I know I promised last week that I would write about the US Supreme Court case, Department of Homeland Security v. McLean. I thought about it this week though and realized that since it impacts federal employers only, and most of my readers are private sector employers that it might be better for me to break that promise and move on. Now, I know I’ve written a lot about joint employment (specifically here, here, here, here… well, you get the idea). I’ve also written a few times about the NLRB (specifically here, here, here…again, you get the idea). But now, the NLRB seems to have something to say on joint employment, which means we get to re-visit both NLRB and joint employment issues in two cases. (Curb your enthusiasm, please.) In the first case, the NLRB has set its sights on McDonald’s. Join The Emplawyerologist after the jump and we’ll dive right into that case…
Since November 2012, Workers at different McDonald’s locations have filed a total of 181 complaints with the NLRB against franchisees of McDonald’s subsidiary McDonald’s USA, LLC, alleging issues with their working conditions and wages. Of those 181 cases, Richard Griffin, the NLRB’s General Counsel, found that 43 of them have merit. If the parties are unable to settle, McDonald’s USA, the franchisor, will be added as a joint employer-respondent.
Now, you may be saying, “So what?” Here, in a nutshell is how the franchisor-franchisee relationship works: A franchisor will grant a franchisee a license to use the franchisor’s name, trademark, signs, software, systems and proprietary tools in accordance with a franchise agreement and operations manual. A franchisee must pay an upfront licensing fee and ongoing royalties. Beyond the operations manual and the franchise agreement, the franchisee has autonomy in its operations.
OK, again, so what? Well, traditionally, the assumption has been that workers at the franchisee’s location are employees of the franchisee only — not the franchisor. Now you see where this is going, right? Could there be situations where the franchisor and the franchisee could be joint employers? According to the NLRB — and in all fairness, the doctrine of co- or joint employment– yes. If the franchisor exercises enough control over the franchisee’s employees then the franchisor is a joint employer.
The NLRB says that McDonald’s USA exercises sufficient control over its franchisees’ employees to be a joint employer. According to the NLRB’s General Counsel, Richard F. Griffin, Jr., McDonald’s decides how the restaurants are run, what items appear on the menu, what uniforms the employees wear, and training programs. These items, however relate primarily if not solely to brand control, as opposed to employee control. McDonald’s says it has no control over the hiring termination, wages, hours, discipline or any other working conditions of any of the franchisees’ employees, which are the well-established criteria for establishing joint employment. McDonald’s therefore intends to appeal the NLRB’s findings of joint employment. Under the doctrine of joint employment, it would seem that the NLRB will have to offer more proof of actual employee control by McDonald’s USA.
The NLRB’s position flies in the face of decades of legal precedent as applied to the franchise model. Franchisors have relied on this model to run their businesses. Up until now, a franchisor was essentially insulated from any liability for most of its franchisees’ conduct or decisions. If the NLRB General Counsel’s determination were to prevail, it could turn the franchise model on its head. Companies might not be as willing to set up franchises. Could franchisors increase their insurance coverage to address the increased risk? Maybe, however that could get very expensive.
On the other hand, if McDonald’s USA appeals, what is the likelihood that the NLRB General Counsel’s determination would actually prevail? The NLRB would have to surmount some significant obstacles. First, unless the NLRB can produce evidence that McDonald’s USA really exercises some direct control over its franchisees’ employees’ work or working conditions, it has to get past established principles of joint employment. Second, there is a trademark protection law, the Lanham Act, which speaks to what franchisors must do to license brands, and requires the brand owners to impose quality controls. These controls prevent franchisees from serving just any food or using just any logos, and often determine uniforms, and certain aspects of how the restaurant is run–the very controls on which Mr. Griffin based his determination that McDonald’s USA could be named as a joint employer in the aforementioned 43 cases.
Now, it could be a while before the anticipated appeals are fully resolved. What if you are a franchisor? What can you do in the meantime to minimize your joint employment liability? For starters, get in touch with competent employment counsel to review, and if necessary — and possible — revise your franchise agreement. Specifically you want to make sure that your franchise agreement defines your relationship in such a way as to give your franchisee as much control as possible over its employees without impacting brand control. For similar reasons, you might also, a) consider having your franchisees put their own employee handbook together, rather than providing them a template, and b) with your employment counsel, review your actual practices vis-à-vis your franchisee(s).
As if this case is not enough indication that the NLRB is taking on joint employment, it is looking for another bite at the apple in another case, Browning Ferris Industries et al. C’mon back next week to find out more!
If you or your company would like to learn more about co-employment and minimizing joint liability, click here to sign up for my webinar on Joint Employment, which will be live at 1 p.m EST this Tuesday November 25, 2014.
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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