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.
What About Franchisors and Franchisees?
The Browning‑Ferris case involves a labor services agreement for recycling sorters at the Browning‑Ferris facility. It does not involve a franchise arrangement. Yet the expansion of the “right to control” concept to include unexercised or potential right to control has ominous implications for the franchise model. All may not be lost, however. Earlier this year, the NLRB Division of Advice decided in the case of Nutritionality, Inc. d/b/a Freshii that a franchisor and franchisee were not joint employers under either the “old test”—which has now been “refined” by the Board—or the “economic and industrial realities” test, which would have been even broader than the Board’s ultimate decision in Browning‑Ferris. The lesson is that the vulnerability of a franchise relationship to a joint‑employer determination lies largely in the structure of the relationship and the practices under that relationship. Now is the time to take another look at those relationships in light of Browning‑Ferris and the factors discussed in the Freshii advice memorandum.
Companies that wish to reduce the risk of being deemed joint employers should consider taking steps to review existing agreements and practices to determine whether joint control over employees arguably exists and, if necessary, make changes to existing agreements, policies, or practices so as to avoid application of the joint employment doctrine.