The National Labor Relations Board’s (NLRB) rule on joint employer status, which has been expanding and contracting with changes of administration several times in the past decade, is poised to increase employer liability once again. Joint employers covered by a collective bargaining agreement are viewed as part of a single bargaining unit and may be held liable for labor violations. The standard used to determine whether a joint employer relationship exists is of special importance to franchises that may become liable for unfair labor practices and collective bargaining obligations to additional workers.
Historically, establishing a joint employer relationship under the National Labor Relations Act (NLRA) required the purported joint employer to exercise substantial, direct, and immediate control over the terms and conditions of employment. This control took the form of hiring, terminating, disciplining, supervising, scheduling, and making other employment-related decisions, such as wage rates and benefits. In 2015, however, the NLRB significantly broadened the longstanding rule used to determine joint employer status. In the case known as Browning-Ferris Industries of California, Inc., the NLRB adopted a much looser standard whereby it considered indirect control and authority to be the essential elements of a joint employer relationship. For example, joint employment could exist where an entity exercised only indirect control over hiring decisions, or where the entity had the authority to supervise workers but did not exercise that authority.
Nevertheless, in February 2020, the NLRB issued a final rule effectively reversing Browning-Ferris and restoring the previous standard. Under this final rule, a joint employer must not only have control of one or more essential terms or conditions of employment, but also actually exercise that control. Last September, the NLRB recently reversed course again when it proposed a rule that would consider distinct entities a joint employer if they “share or codetermine those matters governing [an] employee’s essential terms and conditions of employment.”
The proposed rule would incorporate much of the Browning-Ferris standard by defining “share or co-determine” to mean “for an employer to possess the authority to control (whether directly, indirectly, or both) or to exercise the power to control (whether directly, indirectly, or both) one or more of the employee’s essential terms and conditions of employment.” Many franchisors, having an indirect or unexercised control over the terms and conditions of the work done at their franchises, would become liable as joint employers under the new rule. In addition to being liable for unfair labor practices and collective bargaining obligations, franchisors would also be subject to union picketing and other economic pressures in the event of a labor dispute.
The proposed rule is hotly contested because of its potential impact. A franchise depends on a business model where franchisees are independent contractors that operate individual businesses. Under the proposed joint employer rule, there is an increased risk that employees at small franchisees will be reclassified as jointly employed by the franchisor. The franchisor would not be just a brand, but also an employer—and potentially liable to employees of the franchisees as such. Franchisors could see higher employment costs, new obligations under collective bargaining agreements, and increased exposure to claims of unfair labor practices. Although it remains to be seen, the proposed rule could prompt a restructuring of the franchise business model in order to remain profitable and competitive.
The period for public comment initially ran until November 7, 2022 (with reply comments due November 21, 2022), but because of overwhelming input, the comment period was extended through December 7, 2022 (with reply comments due December 21, 2022). As the proposed rule is generating significant objections—which the NLRB is expected to review and address before issuing a final rule—the status of joint employers likely will not be finalized until early spring 2023. •
Glenn Duhl is a management-side employment and litigation lawyer at Zangari Cohn Cuthbertson Duhl & Grello P.C. Please visit www.zcclawfirm.com.
The information contained in this article is general in nature and offered for informational purposes only. It is not offered and should not be construed as legal advice.
