NLRB’s Decision Regarding “Joint Employers” Could Have Wide-Ranging Effects

Megan J. Muoio, August 13, 2014

After receiving 181 complaints from employees at McDonald’s about unfair labor practices beginning in November 2012, the National Labor Relations Board (NLRB) has issued an advice memorandum that could impact companies with franchisees across the U.S. The memorandum indicates that the NLRB will treat McDonald’s as a “joint employer” with its franchisees, making McDonald’s liable for the unfair labor practices of franchise owners to their employees. The advice memorandum is a directive from the general counsel of the NLRB and does not carry the weight of a ruling of the full NLRB, but the NLRB typically adopts the general counsel’s opinions. The directive will have an impact on the way companies with franchises evaluate liability for unfair labor practice complaints and may result in a Supreme Court case on this issue.

Starting in November 2012, McDonald’s employees organized a series of one-day strikes to demand a $15 per hour minimum wage. After the strikes, numerous employees filed complaints with the NLRB, alleging that they had been punished as a result of their participation in the protests, either by being fired or having their hours cut. In the advice memorandum issued on July 28, 2014, NLRB general counsel Richard F. Griffin, Jr. found merit in 43 cases of alleged unfair labor practice charges under the National Labor Relations Act and permitted them to proceed. However, if the parties cannot reach settlement of those claims, the directive stated that the NLRB will issue complaints naming McDonald’s, USA, LLC as a joint employer respondent with individual franchise owners. At least 80% of McDonald’s U.S. locations are franchise businesses, and McDonald’s has long claimed that it does not have direct control or responsibility with respect to labor issues at individual franchise locations.

For the past thirty years, the federal courts and the NLRB have classified a company as a joint employer when the company and another employer exercised “direct and immediate control” over the same employees and the terms and conditions of their employment. In recent years, however, the NLRB has been pursuing a more expansive standard for joint employers, holding that a company can be liable as a joint employer if the totality of the circumstances indicates that one employer wields influence over the other employer’s employees to such an extent that both entities would need to be present for meaningful bargaining to occur.

Courts traditionally have held franchisors separate from franchisees when franchisors merely exert control to the extent necessary to protect trademarks and ensure uniformity of the product, as McDonald’s has traditionally claimed that it does. Classifying McDonald’s as a joint employer together with each of its individual franchise owners in proceedings before the NLRB would upend decades of traditional standard join employer determinations and may expose many franchisors to increased employment liability. In the short term, the classification could affect McDonald’s continuing attempts to fend off the unionization of franchisee employees into a single bargaining unit nationwide, which is being pursued by the Service Employees International Union.

It is likely that McDonald’s will appeal this issue to the full five-member NLRB and it could make its way to the Supreme Court. Until this issue is resolved, franchisors should take extra care to review existing franchise agreements and their policies vis-à-vis franchisees to ensure that they are not controlling labor and employment activities at the franchise level and not subject to liability as a joint employer under the more expansive definition. In the future, franchisors should carefully draft franchise agreements to keep control over employment and labor relations to a minimum and only exert the control necessary to protect trademarks and copyrights, advertising, and quality of the product. Franchisors should be sure to limit contact with franchise employees during site visits, for example, and to relay any instructions or information or instructions to franchise employees exclusively through the franchise owner. If the franchisor has an employee handbook that is distributed to franchise employees, the handbook should contain appropriate disclaimers and specify that there is no employment relationship with the franchisor and that the franchisor does not exert any control over the terms and conditions of employment. In addition, the franchisor should ensure that franchisees have employees sign arbitration agreements with class action waivers, which will divert individual employee claims to arbitration. Finally, the franchisor should require its franchisees indemnify the franchisor in the event that a claim is brought under the joint employer theory. In the meantime, however, franchisors should keep a watchful eye on the NLRB in the upcoming months and track the progress of this issue as its makes its way through the court system.


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