NLRB Reverses Earlier Ruling Which Had Expanded Union Rights Against Franchisors and Other Contracting Companies
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NLRB Reverses Earlier Ruling Which Had Expanded Union Rights Against Franchisors and Other Contracting Companies

1/29/2018 | By: David T. Azrin, Esq. | GDB 2018 Winter Newsletter
In December 2017, the National Labor Relations Board (NLRB), which enforces federal union laws, reversed a 2015 ruling, called Browning-Ferris.  The Browning-Ferris ruling, discussed in our Winter 2016 newsletter, had shaken up the franchise community by expanding the definition of a “joint employer” to the point where franchisors might be held liable for the labor law violations committed by their franchisees, even if the franchisor did not control the franchisee’s employment decisions. 

The December 2017 decision, called Hy-Brand Industrial Contractors, issued by a reconstituted board, reversed Browning-Ferris and reinstated the prior narrower “joint employer” legal test that had been applied for decades by the NLRB and the courts.

The “joint employer” test becomes important when a franchisee has allegedly committed labor law violations, and its employees try to hold both the franchisor as well as the franchisee liable, or a union representing a franchisee’s employees tries to impose the obligation to engage in collective bargaining on both the franchisor and the franchisee. 

Under the more narrow test, which had been in force for decades, the franchisor could only be held liable if it exercised actual control over the terms and conditions of the employees’ employment, such as hiring, firing, and setting wages and hours, and the control was direct and not limited.  In most franchise arrangements, although the franchisor sets general standards for operation, the franchisor does not make the actual decisions regarding hiring and firing of employees, or setting their hours and wages.

The earlier 2015 ruling had expanded the “joint employer” doctrine, holding that a franchisor could be held liable if the franchisor merely had the power or potential to exercise such control.  The decision had caused an uproar in the franchisor community because it meant that franchisors could be held liable as a joint employer, even if they did not get directly involved in the franchisee’s operation.  As a result, some franchisors became more wary of providing advice or guidance to franchisees.

The NLRB had relied upon this expanded definition of a joint employer in 2015 to file numerous administrative complaints against McDonalds, alleging the franchisor could be held liable under the “joint employer” liability theory for the franchisees’ alleged violation of their employees’ right to engage in concerted group activity which might lead to the formation of a union.  Those proceedings are still on-going. 

The NLRB’s recent decision narrowing the definition of a joint employer will significantly hamper the NLRB’s efforts to continue with the legal proceedings against McDonalds, and will likely forestall any further efforts by the NLRB to take similar administrative action against other franchisors or contracting companies.