Changing the joint-employer policy is applying tension to franchisor-franchisee relationships. A new IFA-U.S. Chamber of Commerce report could be an important entry into the policy debate in Washington, D.C. and around the country as IFA seeks a permanent solution to protect franchise businesses from undeserved liability for another firm’s workers.

By Michael Layman

When the U.S. National Labor Relations Board on Aug. 27, 2015 issued its decision in the Browning-Ferris Industries case, the franchise business community knew it represented a significant policy change in federal labor law with potentially serious economic consequences. In replacing the time-tested “direct” and “immediate control” joint-employment standards with a broad and unpredictable test based on “indirect” and even “reserved” control over employment matters, the NLRB had suddenly exposed a broad range of franchise and non-franchise businesses to liability for employees they don’t employ.

But many politicians, the media and even stakeholders in the business community haven’t recognized the uncertainty, let alone the complexity, facing Main Street business owners since the BFI decision. Many have asked the International Franchise Association, franchise business leaders, attorneys, and other experts, in essence, “What’s the big deal about the BFI decision?” and even, “Does the joint-employer issue matter?”

Federal agencies collaborate, unions and trial lawyers benefit 

To respond to these questions, IFA partnered with the U.S. Chamber of Commerce to release a report in June 2016 entitled, “Main Street in Jeopardy: The Expanding Joint Employer Threat to Small Businesses.” The report is an everything-you-need-to-know look at the joint-employer issue, from the NLRB cases against BFI and McDonald’s to the recent Domino’s Pizza charges in New York state, to how unions and trial lawyers stand to greatly benefit from this regulatory attack on small-business owners. 

The report also shows how NLRB has not been the only federal  agency threatening franchise businesses with a sweeping joint-employer policy. The Wage and Hour Division, the Equal Employment Opportunity Commission and Occupational Safety and Health Administration are also pursuing joint-employer charges against primary and secondary employers. Perhaps most notably, WHD Administrator David Weil authored the most comprehensive work on expanded joint-employer doctrine in a book titled, “The Fissured Workplace: Why Work Became so Bad for so Many and What Can be Done to Improve It.” The book makes an ideological case for targeting certain industries, such as franchising, for increased enforcement of labor and employment laws, based on the view that certain business structures prevent collective bargaining. After all, promoting collective bargaining above all else continues to be the modus operandi for many policymakers such as Weil.

Operations, decision-making changing

The most provocative aspect of the report is its findings of how franchisors and franchise owners have changed their operations and decision-making since the potential for an expanded joint-employer standard started looming over franchising. Some franchisors have decided that they must pull back on the services they offer franchisees. For example, one franchise company general counsel said: “Franchisees used to contact us and say ‘I just received an EEOC charge, what do I do?’ Our HR department used to provide counsel to help franchisees in such situations. But we cannot do that anymore, and joint employer is the reason.” 

Another franchisor indicated that its franchisees often call the franchisor for assistance on a host of issues, including labor and employment matters. In the wake of the BFI decision, those franchisees are now told “Sorry, we can’t help you,” out of concern that providing such guidance could be considered indicia of joint employment. Now, franchisees must pay for such services themselves. In light of new joint-employment liability, one franchisor stated that “Franchisees are starting to ask: ‘Where are my royalties going? What am I paying for?’”

Policy debate focuses on permanent solution

So, among many other things, the report shows how changing joint-employer policy is applying tension to the franchisor-franchisee relationship. Thus, the report should be an important entry into the policy debate in Washington, D.C. and around the country as IFA seeks a permanent solution on joint employer to protect franchise businesses from undeserved liability for another firm’s workers. 

The IFA and U.S. Chamber released the report during a half-day conference on the joint-employer issue on June 21, 2016. To access the report, visit the IFA Labor and Workforce Hub website. 

Michael Layman is vice president of Regulatory Affairs for IFA and the executive director of the Coalition to Save Local Businesses. Find him at  fransocial.franchise.org.

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