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NLRB for Franchising Explained
A longtime franchise expert shares his thoughts on what the Browning-Ferris Industries case means.
When the National Labor Relations Board ruled in August 2015 that companies using workers hired by an outside business are jointly responsible for workplace violations, those embedded in the world of franchising were left with a sense of uncertainty and unease.
The Browning-Ferris Industries case may ultimately redefine what constitutes an employer-employee relationship in the franchising context. Carl Zwisler, principal at Gary Plant Mooty, said the decision is interesting because the NLRB overturned the joint employer standard that has been in place since the 1980s to include all types of business relationships.
“I can understand the rationale, but I don’t understand is why they adopted the new joint employer standard,” he said. “It was not needed to decide the case.”
Zwisler has long been affiliated with franchising. He has served the IFA in various capacities since 1975, and as a lawyer, he advises and represents companies expanding through franchising. He said that although the ruling hasn’t been applied to franchising yet, it could have a significant effect on the franchising business model.
“Under the new joint employer standard, if a franchisor or other putative joint employer has the right, directly or indirectly, to exercise control over employment decisions, if it’s applied to franchising would be very frightening,” Zwisler said.
Although virtually no franchise agreement grants a franchisor the right to exercise control over the terms of employment of a franchisee’s employees, almost every franchise agreement grants the franchisor the right to establish and modify standards of operation of franchised outlets. Those broad reservations of power could be seized by the NLRB to characterize a franchisor as a joint employer with a franchisee in regard to operating standards that affect or may affect how a franchisee’s employees perform their jobs.
“If a union decides they want to pursue unfair labor practices charges against a franchisee and franchisor as joint employers, or if a union seeks an election to represent employees that they claim are employed by both the franchisee and its franchisor, most franchisees and franchisors will not be prepared to handle the situation,” Zwisler said.
Concerned with how the ruling may be applied to franchises, many brands are taking a step back from providing valuable support to franchisees. Implementing sound practices is essential for any business owner, but some franchisors are now stepping away from providing best-practices information, such as training manuals and programs and sample employee handbooks.
“We have been recommending franchisors scrutinize their manuals and procedures, handbooks and training programs to closely exam if they are providing advice or direction that could tie them to a joint-employment relationship,” Zwisler said.
Franchisors are also increasingly concerned about vicarious liability claims under which they must defend accusations of negligence, sexual harassment, and wages and hour law violations by their franchisees.
Ironically, in one of the most significant vicarious liability cases decided during the last two years, Domino’s was held not to be liable for the sexual harassment of a franchisee’s assistant manager. This is substantial because Domino’s did not provide sexual harassment training to its franchisees. Unfortunately, franchisors are being punished in the courts for providing services to franchisees that public policy should embrace. It seems that no good deed goes unpunished in this area of the law.
Ultimately, what it really boils down to is franchisors fear the unknown.
Many worry the NLRB ruling has changed franchising as we know it. Concern about the joint employer standard has led to all sorts of about what the consequences of being a joint employer would mean to a franchising chain.
So far, the only joint employer case we are only aware of is the NLRB’s complaint against McDonald’s. NLRB General Counsel Richard Griffin has refused to identify the facts which he believes are the basis for his joint employer allegation. Franchise lawyers have been searching for his reasoning so they can intelligently advise clients about whether or how to change their agreements or contact to avoid claims.
“Until we know what franchise agreement or other language, policies and procedures are likely to lead to claims, we are unable to offer specific advice to our clients,” Zwisler said.
According to Zwisler, despite the forecasters of doom, it is entirely possible that once the factual foundations of a successful joint employer clam are known, franchisors and unsuccessful defendants could amend its agreement or policies and avoid liability going forward.
“Unfortunately, as the speculation continues, some prospective franchisees, lenders and investors are looking skeptically at the franchise model,” he said. “Although vigilance and re-examination of policies and procedures is beneficial, fear-mongering is helping no one in the franchising community.”
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