In what many in the industry are likely to see as a commonsense result, a recent advice memorandum issued by the NLRB Office of General Counsel (“OGC”) concluded that franchisor Freshii Development, LLC (“Freshii”) was not a joint employer with its franchisee. Nutritionality, Inc. d/b/a Freshii, Case Nos. 13-CA-134294, 13-CA-138293, and 13-CA-142297 (Apr. 28, 2015).
Freshii is a fast-casual restaurant chain that features nutritious meals. Freshii contracts with development agents to bring new franchises online and help ensure that franchisees comply with brand standards.
Nutritionality, Inc. (“Nutritionality”) operates a single outlet in Chicago. It terminated employees for attempting to unionize its workforce and became the subject of an unfair labor practice claim as a result. The NLRB Regional Director found merit to the claim but sought the OGC’s advice as to whether Nutritionality was a joint employer with Freshii.
The OGC answered in the negative under both the NLRB’s current standard for joint employers and under the traditional joint employer standard being urged by the OGC. Its analysis provides a glimpse into the currently opaque world of joint employer status in franchising.
The OGC looked both to the franchise agreement and the actual practices of the franchise system.
The Franchise Agreement
The franchise agreement specifically stated that Freshii’s “System Standards” (i.e., the specifications and procedures in its operating manual) excluded “any personnel policies or procedures” that Freshii might make available. Nutritionality, Inc. at 2. The franchisee alone determined whether and to what extent it would use the recommended policies or procedures. Under the franchise agreement, Freshii “neither dictate[d] nor control[led] labor or employment matters for franchisees and their employees.” Id.
Nor did Freshii’s actual practices meaningfully affect matters relating to the employment relationship (the NLRB’s current standard) or wield sufficient influence over Nutritionality’s employees so that they could not meaningfully bargain without Freshii at the table (the OGC’s proposed standard). Freshii did not:
- play any role in Nutritionality’s hiring, firing, disciplining or supervising of employees;
- determine wages, raises, or employee benefits;
- involve itself in scheduling or setting work hours, whether directly or indirectly through scheduling software or the development agent;
- require its franchisees to follow its recommended employee personnel policies (as outlined in its operations manual or training sessions); or
- respond to Nutritionality in any way when it informed Freshii of its employees’ attempts to unionize.
Indeed, the OGC highlighted that Nutrionality had increased and decreased employee compensation and disciplined and discharged staff without seeking Freshii’s approval.
Perhaps even more important is what Freshii did do that did not, according to the OGC, make it a joint employer. Freshii did:
- in its operations manual, provide franchisees with non-mandatory guidance on HR matters, including hiring, scheduling, sample interview questions, and how to calculate labor cost percentage;
- have its development agent conduct initial training that covered how to schedule employees and the duties of various positions; and
- have its development agent review franchisees for compliance with brand standards.
The NLRB’s conclusion that McDonald’s, USA, LLC is a putative joint employer with its franchisees raises existential questions about the future of the franchise model. The franchise industry has been on high alert ever since, marshaling its resources for a fight in the courts and on Capital Hill. In the meantime, the scope of the McDonald’s decision has been an open issue. While many questions remain unanswered, the NLRB’s advice memorandum in Nutritionality, Inc. sheds a sliver of light on the now murky intersection of joint employer status and the franchise model.