Franchising Update: NLRB and the Joint Employer Threat Update.… · Intro Re: Joint Employer Issue Franchising model: franchisor licenses trademark and operating methods (system)

Franchising Update: NLRB and the Joint Employer Threat

Presented by

Mark S. VanderBroek

Daniel M. Shea

Nelson Mullins Riley & Scarborough LLP

January 12, 2016


Intro Re: Joint Employer Issue

Franchising model: franchisor licenses trademark and

operating methods (system) to franchisees.

Franchise agreement/manuals: franchisor controls

goods/services sold by franchisee.

Trademark law: requires licensor control.

But too much franchisor control over franchisee risks:

Franchisor as joint employer of franchisee

employees

Franchisor liability for franchisee actions

2


Overview of Joint Employer Issues

1. Employment Risks

A. National Labor Relations Board (NLRB ) Activity

Attack on McDonald's

Browning-Ferris Decision

Freshii Advice Memorandum

B. Potential Issues Under Other Employment Statutes

Title VII, Civil Rights Act

Fair Labor Standards/Family and Medical Leave Act

2. Franchisor Vicarious Liability Risks

3. Minimizing Joint Employer Risks

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Employment Risks – NLRB

NLRB – Background re: Joint Employer Standard

Supreme Court has indicated the common law test should be used

under the NLRA, ERISA and a number of the discrimination laws.

NLRB v. United Ins. Co. of America, 390 U.S. 254, 256 (1968).

Common law test is fact specific and considers many factors.

Particular focus on putative employer's control of “manner and

means of performing the work,” but no one factor is

determinative.

Courts have also identified "entrepreneurial opportunities" as the

touchstone of the common law test – whether the putative

independent contractors have a "significant entrepreneurial

opportunity for gain or loss." FedEx Home Delivery v. NLRB, 563

F.3d 492 (DC Cir. 2009).

NLRB recently attempting to expand joint employer standard.

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Employment Risks - NLRB

McDonald's Complaints (2014)

NLRB issues complaints against McDonald's and franchisees for

unfair labor practices (retaliation for union organizing activities).

Charge that McDonald's a "joint employer" so jointly liable.

Important factors (per NLRB General Counsel):

McDonald's own and leases real estate (control and policing of

on-site union activities).

McDonald's Involvement in franchisee employee scheduling.

- Real time scheduling management software.

- Franchise consultants ensure compliance.

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Employment Risks - NLRB

NLRB Browning-Ferris decision (August 2015)

Overruled 30 years of precedent, and established broad standard for

who can be deemed joint employer of an employee.

Old Standard: Whether party had direct and immediate control

over the employee. Laerco Transportation, 269 N.L.R.B. 324

(1984)

New Standard: Control need not be immediate and direct over

employee, where party preserved authority to control.

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BFI had 60 employees at recycling facility and contracted with

temporary labor supplier for 150 additional employees.

BFI involved in hiring, wages, discipline and other employee

controls.

The Union (IBT) wanted to represent all 210 employees.

NLRB reversed ALJ and found joint employer relationship

holding that collective bargaining would be hindered without

BFI.

BFI decision is far from over and is part of continuing policy of

current administration to help unions organize workers to reverse

decline of organized labor by giving employee status to temporary

workers, independent contractors and supervisors.

Not a franchise case; BFI unlike typical franchise setting. 7



Freshii Advice Memorandum (NLRB General Counsel Office, April 2015)

Facts re Freshii Franchise System:

Standard Franchise Agreement

Operations Manual – includes suggestions but not requirements

for employee hiring, scheduling and management

Required POS system but no labor scheduling component

Development Agents – handled training and inspections

No evidence Freshii guiding franchisee on possible union

organizing campaign

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Employment Risks (con't)

Freshii Advice Memorandum (NLRB General Counsel Office, April 2015)

NLRB: Freshii not a joint employer

Under NLRB then-current standard – because no evidence

Freshii shares or codetermines matters governing essential

terms/conditions of employment of franchisee employees

Under NLRB new (Browning-Ferris) standard – because Freshii

not significantly impacting working conditions of franchisee

employees

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Employment Risks – Other Statutes

Title VII of the Civil Rights Act of 1964

In 1997 guidance to staffing agencies, Equal Employment Opportunity

Commission (EEOC) pointed out that two entities qualify as joint employers

of the worker "where both have the right to exercise control over the workers

employment." 2 EEOC Compl. Man. §605 (BNA).

Third Circuit in Faush v. Tuesday Morning, Inc., (2015) found retail client of

staffing agency could be considered temporary worker's employer where

retailer supervised worker's day-to-day performance, provided training, and

kept track of worker's hours (claim for alleged discrimination by retailer).

In Betts, et al v. McDonald's Corporation (Va.), employees of franchisee sued

for race discrimination and harassment. McDonald's named a co-defendant

citing the workforce software, operating manuals, employee surveys,

corporate assessment of applicants prior to hiring, and other factors

including the Franchise Agreement.

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Employment Risks – Other Issues

Fair Labor Standards Act/Family and Medical Leave Act

FLSA/FMLA case law has not crystallized around a fixed set of common law test

factors, but more on "totality of circumstances" including "economic realities"

rather than a checklist.

Six frequently-cited factors for joint employer - including degree of control

exercised by alleged employer over employee.

DOL regulations:

When parties are "joint employers" each will be liable "individually and

jointly, for compliance with all of the applicable provisions of the

FLSA…with respect to the entire employment for the particular work

week." 29 CFR § 791.2(a).

Where two or more businesses exercise some control over work

conditions of the employee, the business may be joint employer under

FMLA." 29 CFR § 825.106(a).

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Franchisor Vicarious Liability Risks

Franchisor Vicarious Liability for Acts of Franchisee or

Franchisee Employees

Courts analyze under one of two tests:

Means and Manner Test. Whether franchisor controls the

means and manner of operation of franchisee's business.

Domino's Pizza, Inc. v. Parker (Fla.) – plaintiffs injured by

Domino's franchisee delivery driver. Court ruled franchise

agreement and operating manual evidenced sufficient

control by franchisor to raise question of fact regarding

liability.

Pizza K v. Santagata (Ga.) – similar facts, franchisor not

liable because didn't control time and manner of franchisee

work or supervision of delivery drivers. 12


Franchisor Vicarious Liability Risks

Instrumentality Test. Whether franchisor controlled the

instrumentality that caused harm to the plaintiff.

Hong Wu v. Dunkin Donuts, Inc. (N.Y.) – franchisor

not liable for assault on franchisee employee. Did not

control instrumentality that caused harm, because it

did not mandate specific security measures.

Keri v. Rasmussen (Wis.) – franchisor not liable for

franchisee employee who left work and shot ex-

girlfriend. Franchisee had sole control over hiring

and supervision of employees.

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Minimizing Franchise Joint Employer Risks

General Conclusions re: Joint Employer Issues

Joint employer standard is changing

It's all about "degree of control"

Very fact dependent

Suggestions to Minimize Risks

Review/revise franchise agreements

Audit /revise operations manuals

Review training programs and field practices

No mandated employee scheduling software

Other 14


Franchising Update: NLRB and the Joint Employer Threat

Thank you!

For copy of PowerPoint or Freshii NLRB Memorandum:

[email protected] 404-322-6675

[email protected] 404-322-6229

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mailto:[email protected]

mailto:[email protected]

Documents

Franchising Update: NLRB and the Joint Employer Threat Update.… · Intro Re: Joint Employer Issue Franchising model: franchisor licenses trademark and operating methods (system)