In my recent post commenting on the Department of Labor’s joint employer rule, I wondered whether the NLRB would follow suit. Now we know, and the answer’s positive. It’s very good news for franchising!

As we noted in a blog post earlier this week, the NLRB, after a major rulemaking process in which it received more than 29,000 (!) comments, restored the pre-Browning Ferris joint employment standard. The DOL and NLRB will apply consistent definitions of joint employment, giving some much needed predictability (and stability) to franchise systems. It’s a welcome change from the maelstrom that employment law has created for franchise companies.

The 194-page commentary accompanying the new rule explains the Board’s view that, rather than rejecting Browning Ferris, the rule harmonizes that decision with the long-standing control test of joint employment. According to the Board, the Browing Ferris decision did not change the definition of joint employment – that “To be a joint employer . . . a business must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of another employer’s employees.” Rather, the factors that took center stage in Browning Ferris – indirect control and the contractual right to control – overwhelmed the traditional analytical factors. Thus, in the Board’s view, the court in Browning Ferris did not reject the classic control analysis, but merely augmented it.

In its pronouncement of the new rule, the NLRB saw itself as rightly ordering the control factors. Direct and immediate control of essential terms and conditions of employment is an absolute requirement; or, as the Board put there can be joint employment “only if the two employers share or codetermine the employees’ essential terms and conditions of employment.” Indirect control, and contractually reserved control maybe relevant to the analysis, but only to supplement and reinforce evidence of an entity’s possession of direct and immediate control. Indirect control and/or contractually reserved control can never substitute for direct control of essential terms of employment.

Commenting that terms used in the definition of joint employment had never been defined, the NLRB also undertook to define them. And those definitions clearly provide room for the typical franchise relationship. For instance:

  • Essential terms of employment is defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. The list is exhaustive, not exemplar. The NLRB’s discussion of each item is narrow and does not invite expansion to include typical franchisor actions, such as suggestions, observations, comments, or quality control standards.
  • Substantial direct and immediate control means control that has a regular and consequential effect on an essential term of condition of employment, and specifically does not include control that is only exercised on a sporadic, isolated or de minimis basis.

At the same time, indirect control is negatively defined to exclude control or influence over setting objectives, ground rules or basic expectations; and contractually reserved authority does not include authority that has never been exercised.

Significantly, the NLRB Rule puts the burden of proving joint employment status on the party that claims it; there is no presumption of joint employment in any relationship, franchise or otherwise.

Together, the DOL and the NLRB rules on joint employment describe a clear path for franchisors in a typical franchise relationship to avoid being deemed the employers of their franchisees’ employees. Litigants and others seeking to use federal statutes, including the National Labor Relations Act, to extend employer’s liability to franchisors will bear a significant burden, perhaps even an unsurmountable one. But the path is not entirely clear. As the product of a major rulemaking process, the NLRB rule is subject to Congressional review, and it’s worth recalling that the House is actively considering several proposals that take a decidedly different view of the employment relationship, including the PRO Act, that would enact federal legislation that mirrors California’s AB 5 statute.

Despite a potential rain delay, the DOL and the NLRB are batting 1,000 so far this 2020 season! And the franchise industry is cheering!