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The Franchise Memorandum

NLRB Majority Redefines Joint Employer Standard; Impact On Franchising Unclear
Posted in Employment

The long anticipated Browning-Ferris decision was released on August 27, 2015. Browning Ferris Indus. of Cal., Inc., 362 N.L.R.B. No. 186. As expected, a three-member majority decided it was necessary to abandon the relatively "bright-line" definition of "joint-employer" to address the "current economic landscape" of the labor market. Citing to a 1982 Third Circuit opinion dealing with another Browning-Ferris affiliate, the Board majority said it needed to "revisit and to revise the Board's joint-employer standard . . . to put the Board's joint-employer standard on a clearer and stronger analytical foundation . . . to best serve the Federal policy of 'encouraging the practice and procedure of collective bargaining.'" This article states our impression of the result.

Although the facts of the case are recited at length to support its finding, the majority opinion unabashedly abandons the joint employment standard of the last 30 years, which was reasonably clear, and adopts a "totality of the circumstances" and "right to control" "standard" to promote "the practice and procedure of collective bargaining."

In creating its new definition, the majority adopted, in substantial part, the position of NLRB General Counsel Richard Griffin, who in an amicus curiae brief argued for a standard that imposes joint-employer responsibility for engaging in collective bargaining if a contractor exercises control over employment decisions, but also if the entity merely reserves the right to exercise such control: "We will no longer require that a joint employer not only possess the authority to control employees' terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry." The control of the putative joint employer need not be exercised either directly or immediately. "If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint employer status." Moreover, the Board announced that the new standard applies retroactively.

The Browning-Ferris case is unique and ostensibly limited in that it establishes that if a joint employment relationship exists, the putative employer may be found to be a necessary party to unionization and collective bargaining requirements of the National Labor Relations Act. Although the Board majority indicated that the joint employer's liability and collective bargaining duties only extend to those issues over which it exercises joint control, it leaves to future litigation the establishment of standards for how that would work in practice.

Whether and how the NLRB's new standard in Browning-Ferris will affect franchise relationships remains unclear. The majority dismisses the dissenters' concerns about how the ruling might affect franchise relations. In footnote 120, the majority writes:

The dissent is simply wrong when it insists that today's decision "fundamentally alters the law" with regard to the employment relationships that may arise under various legal relationships between different entities "... [including] franchisor-franchisee [relationships] . . . ." None of those situations are before us today, and we decline the dissent's implicit invitation to address the facts in every hypothetical situation in which the Board might be called on to make a joint-employer determination. As we have made clear, the common-law test requires us to review, in each case, all of the relevant control factors that are present determining the terms of employment. In this case, we are specifically concerned only with two employers: BR and Leadpoint.

The dissent, on the other hand, which described the majority's test as "fatally ambiguous," was particularly troubled by the majority's interpretation of the joint employer standard, given a franchisor's duty under federal trademark law to control the quality of products and services associated with the trademarks licensed to franchisees. "The new test threatens existing franchising arrangements in contravention of Board precedent and trademark law requirements," the dissenters wrote. They argue that the application of the new standard to franchising would also be inconsistent with the position argued by the General Counsel in his amicus curiae brief that franchisors should not be deemed joint employers with their franchisees for fulfilling their legal obligation to police quality of products and services associated with their trademarks.

Further, in the dissenting members' analysis of the practical problems that can arise from applying the new joint employer test, they use four pages to outline the complex and untenable application of the standard in a collective bargaining context, concluding that if those with indirect control even on a limited basis over the six essential terms and conditions of employment (wages, hours, hiring, firing, discipline, and direction of work) are joint employers, an employee could have 18 or more potential joint-employers, each of which may need to be involved in a collective bargaining action.

When analyzing a case, lawyers are taught to focus on the facts which underlie a decision, but this case appears to be first and foremost a statement of a new policy, rather than an adjudication of facts for the purpose of finding liability. The majority identifies many facts that it concludes support a joint employer finding. Given the new standard and the Board's interpretation of its role as the promoter of the "practice and procedure of collective bargaining," however, whenever an entity exercises, or even just has the right to exercise, some indirect control over an employment practice, that entity could be found to be a joint employer. As the dissent notes, "The majority focuses on facts limited to a particular type of business model—the user/supplier relationship involving the use of contingent employees—but they rely on these facts to justify a change in the statutory definition of employer or joint employer, for all forms of business relationships between two or more entities."

The facts of this particular case, nevertheless, should be studied by franchisors and franchisees to determine how they do and do not operate in a fashion analogous to the parties involved. The respondent in this case, Browning-Ferris Industries ("BFI") had contracted with an employee staffing company, Leadpoint Business Services, to provide employees to operate a facility which BR owned. BR had 40 employees who worked mostly outside the facility. Leadpoint hired and supervised its 240 employees, and set payroll and most terms of employment, but BR reserved certain rights including the right to approve employees, the right to require them to successfully complete drug tests, the right to cap their pay rate at the same level that BFI paid its own employees for similar work, and the right to review employment records. Most of Leadpoint's employees were "sorters" who sorted recycling materials as they moved down a conveyor belt.

Leadpoint decided how many people to employ, and where to station them on the conveyor belt, but BR managers determined the shift hours and the speed of the conveyor belts, among other things. BR managers interacted with Leadpoint supervisors on a daily basis, but did not usually deal directly with Leadpoint employees. Twice BFI managers were found to have directed or requested the dismissal of Leadpoint employees: once after two employees were found sharing a bottle of whiskey while on the job, and once after an employee was videotaped smashing a piece of equipment in the plant. Those factors, among others, led the Board to conclude that BR was essential to the collective bargaining process, and therefore, a joint employer.

What can franchisors and franchisees do to avoid the potential adverse consequences of this decision while it is being appealed and while the IFA and other groups seek a potential Congressional remedy? We recommend the following:

  1. Continue to review franchise and related agreements, operations manuals, policies and procedures, and methods of franchisor interaction with franchisees' employees. To the extent that franchisors may be seen to have even indirect control over hiring, firing, wages, hours, discipline, or direction of franchisees' employees, even through an intermediary, consider whether those agreements, policies and practices are necessary.
  2. To the extent changes in agreements, policies, and practices are made, communicate those changes in writing to franchisees and cause franchisees to make their employees aware of the limitation of the franchisor's rights relating to employment practices.
  3. Identify and retain labor counsel and develop a plan to respond to claims that might arise from a franchisee's employees. Current NLRB rules give employers very limited time to respond to an attempt to organize, and a lack of preparation will undermine an effective response.
  4. Support the efforts of IFA to challenge the ruling in Congress and in the courts.
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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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