As government agencies steadily expand the concept of joint employment, franchisors increasingly find themselves in a difficult position. Since August 2015, when the NLRB ruled in Browning-Ferris that entities with the ability to exercise direct or indirect control over workers can be joint employers (prior blog post here), franchisors have experienced increased scrutiny from both federal agencies and the courts. Indeed, on the heels of the NLRB’s decision, the Department of Labor issued guidance concerning the FLSA which announced a similarly broad understanding of joint employment (prior blog post here). Moreover, in a recent amicus brief submitted in connection with litigation challenging the Browning-Ferris decision, the EEOC advised the D.C. Circuit Court of Appeals that the NLRB’s interpretation is consistent with the EEOC’s interpretation of joint employment with respect to Title VII.

Two of the nation’s largest franchisors, McDonald’s and Subway, have settled claims brought against them as joint employers with their franchisees. In what appears to be a first for the company, McDonald’s recently paid $3.75 million to settle a proposed wage-and-hour class action brought by its franchisees’ employees in California. Additionally, McDonald’s continues to experience intense scrutiny for its franchisees’ labor practices; the company is currently defending itself in a consolidated labor proceeding in which 30 franchisees’ are alleged to have committed nearly 200 unfair labor practices. Meanwhile, Subway has voluntarily entered into a unique agreement with the Department of Labor under which the company will, among other things, provide education and guidance to franchisees regarding compliance with the FLSA. Prior to this agreement, which was reached in August 2016, Subway franchisees had been embroiled in wage-and-hour investigations, resulting in the payment of millions of dollars in unpaid wages. Some commentators have voiced concern, however, that the education and guidance Subway agreed to provide under the settlement, may be used as evidence of precisely the type of control which has been found to create franchisor liability under the theory of joint employment.

Franchisors concerned about liability under the labor and employment laws therefore find themselves in a catch-22: if franchisors take affirmative action to ensure franchisee compliance with the law, they risk generating evidence of joint employment; but if they do nothing, franchisees may flout the law and expose franchisors to additional investigations and lawsuits. Given the current legal landscape, franchisors must walk a fine line to avoid liability on a theory of joint employment – a line that is not yet clearly fixed.

Notably, issues of joint employment are not limited to franchisors; they impact employers in all industries. Accordingly, if you have any questions about any of the topics discussed herein, you are encouraged to reach out to your attorney. Akerman attorneys are monitoring these trends closely and are available to provide counseling and advice regarding the latest developments in labor and employment law.