employment.” To establish such status, a business entity must meaningfully affect matters relating to the employment relationship “such as hiring, firing, discipline, supervision, and direction.” … The Board and the courts have also considered other factors in making a joint employer determination, including an employer’s involvement in decisions relating to wages and compensation, the number of job vacancies to be filled, work hours, the assignment of work and equipment, employment tenure, and an employer’s involvement in the collective bargaining process.

In Nutritionality, however, the OGC lobbied for the NLRB to apply a more liberal “industrial realities” test—

Under that standard, the Board finds joint employer status where, under the totality of the circumstances, including the way the separate entities have structured their commercial relationship, the putative joint employer wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence. This approach makes no distinction between direct, indirect and potential control over working conditions and results in a joint employer finding where “industrial realities” make an entity essential for meaningful bargaining.

Ultimately, the OGC concluded that the franchisor failed as a joint employer under either test. Nevertheless, as the NLRB continues litigate against McDonald’s as a “joint employer,” this issue bears monitoring, especially as to the legal standard espoused by the NLRB. If the NLRB ultimately concludes that McDonald’s is a joint employer with its franchisees under a looser, more liberal joint-employer standard, it could be the most significant legal development of the year to come.

[Hat tip: Phil Miles]