Parties Jockey for Position in Upcoming Joint Employer Litigation

As readers of the ELB know, the NLRB has been threatening to change the long established test for establishing joint employer status. Under current precedent, the Board must establish evidence that the franchisee “shares or co-determines” with the franchisor/corporate entity work matters governing the essential terms and conditions of employment of franchisees’ employees.”

Now, the NLRB  seems determined to ignore years of precedent and change the standard for determining joint employer status to one of considering the “totality of circumstances.” This test looks at the way the separate entities have structured their commercial relationship. If the “putative joint employer (the corporate entity) wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence,” then it would be considered a joint employer. Most notably, corporate franchisor McDonald’s USA LLC has faced unfair labor practice (ULP) charges arising from an SEIU campaign targeting McDonald’s stores owned by franchisees and McDonald’s USA.

The ULP charges against McDonald’s USA stem from the ongoing campaign by the SEIU to establish a $15 per hour wage floor for fast food workers, and the topic has been in the press over the past several months. During this time, the SEIU argued that McDonald’s USA is a joint employer with its franchisees because the corporate entity exercises “substantial control” over its franchises. SEIU notes that McDonald’s frequently owns and leases the store buildings to franchisees, and also requires franchisees to follow strict corporate rules on food, cleanliness, and hiring.

In addition to its public pronouncements claiming that the charges do not establish a “joint employer” relationship, McDonald’s USA has buttressed its arguments in anticipation of the NLRB litigation. On April 1, 2015, McDonald’s USA announced that it will raise wages and allow paid leave for workers at its “company-owned stores,” but will not force these policies on franchised stores. McDonald’s USA is hoping that this action underscores the point that the corporate parent is not a joint employer with its franchisees.

The Legislative Response

The Congressional response to the anticipated change in the Board’s joint employer test is negative, to say the least. On March 5, 2015, two congressional labor committees questioned NLRB General Counsel Richard Griffin about his decision to pursue expanded joint employer liability in ULP cases, claiming that Griffin had previously stated that the grounds for doing so might be flawed. Specifically, on October 24, 2014, at a labor law conference sponsored by the University of West Virginia, GC Griffin admitted that franchise relationships raise “a problem, legally, for our theory.” Later, on March 4, 2015, Griffin told attendees at an ABA conference that he believed the joint employer claims against McDonald’s are supported by “long-standing NLRB precedent.”

To date, Griffin has not responded to the Congressional inquiries.

In the spring of 2015, in response to an attempt by the U.S. Chamber of Commerce to enjoin the “Quickie Election” Rules from taking effect, the Board filed for summary judgment in a D. C. District Court, claiming that the Chamber failed to meet its burden to establish that the questions of whether the rule deprives employers of both a fair hearing on critical election issues and an adequate opportunity to campaign are appropriately before the trial court.

The Agency said that the courts have shown “extraordinary” deference to the NLRB’s control over its representation case procedures, and judicial review in similar cases has been confined to determining whether an agency’s action has been “arbitrary, capricious or manifestly contrary to law.”

In addition, the Board argued, because the various parts of the rule change are justified by different rationales and perform different functions, even if the Chamber succeeded in all of its challenges, the Court should permit the remaining unchallenged provisions to be implemented.

The NLRB’s arguments substantially prevailed before the Court in a Motion for a Temporary Restraining Order (TRO). In refusing to temporarily restrain the rules change from taking effect, the Court rejected the argument that the NLRB requirement that the disclosure of employee information (i.e. – home phone numbers, addresses etc.) justified issuance of a TRO. The court said that the NLRB rule prohibited non-employer parties (i.e., unions) from using the voter information for purposes other than processing a representation petition. Stating that the employer failed to establish that any risk of information misuse was likely, or anything more than “speculative,” the Judge said the assertion of employee privacy interests did not support the TRO motion.

Now, the same judge that denied the TRO application is considering whether or not to permanently enjoin the rule changes. The injunction matter has been consolidated by the  judge  with  the  trade  association  filings  for  further consideration by the District Court. Oral argument occurred on May 15, 2015. At the hearing, the judge did not seem persuaded by the trade associations’ arguments for repeal of the election rule changes. The judge focused on the “ripeness” issue, and noted that the final rule gave the Regional Director discretion to permit the presentation of evidence at the pre-election hearing. The judge questioned why she should try to resolve the debate about submitting evidence in pre-election hearings if it turns out the Regional Directors allow, in fact, such evidence.

Pending legislative challenges to the implementation of the new election rules were vetoed by President Obama, and at least for now, the NLRB and employers are operating under the new rules.

NLRB Ups the Stakes in D. R. Horton Cases

Murphy Oil appealed an NLRB ruling that its mandatory arbitration agreements barring employees from pursuing class or collective actions was unlawful. In its appeal to the Fifth Circuit Court of Appeals, the Company contended that the Board simply ignored the Fifth Circuit’s previous ruling in D. R. Horton—which rejected the NLRB ruling and refused to enforce it—and, in effect, “doubled down” on its invalid rulings:

In defiance of [the Fifth Circuit’s] clear directive, on October 28, 2014, the Board issued its decision in Murphy Oil which reaffirmed the erroneous legal conclusions that the [NLRB] reached in D.R. Horton.

Claiming that failing to adhere to the Fifth Circuit’s decision amounts to “utter disregard for authority,” the Company urged the Court to issue a cease and desist order for its continuing non-acquiescence of the Court’s decision. Should that fail to stop the NLRB, Murphy Oil requests a finding of contempt against the NLRB.

In their briefs, Murphy Oil and amici participants noted that many cases are pending before the NLRB involving a class action waiver issue, and that many such cases involve employers with some or all of their operations within the Fifth Circuit’s jurisdiction.

Accordingly, unless [the Fifth Circuit] takes some proactive step to preclude the Board from explicitly defying [the Fifth Circuit’s] precedent in D. R. Horton, this forum will undoubtedly become the next stop for dozens of aggrieved employers seeking to challenge Board orders which are predicated upon the same faulty legal reasoning that the Board used to decide both D.R. Horton and Murphy Oil.

The Bottom Line

It remains to be seen if the Fifth Circuit agrees to the “extraordinary remedy” of a contempt finding, as the Board, over its history, has routinely ignored adverse court decisions. However, LMVT agrees with Murphy Oil that other employers accused of running afoul of the NLRA through adoption of arbitration agreements with class action waivers will likely seek review in the Fifth Circuit.

As Murphy Oil notes, there are dozens of pending cases at the Board involving a D. R. Horton issue; so it behooves the Fifth Circuit to at least consider a way to force the NLRB to appeal any adverse decision to the Supreme Court. A contempt ruling might force the Board’s hand. As you may recall, the NLRB unsuccessfully sought re-hearing at the Fifth Circuit after the appellate panel’s ruling in the original D.R. Horton case, but never sought review of the court decision before the Supreme Court – see the July 2014 ELB.