Franchise Businesses Beware: The NLRB in Browning-Ferris Expands the Joint Employer Doctrine

September 1, 2015

By James B. Shrimp, Esq.

You might think it’s easy to figure out who’s an employer and who’s an employee, but the definitions are changing and things are getting complex. Last week, the National Labor Relations Board (NLRB) changed the definition of a “joint employer,” a decision that will likely cause widespread impacts in the franchising, subcontracting and temporary staffing industries.

joint employer

The joint employment doctrine is a legal concept utilized by several Federal agencies to determine what “employers” are legally responsible to employees for certain statutory obligations – such as collective bargaining, payment of overtime, workplace safety and employment conduct (discrimination, harassment and retaliation).

Last week, in a case involving Browning-Ferris Industries, the NLRB expanded the application of the joint employer doctrine. For the last thirty (30) years the NLRB has only held employers responsible for obligations under the National Labor Relations Act if the employers had direct control over employees. More specifically, under the prior standard, the employer had to have direct control over the employees’ pay, schedule, discipline and termination.

In the Browning-Ferris decision, the NLRB expanded this standard to find that two or more entities are joint employers of a single workforce if:

Moving forward, the NLRB will consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary (or whether it has reserved the authority to do so) when it evaluates whether the employer has sufficient control over employees to qualify as a joint employer. These terms includes wages and hours, the size of the workforce, scheduling, seniority and overtime and determining the manner and method of work performance.

In its decision to expand the doctrine, the NLRB stated that the expanded standard is designed “to better effectuate the purposes of the [National Labor Relations] Act in the current economic landscape.” The NLRB describes the current economic landscape as one becoming significantly impacted by temporary, subcontracted employment; as of August 2014, 2,870,000 of the America’s workers were employed through temporary agencies. The NLRB concluded that its previous joint employer doctrine had failed to keep pace with changes in the workplace and economic circumstances.

Understanding the Browning-Ferris case

Browning-Ferris Industries (“BFI”) owns and operates a recycling facility. BFI has 60 direct employees. BFI entered into a temporary labor services agreement with Leadpoint for Leadpoint to provide approximately 150 additional employees to work at the recycling facility. The Leadpoint employees are screened, hired, disciplined and supervised by Leadpoint employees. However, the temporary labor services agreement gave BFI the ability to “step in” on matters of hiring, discipline, scheduling and wages. As a result, the NLRB found that BFI was a joint employer of both its own employees and Leadpoint’s employees, and therefore BFI will have to collectively bargain with Leadpoint’s employees, if the employees vote to form a union.

How it applies to franchises

As for franchises, a case currently before the NLRB is involving 291 charges against McDonalds’ franchises and whether corporate locations and franchisees are engaging in “discriminatory discipline, reduction in hours, discharges and other coercive conduct directed at employees in response to union and protected concerted activity.”

If the NLRB determines that McDonalds corporate maintains indirect control over the employees, it could order that McDonalds corporate is responsible for the actions of its franchisees. It may even require McDonalds to collectively bargain with employees of local McDonalds franchisees.

Moreover, should the expanded joint employer doctrine be adopted by other Federal agencies, such as the Fair Labor Standards Agency, the Occupational Health and Safety Administration or the Equal Employment Opportunity Commission, franchisors could become responsible for safety issues, overtime issues, or employment discrimination by the franchisee. This would fundamentally alter the design and advantages of the franchise system. The International Franchise Association (“IFA”), which represents the franchise industry, believes there will be a significant adverse impact on the franchise system. The IFA released a statement saying “the [NLRB]’s tortured analysis will undoubtedly be met with skepticism and will be rejected by local franchise owners, legislators, and ultimately, the courts.”

There is no doubt that the Browning-Ferris decision will be subject to court review and will likely be heard in the Supreme Court in the next couple of years. In the meantime, however, if you are in a franchise business (franchisor or franchisee) or utilize temporary staffing, it is worth reviewing your contracts to determine whether revisions need to be made to the relationship to protect against a finding of joint employer.
For more information feel free to contact James B. Shrimp at (610) 275-0700 or by email at jshrimp@highswartz.com. Visit his attorney profile here.

Visit the firm’s Employment Law page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.