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Recent NLRB Reversal Leaves Franchisor Liability as a Joint-Employer Up in the Air

On Behalf of | Sep 19, 2018 | Franchise Law |

In August, 2015, the National Labor Relations Board (“NLRB”) rendered its Browning-Ferris Industries decision, changing its longstanding precedent for determining whether two or more separate employers can be considered “joint employers” for the purpose of liability under the National Labor Relations Act. Browning-Ferris Indus., 362 N.L.R.B. No. 186 (Aug. 27, 2015). Since 1984, the NLRB has used a joint-employer standard that does not consider indirect control enough to make a joint employment relationship. See e.g., 271 N.L.R.B. 798 (1984); 269 N.L.R.B. 324 (1984). Under this prior test, dictating things such as “routine directions”—e.g. where to do a job rather than how to do the job—did not create a joint-employer relationship. In reaching its recent decision, the NLRB determined that its new standard for joint-employer liability depends on whether the alleged joint-employer possesses the authority to control terms and conditions of employment, even if such authority is indirect.
While the Browning-Ferris decision applies generally to all employment relationships, the new standard is particularly noteworthy in the franchisor-franchisee context, where the franchisor almost always has some form of indirect control over the franchisee’s employment decisions. In its decision, the NLRB specifically stated that “[w]here a user employer reserves a contractual right . . . to set a specific term or condition of employment for a supplier employer’s workers, it retains the ultimate authority to ensure that the term in question is administered in accordance with its preferences.” Because franchisors often retain the right to control various operational standards in their franchise agreements—such as location, hours of operation, training requirements, quality control, marketing, etc.—this new standard poses a great risk of deeming a franchisor a joint-employer of its franchisee’s employees.
In December 2017, the NLRB issued its decision in Hy-Brand Industrial Contractors, Ltd., 365 N.L.R.B. 156 (Dec. 14, 2017), which had overruled the 2015 Browning-Ferris standard for joint-employers. In Hy-Brand, the NLRB opted for a more employer-friendly standard, which required a finding that the purported joint-employer: (i) actually exercised control over the essential employment terms—as opposed to merely reserving the right to exercise control—and (ii) that the control is “direct and immediate.” However, on February 26, 2018, the NLRB relented, reversing and vacating its Hy-Brand decision, which resulted in the lower standard for determining joint-employer status as stated in Browning-Ferris is law once again.
Due to the vagueness and uncertainty that NLRB’s actions with respect to Browning-Ferris and Hy-Brand has caused, franchisors must be cautious that their activities do not meet the lower Browning-Ferris standard in order to avoid the relationship with their franchisees being categorized as a joint-employer situation. If the Browning-Ferris standard does indeed remain intact, franchisors may be required to once again face a very tough decision between retaining the right to protect their brand identity and diminishing liability for its franchisee’s employment actions.
If you are involved in a franchise contract dispute or are seeking to draft or revise any franchise-related agreements, contact the experienced attorneys at Zarco, Einhorn, Salkowski for a consultation.

Michael Braunstein