When businesses outsource; franchise or subcontract their operations to franchisees, the two operate as separate businesses. But how separate are they? Although the business may specify standards for packaging, customer service, logo, uniforms and other aspects of the business, the franchisor does not get involved in the day to day operations of the franchisee, like hiring, firing and wage payments. Historically, this was considered enough to absolve the franchisor of liability as joint employer. This meant that workers who represent the same brand, like McDonald’s, do not have the same employer and hence cannot unionize or seek collective bargaining agreements to change their working conditions or negotiate their wages.
Now, the National Labor Relations Board (NLRB) is redefining the very standard by which joint employment relationships are determined. The NLRB has stated that employees whose work requirements and conditions are specified by the franchisor, wearing uniforms which carry the logo of the franchisor and working to deliver an identical experience to customers at their various outlets, are co-employed by the franchiser and franchisee.
The NLRB’s counsel wishes to do away with the requirement for a joint employer to have direct and immediate control over the essential terms and conditions of employment (i.e., hiring, firing, wages, hours and working conditions, discipline, supervision, and direction of employees). Instead, a joint employer relationship can be attributed even when there is indirect and potential control making everyone who sub-contracts, uses temporary employees and establishes a franchisor/franchisee relationship to be a joint employer.
This is because Browning dictates the hours, duties and break times of Leadpoint workers. Leadpoint was never known to have contested or changed any of Browning’s directions. This made the NLRB take a fresh look at the situation and question the existing joint employer standard itself. Unions are happy to revert to the pre-1984 standard, in which a joint employer relationship was thought to exist when a company had even indirect control over employment matters.
These cases are expected to have far reaching impact on business practices and policies governing businessrelationships. Their outcome needs to be closely followed by all employers.
This new standard was proposed in July and over 50 cases have been filed against businesses with a franchisor-franchisee relationship like McDonald’s. NLRB’s counsel has allowed the cases to be pursued against both the franchisor and franchisee, and the outcome of these cases could set new standards in defining joint employer liability. The Equal Employment Opportunity Commission has indicated a willingness to accept the broader standard. The Department of Labor has increased its emphasis on prosecuting companies for ‘wage theft’ when businesses undertaking outsourced work violate wage and hour laws.
One thing is for sure: many companies will be rethinking the very strategy of franchising out one’s business if they are to be held liable for all aspects of a franchisee’s business practices. This shift in definition would also affect the operational support which comes with any franchising operation, including policies, procedures, training materials, and recruitment processes. All of these will need to be revisited to ensure that there is no joint employer liability. The question that remains is: what does a franchisor – franchisee agreement entail? We need to wait for an answer; as the matter takes its legal course.
Government scrutiny is increasing in every type of non-traditional workforce relationship. Employers need to carefully consider all aspects of workforce management when outsourcing any work or hiring workers through staffing agencies or creating franchisee networks. We can expect increased litigation as companies in the U.S. and around the world struggle to understand the most effective – and safest – ways to utilize non-traditional approaches to conduct business.
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