NLRB Vacates Joint Employer Decision in Light of Member’s Conflict of Interest, Keeps Lower Standard to Hold Franchisors Liable for Union Negotiations

On Behalf of | Mar 27, 2018 | Firm News, Franchise Law

erOn February 26, 2017, the National Labor Relations Board (NLRB), the organization responsible for overseeing collective bargaining activity, vacated its December 2017 decision in Hy-Brand to change the standard of “joint employers” back to the pre-Obama era rule. A joint employer relationship is when two businesses are so intertwined that one can be held legally responsible for the employment actions of the other.

The reason for the sudden change of course was due to a conflict of interest in one of the voting members of the NLRB Board. William Emmanuel, a Trump appointee, who used to work for the law firm that represented the management in the 2015 Browning-Ferris case. The recent Hy-Brand case gave him the opportunity to change the law in favor of his old client. The NLRB’s Designated Agency Ethics Official determined that Emmanuel, the deciding vote in the Hy-Brand case, should have recused himself.

The standing rule now continues to be the Browning-Ferris rule, which is that a joint employer relationship can exist if one entity exercises direct control, indirect control, or even an un-exercised right to control the essential terms of employment over employees of another business. This is especially troublesome for franchisors.

In the Browning-Ferris case, a temporary staffing company called Leadpoint set up an office in a trailer outside the Browning-Ferris facility. Browning-Ferris employed roughly 60 people, and the other 200 came recommended from Leadpoint. The Leadpoint workers were technically employed by Leadpoint and could only be hired and fired by Leadpoint. However, Browning-Ferris retained the right to “reject or discontinue use of personnel.” Once the Leadpoint workers started at Browning-Ferris, Browning-Ferris supervised them, set their shifts, set their quotas, and determined if overtime was necessary to achieve those quotas. Although Leadpoint paid their employees, Leadpoint had to have written permission from Browning-Ferris to raise the temporary workers’ wages above those of Browning-Ferris employees. [1]

Based on these facts, the NLRB found that Browning-Ferris had exerted sufficient control over the Leadpoint employees that the two businesses were joint employers. The result of this determination meant that both had to negotiate in good faith with the union representing the temporary workers. In its opinion in the Hy Brand case, the NLRB changed the joint-employer standard from requiring “indirect control” to be held liable for the employees’ acts back to “direct control.” The indirect control standard of the Browning-Ferris case is seen by employers as a politically-motivated broad expansion of liability to employers, especially franchisors, to have to bargain with unions. Unions saw the decision as a huge victory, allowing them to negotiate the rights of workers previously excluded under the old “direct control” standard. We are back to the Obama-era joint employer standard of “indirect control.”

Exactly what constitutes “indirect control” is not certain right now. Franchisors should take a good look at their current contracts to determine if they may be liable. For example, the NLRB suggested in 2014 that McDonalds may be using its technology to indirectly control franchisee behavior above and beyond what is necessary to protect the brand. McDonalds Corporate allegedly uses computer program to automatically set employee schedules, calculate costs, and keep track of sales. If labor costs take up a greater percentage of sales that McDonalds Corporate has proscribed, then the software instructs franchisees to lower labor costs by reducing the number of employees or cutting their hours. Practically speaking, a franchisee always follows the software. The NLBR takes the position that this is indirect control and McDonalds Corporate may have to bargain with unionized franchisee employees.[2]

Too much control through technology may be labeled as “indirect control,” but actions taken merely to protect the franchised brand may not be. For example, in the Nutritionality, Inc. case, the NLRB held that a franchisor was not a joint employer with a franchisee because it did not regulate how many employees to hire, how to set their schedules, or what to pay them.[3] Although the franchise agreement regulated other aspects of the business that would touch employment, such as operating hours, employee appearance, and a suggested expense ratio, the franchise agreement specifically gave control over essential terms of employment to the franchisee.

[1] 362 N.L.R.B. No. 186 (Aug. 27, 2015).

[2] See Press Release, NLRB Office of Pub. Affairs, NLRB Office of the General Counsel Issues Consolidated Complaints Against McDonald’s Franchisees and Their Franchisor McDonald’s USA, LLC as Joint Employers (Dec. 19, 2014), http://www.nlrb. gov/news-outreach/news-story/nlrb-office-general-counsel-issues-consolidated- complaints-against.

[3] Advice Memorandum, Nutritionality, Inc., No. 13-CA-134294 (N.L.R.B. Apr. 28, 2015),