For whom the bell tolls: the changing joint employer standard and what it means for your business

The joint employer standard is changing rapidly, and businesses – among them franchisors and investors – need to be aware of the emerging landscape to protect their brands and their bottom lines.

The most important current developments in this contentious area are taking place at the intersection of franchising and employment law, related to the efforts by organized labor, government officials and the private bar to expand the joint employer doctrine applied by the National Labor Relations Board, the US Department of Labor, other government agencies, state attorneys general and the private bar.

For those who may be liable to a joint employer determination, the bell tolled throughout 2014. Here is an update.

In June 2014, in an amicus brief solicited by the National Labor Relations Board, NLRB General Counsel Richard F. Griffin, Jr. urged the NLRB to “abandon its existing joint-employer standard” and replace it with a new joint employer standard, pursuant to which “an entity could be a joint employer if it exercised direct or indirect control over working conditions, had the unexercised potential to control working conditions, or where ‘industrial realities’ otherwise made it essential to meaningful collective bargaining.” The NLRB GC encouraged the NLRB to “adopt a new standard that takes account of the totality of the circumstances, including how the putative joint employers structured their commercial dealings with each other.” Parenthetically, the new standard advanced by the NLRB GC was developed by US Department of Labor Wage and Hour Administrator David Weil.

In September, the NLRB followed its GC’s advice and commenced the expansion of the NLRB’s joint employer standard, by eliminating the requirement that a joint employer exercise “direct and immediate control . . . over employment matters.” CNN America, Inc., 361 NLRB No. 47 (2014). Also in CNN, the NLRB cited with approval a 2003 NLRB decision where joint employer status was found “based on employer’s involvement in deciding number of job vacancies to be filled by contractor and the wages to pay them, amount of overtime to be worked, and directing contractor to lay off or terminate certain employees,” after finding “no evidence of influence over decisions regarding hiring, discipline, and supervision . . . .”

In December, the NLRB GC issued 13 complaints, involving 78 unfair labor practice charges, against McDonald’s franchisees and their franchisor, McDonald’s USA, LLC, as joint employers. While the complaints fail to specify McDonald’s USA, LLC’s involvement in the alleged unlawful conduct, they indicate the view that, by merely “possessing” (as compared to exercising) control over a franchisee’s labor relations policies, a franchisor is a joint employer.

Notably, in an amicus brief filed in June, Richard Griffin, Jr., the NLRB General Counsel, stated that the NLRB “should continue to exempt franchisors from joint employer status to the extent that their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of their product or brand.” Griffin restated this position in a November 4 letter to Congressmen John Kline (R-MN) and Phil Roe (R-TN), writing that franchisors’ indirect control over employee working conditions “merely related to the franchisors’ legitimate interest in protecting the quality of their brand or product” is insufficient to make franchisors joint employers with their franchisees.

Despite issuance of complaints in the McDonald’s cases, until further guidance is provided, the NLRB GC’s amicus brief and November 4 letter suggest that with careful planning and restraint, franchisors may significantly avoid the risk of a joint employer determination while still protecting the brand.

But caution still is vital.

The $185 million punitive damage award to a single plaintiff in a pregnancy discrimination/retaliation case, which was discussed on our Employment Alert in December, highlights the extensive exposure possible. Although the defendant/employer (AutoZone) was not implicated as a joint employer, the result speaks volumes about the massive liabilities that may be imposed in an employment case and underscores the risks that companies may face in the event of a joint employer determination.

Such a determination is also significant for private equity investors – acquire a company and you may find yourself falling prey to successor liability, not only for joint employer issues.

And, if your company relies on a supply chain to carry out its business, you also should be concerned about the potential joint employer issue.

DLA Piper lawyers are available to discuss the significance of these evolving changes, and how companies may best position themselves to significantly reduce the risk of a joint employer determination while still protecting the brand. Please contact Erik Wulff, Harriet Lipkin, or any DLA Piper franchise or employment lawyer to learn more.