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In a final conclusion to the unfolding story we have been following for months (here and here), the National Labor Relation’s Board (the “Board”) released its long-anticipated decision yesterday establishing its new standard for determining a joint-employer relationship. The Board’s 3-2 decision implementing a broader standard has particularly shaken the franchise industry.

The president of the International Franchise Association provided that this decision “will clearly jeopardize small employers and the future viability of the franchise model.” The Board’s stated motivation in implementing its new standard was to best serve the National Labor Relations Act’s policies by encompassing the full range of employment relationships wherein meaningful collection bargaining is possible. Accordingly, franchisor companies fear that employees will organize and come forward to assert collective bargaining rights.

The Board’s landmark decision wiped away the joint-employer standard, in place since the 1980s, that an upstream company had to exert direct and immediate control over the working conditions of its contractor’s or franchisee’s employees in order to be found a joint employer. In its place, the Board found that an upstream company can be considered a joint employer for even indirect control over employees, or in some circumstances the mere right to control, whether or not that right is actually exercised. The case at issue here was whether workers hired by a contractor company to help staff the upstream company’s recycling center were jointly employed by the upstream company. The board pointed to the following factors in making its ultimate decision that the upstream employer was in fact a joint employer:

  • The upstream employer’s hiring selection policies included requirements that applicants pass a drug test, and the ability to reject any worker that the contractor referred;
  • The upstream employer’s unilateral control over the speed and productivity standards of the work performed by the employees;
  • While supervision of the employees was done by the contractor company, assignment of tasks, worker roles, and oversight of employee performance was done by the upstream employer; and
  • While the contractor company determined employee pay rates, administered payroll, and provided all benefits to employees, the board found the upstream employer still had control over wages by providing that the contracted employees could not be paid more than their regular, non-contracted employees.
This decision particularly harms the franchise and temporary employment industries, which have long relied on their abilities to shield themselves from the liabilities created by the employment of contract and franchisee employees. Those in the franchise industry were prepared for an unfavorable decision. The International Franchise Association and a coalition of industry groups and business owners are planning on focusing on lobbying efforts in Congress, and hosting a two-day event in September in Washington D.C. encouraging their members to talk to lawmakers about the franchise model and legislative modification of the joint employer standard.

Companies in the franchise industry should reevaluate their policies and day-to-day operations to minimize the effect of this decision on their businesses.
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