In our last FranCast on this evolving topic, we surmised that the NLRB would not likely seek to impose joint employer status on conventionally structured franchise systems, despite the Browning Ferrisdecision and the highly publicized efforts by the NLRB to impose joint employer liability on McDonalds.  Our assessment appears to have been confirmed by Messrs. Griffin and Weil in their address at the ABA Forum on Franchising, yet we should remain guarded, as perspectives can change.  Moreover, the matter remains unresolved at the Department of Labor, and we expect activity by the DOL next year that may illuminate their perspective.

In a packed plenary session at the ABA Forum on Franchising on October 16, 2015, Richard Griffin, General Counsel of the NLRB, and Dr. David Weil, Administrator of the Wage and Hour Division, addressed the joint employer issue from the perspective of their respective agencies. 

Mr. Griffin appeared to have been surprised by the public outcry in the franchise community that he felt was entirely unjustified, as – in his view – franchising is not under attack by the NLRB.  He stated that the office of the General Counsel would follow the policy he articulated in its amicus brief in theBrowning Ferris that franchisors should remain exempt "… to the extent their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of the product or brand."   He pointed to the Freshii’s advice memorandum as an example of a conventional franchise relationship that didn’t exceed the levels of control necessary for the protection of the quality of the product or brand.  In contrast, a so-called “hypothetical franchisor” (no one was under any illusion that this was a reference to anybody other than McDonald’s), one that exercised excessive control through real estate ownership of franchisee premises and driving down franchisee labor costs by requiring franchisees to use (and enforcing their use of) labor-saving software, crossed over the line to become a joint employer with its franchisees.  He likened the NLRB’s view of the new joint employer doctrine in franchising to the doctrine of piercing the veil in a corporate setting – the separateness of a corporate entity should generally be respected unless unusual circumstances occur that justify piercing the veil.

Messrs. Griffin and Weil both addressed the differences of their respective agencies in terms of their mandates and distinctly different enforcement structures.  Dr. Weil continued by stating that his agency’s goal is to maximize compliance with minimum wages, acknowledging vastly limited resources in what he characterizes as a lax compliance environment, particularly with small businesses, including franchisees.  Postulating that the interests of the DOL and franchisors are aligned (franchisors should be equally interested in legal compliance in their systems, including labor laws), he wants to enlist franchisors to supplement his agency’s limited resources in monitoring minimum wage compliance by their franchisees.  In this, he cited the agreement they had reached with Subway to do so. According to Dr. Weil, the DOL is not interested in establishing joint employer status for franchising generally, and it intends to propose regulations (as was recently done on the white collar employee exemption) that would outline their position.

ANALYSIS

There is lots of interpretive open space in Mr. Griffin’s now increasingly important footnote, which states that controls necessary to protect the quality of the product or brand isn’t enough to trigger joint employer status.  The language Mr. Griffin employed in the footnote is suspiciously similar to what trademark law imposes in terms of controls necessary to protect trademark rights in a licensing setting − yet the concept of franchising is widely, and legally, recognized as a relationship that involves more than trademark control and instead contemplates significant control or assistance in the franchisee’s method of operation of the franchise business.[1]  But, presumably the Freshii’s advice memorandum suggests a more generous reading of Mr. Griffin’s language.  The outcome remains to be seen.

Dr. Weil’s comments appear to be a retreat from his scholarly writings, in which he pointedly targets franchise systems in various sectors (commercial cleaning, hotels, restaurants, etc.). His scholarship holds that franchises in such sectors have high levels of labor law compliance problems and therefore are ripe to be categorized as joint employers. Perhaps in his October comments at the Forum Dr Weill was simply stating his agency’s preference for co-opting franchisors in the compliance efforts, but chose to leave unstated a veiled threat: that franchisors who resist this effort may earn joint employer status. The irony, of course, is that cooperating with DOL on franchisee wage and hour enforcement may result in the kinds of activities that would earn a joint employer label with the NLRB and perhaps other agencies.  Presumably, the agencies will map out a course to navigate these shoals.

SUMMARY

Assuming one can take Mr. Griffin's statements at the Forum at face value, there is good reason to be guardedly optimistic that the NLRB will not tag a franchisor as a joint employer if it continues to employ the best practices we’ve advised all along – exercise only necessary controls and avoid getting involved in franchisee employment matters.  

What yet remains to be seen is the DOL's view on joint employer status.  This may be of even greater concern given the DOL's significant changes to the white collar employer exemption, which we describe below.