Franchise FUD: Browning-Ferris Industries, the NLRB, and Joint-Employer Status

iconic An August decision by the NLRB is likely to have a broad impact in the coming years, forcing a great deal of change in how many businesses do business. While the issue may be under the radar for some business owners, those in the franchise industry are paying very close attention – which makes sense because the ruling could easily be construed as the beginning of the end for the franchise business model. At stake are the definition of “employer” and the determination of who is really responsible for the workers.

The issue stems from a 3-2 decision by the NLRB on a case involving Browning-Ferris Industries of California. Browning-Ferris Industries is a waste management company that contracted with another company – Leadpoint – to supply employees to perform a variety of work functions. Under the NLRB ruling, it was determined that Browning-Ferris was a joint employer with Leadpoint. What is interesting in this case (and where the FUD – fear, uncertainty and doubt – come in) is that “indirect control” of the employees became the primary factor determining whether a joint employer relationship existed under the National Labor Relations Act. Going against years of precedent, the board ruled that Browning-Ferris and Leadpoint were jointly employing the workers.

In the decision, the Board applies long-established principles to find that two or more entities are joint employers of a single workforce if (1) they are both employers within the meaning of the common law; and (2) they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the Board will – among other factors — consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.

https://www.nlrb.gov/news-outreach/news-story/board-issues-decision-browning-ferris-industries

There are many who believe Browning-Ferris is a precursor to the pending proceeding against McDonald’s Corp. in which the NLRB general counsel charges McDonald’s Corp as a joint employer of its franchisees’ employees. Possibly in response to outcries of wage inequality and fast-food worker strikes to force an increase in the minimum wage, the NLRB seems to be adjusting its definitions in favor of the movement and may inadvertently destroy the foundations of the franchise business model according to some.

Clearly the franchise business model is in the crosshairs. In an article published on Law360 by David J. Kaufmann, Breton H. Permesly and Dale A. Cohen, the authors cite from the June amicus brief on the Browning-Ferris proceeding, in which NLRB General Counsel Richard F. Griffin Jr “directly addressed and attacked franchising, claiming that it was merely an “outsourcing arrangement” and insisting that franchisors are the joint employers of their franchisees’ employees because franchisors can exert significant control over the day-to-day operations of their franchisees”. No ambiguity there.

There have always been questions when workers are classified as contractors, forcing regulatory agencies to delve into the details of the relationship to determine whether or not independence actually exists. But this decision changes things in a big way. From Unions gaining more strength in forcing contracting organizations to participate in bargaining processes, to franchise businesses electing to run only company-owned locations to minimize exposure and risk, there is likely to be some troubling times for businesses large and small in the coming months and years as the new definitions take hold.

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