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Fast Food On Board’s Plate

In a move that would radically change the world of franchises, the General Counsel’s Office (“GC”) of the National Labor Relations Board (“Board”) announced it intends to allege McDonald’s is a joint employer with its franchisees in a number of unfair labor practice charges filed across the country.  These charges were filed as part of the quick-service restaurant unionization movement largely led and funded by the Service Employees International Union.

Under well-settled Board law, two entities are joint employers where they share or codetermine matters governing the essential terms and conditions of employment.  In other words, where one entity has direct and immediate control over various aspects of employment such as supervision, scheduling, hiring, firing, or directing the other entity’s employees, that entity is a joint employer.  Under this current standard, typical franchisee/franchisor relationships, where the franchisor merely makes various management tools available to the franchisee but does not control the franchisee’s employees, do not result in a joint employer finding.  For example, a franchisor may make scheduling software available to the franchisees which helps determine the number of employees needed on a given day.  However, the software only recommends how many employees should be scheduled, what station they should work, and how many hours they should work.  Since the franchisee retains all direct control over the employees and their working conditions, the franchisor is not a joint employer.  The GC would like to change this by convincing the Board to adopt the old standard which allowed joint employer findings where only indirect control over employee issues was shown.

The GC’s reasoning and proposed new standard appear in its Amicus Brief filed several months ago in a case entitled Browning-Ferris Industries of California, Inc.  In this case, the GC explained that prior to 1984, the joint employer test was very broad in that a finding could be made where one entity only exerted “indirect control” over the working conditions of employees, had the unexercised potential to control working conditions, or where “industrial realities” otherwise made their inclusion essential to meaningful union contract bargaining even where it played no role in hiring, firing, or directing the other entity’s employees.

The GC argues specifically that the new standard as applied to franchising undermines meaningful collective bargaining.  The brief describes how franchisors typically control far more than they admit through the use of technology that allow franchisors to exert significant control over franchisees through software programs for labor management, scheduling, etc.  The GC claims franchisors may control the number of employees working, their hours, and even wages through controlling every other variable of the business.  The GC is looking to create a standard that would make franchisors joint employers with their franchisees based on the indirect control they wield over franchisees through software programs and other technologies.

Needless to say, if the GC prevails, the business landscape for franchisees/franchisors, and possibly other relationships such as parent/subsidiary, and temporary agencies and their clients could be forever changed.  This change would have far-reaching consequences outside of the labor law world, including in the areas of civil rights, wage and hour, OSHA, and other civil actions.

This result would likely cause all franchisors to fundamentally change how they do business with their franchisees.  Right now, if a franchisee is unionized, the franchisor is not directly affected.  If the franchisee is liable for a civil rights violation, back wages under almost any theory, maybe even defamation, the franchisor is insulated and protected.  If the GC prevails, this protection could disappear.  Lawsuits would dramatically increase as every franchisee will be seen as having deep pockets – meaning the franchisor!  Business as we know it may never be the same.

For all these reasons, if the Board decides to accept the GC’s position and rule in its favor, this decision would likely be appealed into the Circuit Court and could ultimately end up in the U.S. Supreme Court.  We will keep you updated on the progress of this case.

Brody and Associates regularly advises its clients on union-related matters and provides union-free training.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.