On August 27, 2015, the National Labor Relations Board (NLRB) finally issued a decision in Browning-Ferris Industries of California, Inc. (BFI). In the decision, the NLRB expanded its joint employer standard and essentially overruled decades of precedent. Under the new standard, the NLRB can find an entity to be a joint employer if such entity exercised or has the power to exercise direct or indirect control over the essential terms and conditions of employment of another entity’s employees. The NLRB explained that it is reaffirming the standard pronounced by the Third Circuit Court of Appeals in a 1982 case involving Browning-Ferris Industries of Pennsylvania, Inc. In the current BFI case, the NLRB reviewed whether BFI and Leadpoint, a staffing company, were joint employers of Leadpoint’s employees. As part of such review, the NLRB invited interested parties to file briefs in April 2014 to address whether BFI and Leadpoint were joint employers under the current standard, whether the NLRB should adopt a new joint employer standard and, if the NLRB were to adopt a new standard, what should the standard be and how should it work. In the brief filed by the General Counsel for the NLRB, General Counsel proposed a new standard where joint employer status would exist in situations where an entity “wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.” Finding the current joint employer standard to be too narrow, the NLRB returned to what it considered the “traditional” joint employer test – that is, the standard used by the NLRB in the 1982 Browning-Ferris Industries of Pennsylvania, Inc. case. Under this test, the NLRB may find joint employer status if multiple entities “share or codetermine those matters governing the essential terms and conditions of employment.” To reach this finding, the NLRB must determine whether there is a common law employment relationship between these entities and the employees in question. If a common law employment relationship exists, the NLRB must then determine whether the alleged joint employer is a necessary party to meaningful collective bargaining with the employees. To be meaningful to the collective bargaining process, the alleged joint employer must control or have the right to control the essential terms and conditions of employment. In its decision, the NLRB stated that the essential terms and conditions of employment include matters related to hiring, firing, discipline, supervision and direction. Expanding on this statement, the NLRB stated that examples of control over essential terms and conditions of employment include:
- Setting hiring qualifications
- Requesting the termination of workers
- Dictating the number of workers required at specific times and to perform specific tasks
- Controlling scheduling, seniority, and overtime
- Assigning work tasks
- Determining the manner and method of work performance and counseling workers on these topics
- Maintaining constant oversight of worker performance
- Setting worker wages (by creating a wage ceiling or otherwise)
- Requiring approval over work pay increases
These examples may seem like common indicia of employer status and, indeed, have long been considered in determining whether an entity exercises control over a particular group of workers. However, the NLRB was clear that it will no longer only consider whether an entity has exercised the types of control listed above, now it will also consider whether the alleged employer has the right to exercise that control. The BFI decision focused on BFI’s use of a large temporary labor force in BFI’s facility, and involved a set of facts that are not necessarily applicable to the vast majority of franchisors. So what does this mean for your franchise company? As we’ve previously advised, franchisors should continue to avoid exercising direct control over the terms and conditions of employment of the employees of its franchisees. However, the NLRB’s BFI decision is clear that avoiding the exercise of direct control over the essential terms and conditions of franchisees’ employees is no longer enough. Now, a franchisor must make sure that its franchise agreements, operations manuals and other agreements do not give the franchisor the right to exercise such control in the future. In light of the BFI decision, franchisors can take actions to protect themselves by:
- Reviewing their franchise agreement, operations manuals, training materials, corporate policies, and forms to protect against potential arguments that the franchisor has reserved the right to exercise control over the terms and conditions of employment of its franchisees’ employees;
- Training and observing their staff to ensure they clearly understand what is and is not acceptable when interacting with franchisees; and
- Engaging their franchisees (for instance, to ensure the franchisees understand they are independently owned businesses and reflect the nature of that relationship to their employees and the public).
For additional action items, click here.
WHAT’S NEXT? WHAT’S ON THE HORIZON?
The Moye White Franchise & Distribution team will continue to provide updates on the BFI case and other related issues including the following:
- McDonald’s USA, LLC: In the brief filed by General Counsel of the NLRB in the BFI case, General Counsel stated that the “Board should continue to exempt franchisors from joint employer status to the extent that their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of their product or brand.” Although this statement was made in June 2014, the NLRB later issued complaints against McDonald’s alleging that McDonald’s is a joint employer of its franchisees’ employees.
It remains to be seen how the NLRB will apply the new joint employer standard in the McDonald’s cases and in the context of other franchisor-franchisee relationships.
- Petition for Investigation of the Franchise Industry: On May 18, 2015, the Service Employees International Union submitted a Petition for Investigation of the Franchise Industry to the Federal Trade Commission.
- Impact of Lobbying Efforts: The International Franchise Association, Chamber of Commerce and other groups have increased their lobbying efforts to oppose changes to the joint employer standard.
- The IFA is promoting state legislation to clarify that franchisors are not employers of their franchisees or the workers of their franchisees.
- House Education and the Workforce Committee Chairman John Kline (R-MN) and Health, Employment, Labor and Pensions Subcommittee Chairman Phil Roe (R-TN) quickly responded to the BFI decision stating they would “work to roll back this flawed decision and the damaging effects it will impose on families and small business owners.”
Copyright 2015 by Moye White LLP. This client alert is intended to notify recipients about legal developments and is for general information purposes only. It should not be construed as legal advice or legal opinion. Please consult your Moye White or other attorney regarding your specific situation.