With new joint employer standard, NLRB puts union interests ahead of small business entrepreneurs.

By Stuart Hershman

For more than a year, the franchise business community and thousands of independent contractors, retailers, and small business owners have feared the creation of a new “joint employer” standard by the U.S. National Labor Relations Board (NLRB). On Aug. 27, 2015, that nightmare became reality. In a 3-2 partisan decision in Browning-Ferris Industries of California, Inc., the NLRB voted to upend decades of established labor law precedent to create a more expansive — and decidedly murky — definition of joint employer. In doing so, the NLRB cowered to the pressures of labor unions and immediately cast a pall over thousands of extant business-to-business relationships, forcing independent businesses to reevaluate the structural foundations of their relationships and revisit completely their respective employment policies, employment practices, and labor relations. The ultimate questions raised by the case are who is the actual employer in franchise and other business arrangements, and who is responsible for employees? 

For decades, the NLRB had consistently held that in order for two entities to be considered joint employers and therefore jointly liable for certain employee matters, both had to share or codetermine matters governing the essential terms and conditions of employment AND exercise “direct and immediate” control over the employees.

In the Aug. 27 decision, however, the Board adopted a nebulous “economic realities” test, including a hodge-podge of direct, indirect, and reserved control over employees, virtually guaranteeing that most franchise relationships will be subject to scrutiny. This is the standard long-favored by groups like the Service Employees International Union (SEIU) as well as the chief litigator at the NLRB, General Counsel Richard Griffin, who is currently pursuing joint employer claims against McDonald’s USA and its franchisees.  

Organized labor groups have persistently pushed the pliant NLRB to adopt the new standard for one simple reason: unionizing the entire system of one umbrella organization (franchisor) is much easier than trying to unionize thousands of independent franchise locations (franchisees). Scott Courtney, a Fight for $15 campaign and SEIU strategist, noted in a recent article in The Guardian that the organized labor movement is geared toward large-scale unionization rather than the unionization of individual stores. “Our making a deal to organize 100 restaurants, that’s not going to happen. This is about lifting up the 64 million American workers who make less than $15 an hour,” he said. In paving the path for franchisors and franchisees to be held jointly liable for employee matters, the NLRB is spoon-feeding unions an easy victory while devastating thousands of independent small business owners that drive the U.S. economy.”

Finding a Fix

Although the NLRB clearly has taken labor’s side, the International Franchise Association — in conjunction with the Coalition to Save Local Businesses (CSLB) — has been so successful engaging Congress this year that the two highest ranking members of Congress on the labor committees, on their first day back in Washington, D.C. following August recess, introduced legislation to reverse the Browning-Ferris decision. Sen. Lamar Alexander (R-Tenn.) and Rep. John Kline (R-Minn.) introduced legislation, Protecting Local Business Opportunity Act, which is designed to roll back the NLRB’s new joint employer standard and reinstate the definition in force for decades before Browning-Ferris. As the franchise industry continues to battle this nefarious new joint employer standard, it is vital that all independent franchise owners and operators weigh in to their members of Congress to protect themselves from future legal uncertainty and liability.

Stuart Hershman is partner at DLA Piper. Find him at fransocial.franchise.org.

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