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As a follow-up to our recent posts discussing the much anticipated NLRB (National Labor Relations Board) release of a new “joint employer” standard, the Senate Health, Education, Labor and Pension (HELP) Committee held a hearing discussing the issue on February 5, 2015.

The NLRB recently indicated, by filing numerous complaints against franchisor McDonald’s USA, LLC, that it intends to broaden the current “joint employer” standard, subjecting franchisors to more liability for the actions of their individual franchisees. The current joint employer standard requires “indirect employers” to have direct and immediate control over the working conditions of employees in order to be subject to liability for “direct employers’” actions.  The NLRB has hinted that a new standard would consider the “totality of the circumstances,” greatly broadening the standard.

During the Senate HELP Committee meeting, Republicans argued that the NLRB’s proposed new standard would adversely impact business arrangements and existing contractual relationships, most notably for franchise agreements, inevitably leading to interference with economic growth. Republican Senator Johnny Isakson argued that the NLRB does not have the authority to make the changes it proposes, providing that “if somebody wants to make a change, you ought to do it through the debate process and the congressional process, not through an attorney at the NLRB.” Senate Republicans further argued that the goal behind expanding the joint employer standard is to make it easier for fast food and other workers to organize and collectively bargain. Finally, Republicans provided that if the NLRB’s move to expand the joint employer standard is successful that Congress may have to go after the board legislatively, including through Congressional disapproval resolutions.

Democrats present at the HELP Committee meeting provided that the standard should be changed to reflect the fact that the “labor market has changed dramatically,” including through the increased prevalence of franchise and contract employment arrangements.  Democratic Senator Patty Murray provided that “the parent company of a franchise can dictate pricing and store hours . . . [i]t can prohibit collective bargaining and it can monitor, in real time, worker hours and staffing levels.  And yet, the parent company can put all the liability for poor working conditions and low wages squarely on the shoulders of its franchise owners.” Senator Elizabeth Warren addressed the argument that the NLRB did not have the authority to change the standard, providing that it was the NLRB that developed today’s joint employer standard.  Finally, the Democrats addressed the contention that the NLRB’s motive is to allow for collective bargaining in franchise employees by providing that the NLRA’s (National Labor Relations Act) stated purpose is to promote collective bargaining, and that workers should be able to negotiate with the entity controlling its employment.

Franchise owner Gerald Moore also testified, providing on behalf of the International Franchise Association, that as a franchise owner he makes all pertinent employment decisions including who to hire, who to discipline, and what benefits will be provided. He expressed concerns that if there was a broadened joint employer standard he would lose that autonomy in running his business.  If franchisors no longer have an incentive to stay out of day-to-day operations they will consequently become more involved in running individual franchises.

Employers, franchisors, and franchisees alike should remain apprised of this situation. We will continue to provide updates as this issue unfolds.

Employer Advocate

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