Today’s post comes to us courtesy of Thomas Basta, an associate in the Labor and Employment department:

In a highly anticipated decision, the NLRB today departed from three decades of an accepted standard for joint employment status and issued a new test that makes it far more likely that, even if a franchisor does not directly employ an individual, it may be liable for collective bargaining, employment torts, and other encumbrances. (See Browning-Ferris Industries, 362 NLRB No 186).

31723311_sIn the action, Browning-Ferris Industries of California, Inc., utilized the services of numerous employees by way of an outside staffing firm.  This is a common practice, as almost 3 million workers were temporarily placed with American companies in 2014.  Prior to today, a company utilizing such services was only considered a joint-employer only if it had “direct control” over working conditions.

Under the new standard, which the board said was necessary due the fact that “the diversity of workplace arrangements in today’s economy has significantly expanded” and “the procurement of employees through staffing and subcontracting arrangements or contingent employment, has increased steadily,” a company is a joint employer if it exercises “indirect control over working conditions or if it reserves the authority to do so.”  This directly implicates the more than eight million franchise employees in the United States.

The practical import of the decision is the very real possibility that corporate franchisors, which previously enjoyed insulation from collective bargaining, discrimination and harassment suits, workers compensation, and other benefits obligations, will have to completely revamp the treatment of their franchisees’ employees and/or redesign their franchise models.  At a minimum, this will require things like handbook revisions and harassment training for franchise employees.

This morning’s New York Times laid out one scenario that could spell disaster for franchised corporations:

For example, if employees at a fast-food restaurant run by a franchisee were to unionize — something almost none have succeeded in doing to date — they would immediately be entitled to negotiate not just with the owner of the individual restaurant but also with the corporate headquarters.

If the corporate parent were to agree to pay higher wages or provide better benefits, it would apply only to that particular restaurant, in the same way that concessions granted to employees in a single unionized portion of a national company that is not franchised apply only to that portion. At the same time, however, the concessions may give unionized employees at other locations practical leverage in their negotiations with the company.

All of this is clearly foreshadowing of the decision in the case the Board is currently litigating against McDonald’s and several of its franchises.  If analyzed under an “indirect control” standard, the decision may push spell doom for the Golden Arches’ position and pave the way for the unionization of franchise employees.

With the currently constituted Board in place for at least two more years, keep a look out for upcoming decisions that explain more specifically what does and does not constitute “indirect control over working conditions.”  We will certainly do so.  In the meantime, if you would like more information, please see the Firm’s Labor & Employment Alert issued this morning.