Advice Memo From NLRB’s General Counsel Regarding Joint Employer Relationships

Nicholas Fortuna, May 27, 2015

The National Labor Relations Board (“NLRB”) Office of the General Counsel issued an Advice Memorandum on April 28, 2015, finding a restaurant franchisor, Freshii Development LLC, and its franchisee are not joint employers. This is an important development in light of the pursuit by NLRB’s General Counsel to establish McDonald’s Corporation as a joint employer with its franchisees.

The Advice Memo found that the franchisor was not a joint employer under both the NLRB’s current joint employer test and a new test proposed by NLRB’s General Counsel in its case against Browning-Ferrris. Currently, companies will be considered joint employers if they ”share or codetermine those matters governing the essential terms and conditions of employment.” According to the Advice Memo, the NLRB”s General Counsel has argued that the test should be whether “the putative joint employer wields sufficient influence over the working conditions of other entity’s employees such that meaningful bargaining could not occur in its absence.”  NLRB’s Division of Advice found that the Freshii franchisor did not meet either test, because it did not control, directly or indirectly, the terms and conditions of employment of the franchisee’s employees.

The facts determined the outcome here. Freshii’s franchise agreement expressly disclaims any involvement in the franchisee’s employment or labor relations practices. Freshii’s Operation Manual contains advice on human resources, such as hiring and scheduling employees, how to calculate “labor cost percentage,” and how to project labor costs in scheduling. All of this is considered training and the franchisee is free to not follow the suggestions of the franchisor. The franchisor does not monitor the employees. The franchisee exclusively decides who to hire, wage increases, wage decreases, or any other change of benefits.

This case is distinguished from the McDonald’s Corporation joint employer action brought by the NLRB in that McDonald’s monitors the franchisee’s employees through a software system. Under the standard proposed in the McDonald’s cases and the case pending against Browning-Ferris Industries of California, the NLRB would examine the “totality of circumstances, including the way that separate entities have structured their relationship,” to determine if the proposed joint employer wields enough influence over the terms and conditions of the other entity’s employees such that meaningful collective bargaining between the franchisee and its employees could not take place. This is referred to as the “industrial realities” test. The outcome of Browning-Ferris and the McDonald’s cases will shape the standard for the future of when a company is considered a joint employer.

The importance of the Freshii decision is that a restaurant franchisor’s requirements regarding food preparation, recipes, menu, uniforms, décor, store hours, and initial employee training prior to a franchise opening are not evidence of control over a franchisee’s labor relations. Rather, it recognizes the franchisor’s legitimate interest in protecting the quality of its product and brand. Whatever the joint employer standard is in the future, the franchisor will still be able to protect its interests without becoming a joint employer.