A Legal Blog for Franchisors

NLRB’s General Counsel Provides a Glimpse of His Thinking on “Joint Employer” Standard

Posted in Franchisor, Policy

On July 29, the NLRB’s General Counsel Richard Griffin announced that he would allow administrative actions to proceed against McDonald’s as a “joint employer” of a franchisee’s employees. Since then, the NLRB has been asked to explain the rationale for that decision. While no formal explanation has been provided, POLITICO’s Brian Mahoney recently reported that Griffin informally discussed his views in a talk at the University of West Virginia law school. Griffin’s comments are revealing, and he acknowledges that his decision created a lot of “noise.”

In his talk, Griffin indicates that he is advocating that the NLRB adopt the test for joint employer in effect before the mid-1980’s. He concedes, however, that even under the old test (which he refers to as the “traditional test”), a franchisor would not be regarded as a joint-employer if its controls were implemented to protect brand uniformity and quality, the types of control necessary under the Lanham Act to protect the franchisor’s trademark, and essential in any franchise system to ensure consistency across the franchisor’s chain. As he notes in his address, while advocating for change, “[i]n that area we have a problem legally for our theory.” “So here we are arguing for a return to the traditional standard,” Griffin said, “and here are these cases that under the traditional standard find no joint employer in the franchisor-franchisee relationship.”

He noted that franchisors should be treated differently now because technology has allowed franchisors to affect the employer-employee relationship in ways unanticipated by prior Board decisions.

Now there all kinds of ways that franchisors, in real time, can keep track of everything happening at the franchisee level. So for example, there are programs where a national franchisor…has on its mainframe computer real time information about every franchisee’s gross sales, and at the same time they have real time information about the minute-by-minute labor costs going on [at a] particular franchisee. And they have programs that run algorithms that say once these costs get to a certain percentage of these [other] costs, you gotta start sending people home. That type of involvement in the hours and terms and conditions of employment…goes beyond protecting [the franchisor’s brand], and in those instances where those things are present, we think the franchisor ought to be named and held responsible as a joint employer.”

Griffin noted that the “status of [the McDonalds] cases right now is, no complaints have actually issued.” “There are ongoing discussions with the parties about whether to resolve those cases; about, if they’re not resolved, how to try them; and those discussions are not at a conclusive point.” He otherwise declined to elaborate further on the future of franchise cases “because there’s a lot of potential litigation issues there.”

News from Around the World: Brazil

Posted in Around the World

Editor’s Note: This series of posts we’re calling “Around the World” come from a larger piece written by Shannon and published in the October 2014 edition of the International Bar Association’s International Franchising Newsletter. Updates were provided by speakers at the Annual IBA/IFA Joint Conference that took place in Chicago in May 2014.

Luciana Bassani of Dannemann Siemsen gave an update on Brazil’s new Anti-Corruption Act and its impact on franchising. The Act became effective on 28 January 2014 and allows for the imposition of civil liability on individuals, as well as entities for the corrupt acts of their employees. The Act imposes strict liability for legal entities regardless of intent or fault.

The ACA prohibits giving unjust advantage to domestic or foreign public officials or related third parties. Prohibited acts include actual payments or giving undue advantage to public officials or related third parties. The ACA imposes sanctions for violations including:

  • Fines of 0.1 percent to 20 percent of gross revenues;
  • Listing the company as a ‘punished company’;
  • Piercing of the corporate veil to implicate managing officers for punishment and fines;
  • Penalties may be reduced for self-reporting or cooperation (can reduce fine by up to two-thirds); and
  • Franchising companies should be aware and protect themselves with clear codes of conduct and training on correct conduct with public officials and include direct reference to compliance with local anticorruption laws in franchise and other distribution agreements.

News from Around the World: Canada

Posted in Around the World, Legislation, Policy

Editor’s Note: This series of posts we’re calling “Around the World” come from a larger piece written by Shannon and published in the October 2014 edition of the International Bar Association’s International Franchising Newsletter. Updates were provided by speakers at the Annual IBA/IFA Joint Conference in Chicago in May 2014.

Dominic Mochrie, Osler, Hoskin & Harcourt LLP, was the first speaker and reported on the forthcoming franchise law in the Province of British Columbia (BC), recent court decisions, and the now-effective Canadian Anti-Spam Legislation (CASL). Dominic reported that on March 31, 2014, the British Columbia Law Institute released its Report on a Franchise Act for British Columbia. The BCLI recommended that BC enact a franchise law similar to legislation currently in effect in the provinces of Alberta, Manitoba, Ontario, New Brunswick, and Prince Edward Island. There is no federal franchise legislation in Canada. Draft legislation is expected soon.

There were two recent cases decided in Ontario addressing issues related to disclosure and waiver. With respect to disclosure, the Ontario Court of Appeal made another decision in the Springdale Pizza case (2014 ONSC 530). In March, the court held that some disclosure may be so deficient as to be deemed as no disclosure at all. This holding opens the window to rescission to two years (as for no disclosure) rather than 60 days (defective disclosure). The court further held that franchisees are not responsible for providing disclosure documents to purchasers and franchisors cannot rely on any documents provided by selling franchisees to satisfy the franchisor’s disclosure requirement. The court held that the resale exemption to franchisor’s disclosure requirement will be narrowly limited to circumstances where the franchisor is minimally involved and the transfer is not affected by or through the franchisor.

In the Cora Franchise Group case (2014 ONSC 600), the court held that a general release required by a franchisor in exchange for the franchisor’s consent to the franchisee’s assignment of its franchise agreement was void. The Arthur Wishart Act (AWA), Ontario’s franchise law, makes void any provision that purports to waive a franchisee’s rights arising under the AWA. The franchisor in Cora argued that the release was meant to waive only the franchisee’s non-AWA claims but the court disagreed, finding the ‘general release’ was too broad as drafted and therefore void as a violation of the anti-waiver provisions of the AWA. This decision is under appeal.

Lastly, Dominic gave an update on CASL, which went into effect on July 1, 2014. CASL requires senders of commercial electronic messages (CEM) to first receive permission from the recipients. CEM includes e-mail, text messages, and instant messages. The law also requires senders to clearly identify the sender, provide contact information for the sender, and allow for a simple unsubscribe mechanism so recipients can later opt-out if they so choose. The law does have extra-territorial application because CEM includes messages sent from or to a computer system accessed in Canada.

The Battlefield for Franchising: Vicarious Liability

Posted in Franchisor, Legislation

In late August, the California Supreme Court held in Patterson v. Domino’s Pizza, Inc., that Domino’s is not vicariously liable for the inappropriate conduct by a franchisee’s employee. Specifically, the court held that the Franchisor is not responsible for sexual harassment by the assistant manager of a franchised location. The Patterson decision is, of course, consistent with hundreds of earlier decisions across the United States, but it at least helped to sooth the legitimate fears about the end of franchising reverberating through the industry. A wave of recent case filings have directly challenged the traditional and essential premise that franchisors are not the employers of their franchisees or franchisee employees, and that franchisors are not generally responsible for the wrongful conduct of their franchisees. This wave of new case filings includes:

  • Cases filed by workers seeking to hold McDonald’s jointly responsible for wage and hour violations.
  • Claims brought against 7-Eleven by franchisees claiming they are really misclassified workers of 7-Eleven.
  • A case brought by the Washington Department of Labor and Industries charging that a franchisor is responsible for its franchisees’ (and their employees’) industrial insurance premiums.
  • And, of course, the NLRB’s announcement in July that it authorized the filing of administrative complaints against McDonald’s for unfair labor practices involving workers at franchisee-owned restaurants.

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