National Labor Relations Board ‘Joint Employer’ Stipulation Could Change Franchisor Model

The National Labor Relations Board (NLRB) is questioning whether to use a broader definition of the term “joint employer,” a move that could bring sweeping changes to the restaurant and retail/wholesale franchisor model. Whether a large fast-food company exhibited more control than it should have over its franchisees was the most recent catalyst for the proposed change, but several earlier cases have challenged the more than 30-year-old standard for determining joint employment.

If the new definition, which was proposed by the NLRB’s General Counsel Richard Griffin, is adopted, franchisors could see significantly expanded wage and hour and other employment practices liabilities, as well as operational challenges. Franchisors could now be responsible for alleged discrimination, harassment, wage, labor practices, and other allegations that previously may have been directed at franchisees only. Franchisees, in turn, could see a reduction in control or end up out of business altogether.

Key Labor/Employer Protection Implications
Employers that have non-traditional employment arrangements exemplified by the use of franchises and temporary workers have made it increasingly difficult for unions to organize workers who are affected by these arrangements. The NLRB’s general counsel may be seeking a change in the definition of joint employer partly to address this trend.  

The potential implication of a joint employer redefinition could impact NLRB representation, unfair labor practice, and secondary boycott proceedings. Expanding the NLRB’s joint employer standard seemingly would make it easier for unions to join multiple employers in labor disputes and organizing campaigns.

The proposed change forces employers to address each of the following conditions of employment under both standards: the broader pre-1984 standard (“indirect or potential control”) and the current, more stringent standard (“direct and immediate”) governing the sufficiency/degree of control. These conditions include:

(1) wages;
(2) employee personnel issues;
(3) the number of employees needed to perform a job or task;
(4) establishing employee work hours, schedules, work week length, and shift hours;
(5) employee grievances, including administration of a collective-bargaining agreement;
(6) authorizing overtime;
(7) safety rules and standards;
(8) production standards;
(9) break and/ or lunch periods;
(10) assignment of work and determination of job duties;
(11) work instructions relating to the means and manner to accomplish a job or task;
(12) training employees or establishing employee training requirements;
(13) vacation and holiday leave and pay policies;
(14) discipline;
(15) discharge;
and (16) hiring.

Wage and Hour and EPL Risk Considerations
Companies in retail/wholesale and food and beverage industries already have one of the greatest risks for wage and hour and employment practices liability (EPL) claims, and the proposed definition for joint employers could tip the scales further. The change could result in franchisors facing broader liability and could also create uncertainty for franchisees and their business relationships.

Franchisors
Just as misclassifying independent contractors has led to a flood of charges from the US Department of Labor (DOL), if the proposed definition impacts liability for misclassification to the extent entities are held as joint employer, it could lead to increased claims against franchisors for discriminatory labor practices and wrongful labeling of their franchisees. Full- and part-time distinctions could be crucial for salary, tax, and other compensation issues under any proposed change in the joint employer definition.

With the proposed change, EPL and wage and hour underwriters could become more rigorous in assessing how much control franchisors exercise over franchisees’ operations. And EPL and wage and hour insurance rates may rise if company losses increase in both frequency and severity related to the proposed joint employer stipulation.

Franchisees
According to the International Franchise Association (IFA), a broadened definition of joint employer would ultimately lead to consolidation among franchisors and force franchisee business owners into a role similar to a store manager or even put them out of business. With franchisors legally responsible, they may no longer want to leave critical business decisions, especially around labor practices, in the hands of franchisees.

Other Material Impact From Proposed Change
Casting a wider employer net is likely to result in more compliance obligations for the franchisor and ultimately greater exposure for noncompliance for unfair labor practice charges under the National Labor Relations Act (NLRA); discriminatory practices under Equal Employment Opportunity (EEO) laws such as Title VII, Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA); and wage and hour violations under the Fair Labor Standards Act (FLSA) and related state laws.

Whether the NLRB’s focus on the issue causes other administrative agencies like the DOL and the Equal Employment Opportunity Commission (EEOC) to take a closer look at the joint employer relationship also bears watching.

To mitigate their risk, franchisors may seek to take over the franchised or subcontracted operations or cease granting more franchises. Either response may weaken and possibly eliminate the franchise business model as it is currently known. Alternatively, some franchisors may find that taking more control is a route to faster growth and higher profitability and potentially better customer experiences.

Preparatory Steps
Though the outcome of the proposed change in the fast-food case may not be known until 2016, or even later if the issue ever reaches the Supreme Court, employers should take steps now to understand how a definition change could impact their individual businesses, their industry, and their insurance coverage.  

Steps to take include:

• A thorough review of the employer’s wage and hour and EPL insurance policies.

• An analysis of a firm’s human resource policies to understand what constitutes full-and part-time employment.

• A review of an employer’s benefits, including health plans, 401K, and other retirement plans.

• Consideration of what third-party and vendor relationships franchisors have in place that could be impacted by such a change in joint employer.

• An evaluation of what union organization is in place now and how that could change.



Mac Nadel is U.S. Retail/Wholesale, Food & Beverage Practice Leader, at Marsh USA, a global leader in insurance broking and risk management. He can be reached at Mac.D.Nadel@marsh.com.

Helen Palladeno is Office Managing Shareholder at Ogletree Deakins, a New York City-based leading labor and employment law firm. She can be reached at Helen.palladeno@ogletreedeakins.com.

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