As my partner, Kathleen Petrich, mentioned in her recent post, Subway took quick action to distance itself from Jared Fogle upon learning of the investigation into his alleged involvement with child pornography. Subway’s actions included removing reference of Jared from its website and from the thousands of Subway restaurants. But how can Subway do that when it does not actually own thousands of those Subway locations?Subway is a franchise system. The majority of stores are owned and operated by independent business owners. But if Subway does not own the restaurants, how could it act so quickly? It’s because Subway retained control over advertising in its franchise agreement. The franchise relationship is based on the franchise agreement signed by the franchisor (Subway*) and each of its independent franchisees (individual locations). Through the franchise agreement, the franchisor grants its franchisees certain rights, which include limited, non-exclusive rights to use its trademarks (and other intellectual property), system manual, and proprietary goods or services. But a careful franchisor also expressly retains ultimate authority over all forms of advertising. It is this contractual control that allowed Subway to act so quickly to require its independent franchisees to remove all Jared-related advertising.
The National Labor Relations Board (NLRB or Board) has just announced its long‑anticipated decision in Browning-Ferris Industries of California, Inc. That case had been pending before the Board since April 2014, when the Board announced that it would reconsider the standards for determining joint‑employer status under the National Labor Relations Act. The Board invited briefs on the issue from the business community, unions, and government agencies. Most observers expected that the decision would favor expansion of the joint‑employer doctrine; the real question was how broadly the net would be cast. The answer is that the new standard is broader and more amorphous than the previous standard, but it could have been worse.
For over 30 years, the NLRB standard has been that in order to be considered a “joint employer,” a company must be shown to “share or co‑determine those matters governing the essential terms and conditions of employment” for a group of employees. In the Browning‑Ferris case, the Board “refined” that standard to no longer require that the company actually exercise the authority to control the employees’ terms and conditions of employment. After Browning‑Ferris, it will be sufficient if the company possesses the authority and control to do so. Additionally, this control need not be exercised “directly and immediately.” Control exercised indirectly—for example, by an intermediary—may be enough to impose joint‑employer status. Obviously, the new standard will cover more employers than were covered under the previous standard. Still, it is a far cry from the standard advocated by unions, which would have imposed joint‑employer status whenever “economic realities” made that status appropriate.
By now you have likely read that the U.S. District Court for the Western District of Washington denied the International Franchise Association and five franchisees’ motion for a preliminary injunction. The plaintiffs sought the Court’s relief to enjoin the April 1st implementation of the City of Seattle’s minimum wage ordinance. The IFA announced on Friday that the plaintiffs plan to appeal the court’s decision to the 9th Circuit.
The minimum wage ordinance created a $15 minimum wage for businesses located in the City of Seattle. The ordinance set a multi-year phase-in based on the number of people a business employs; small employers have seven years to increase wages and large employers have three years (four years if also providing health insurance). Large employers are defined as companies employing more than 500 employees in the United States and “all franchisees associated with a franchisor or network of franchises with franchisees that employ more than 500 employees in aggregate in the United States.” Small employees are companies that employ 500 or fewer employees.
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As expected, the United States District Court for the Western District of Washington that heard oral argument last week on the International Franchise Association’s motion for a preliminary injunction against the City of Seattle denied the IFA’s motion and refused to enjoin implementation of the City’s $15 per hour minimum wage ordinance against franchisees.
The Court’s Order dismisses as insufficient the IFA’s evidence of statements by three lawmakers and a member of the Mayor’s advisory committee that appeared to indicate the City’s real intention in imposing burdensome and discriminatory restrictions on small franchised businesses. A copy of the Court’s 43-page order can be found here. More analysis to follow later this week.
The IFA can only appeal the Court’s denial if the Court elects to certify the matter for an interlocutory appeal. Given the Court’s rejection of the IFA’s arguments, such an order is probably unlikely. The case is set to go to trial in October 2015.