NLRB hints at relief for joint-employer franchise woes

An update in our string of posts on the NLRB’s release of a new “joint employer” standard

To recap, the National Labor Relations Board announced that it intends to broaden the current “joint employer” standard, subjecting franchisors to more liability for the actions of their individual franchisees. The current 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 will release a new standard in its upcoming decision in the Browning-Ferris case, but have announced that a new standard would consider the “totality of the circumstances,” greatly broadening the standard.

On April 28, the National Labor Relations Board released an advice memorandum that gives franchisors a glimmer of hope in what has seemed like an unpromising future.

The memorandum found that a franchisee, franchisor and the franchisor’s development agent were not considered joint employers under the current standard or the anticipated new joint employer standard. The scenario addressed involved an employee who was fired and another employee who was disciplined by the franchisee for attempting to unionize the workforce. The NLRB scrutinized the franchise agreements involved, coming to a conclusion that there was no joint employer relationship under either standard. The items in the franchise agreement that the NLRB focused on to support its decision included:

• The agreement stated that the franchisor “neither dictates nor controls labor or employment matters for franchisees and their employees.”
• While the operations manual provided human resources guidance, the franchisor did not require the franchisees to follow that guidance.
• The individual franchisees were still exclusively responsible for hiring, setting wages and benefits, firing, and disciplining their employees.
• The franchisor had no involvement in setting the franchisee’s employees’ hours.
• The franchisor’s stated control over the franchisee’s operation were “limited to ensuring a standardized product and customer experience.”
• The franchisor provided a sample employee handbook to franchisees, but does not require franchisees to use it.
• While the franchisor did require a certain point of sale system be used, it did not require franchisees to update their system if a newer system was used in newer franchises, and the franchisor only passively monitored the sales and costs.
• Neither the franchisor nor the franchisor’s development agent took any action in response to hearing that the employee in question attempted to unionize.

This advice memorandum doesn’t create a law, but it is nonetheless welcome news to those in the franchise industry. While the NLRB could still establish a new standard all together, the advice memorandum hints that things to come may not be as upending as once thought. The advice memorandum only applies to the parties addressed in the memorandum – but, other franchisors should take note of the franchise agreement provisions that the NLRB considered when coming to its favorable conclusion and consider incorporating them into their own agreements.

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