The National Labor Relations Board (“NLRB”) General Counsel – in a directive that is sending shockwaves – recently announced that McDonald’s could face liability as a “joint employer” for unfair labor practices committed by its franchisees. The directive signals a huge expansion of the joint employer doctrine and foreshadows significant exposure to franchisors in many industries.
For decades, the NLRB and federal courts have recognized that two entities constitute a “joint employer” under the National Labor Relations Act (“NLRA”) only where they share some significant degree of control over the essential terms and conditions of the employee’s employment, such as hiring, firing, discipline, and supervision.
On July 29, 2014, however, the NLRB General Counsel announced that McDonald’s, as a franchisor, could be jointly liable for alleged labor violations committed by its franchisee. At first blush, the Board’s assertion of joint employer liability appears inconsistent with the franchisor-franchisee business model. In the typical franchise arrangement, franchisors (such as McDonald’s) lease their trademarks to franchisees, who can use that name to provide goods or services in exchange for a fee. While the franchisor establishes high-level standards to protect their trademarks and to maintain some degree of brand consistency, they generally maintain a hands-off approach to managing day-to-day operations of the workplace and making employee management decisions.
With the NLRB General Counsel’s directive to McDonald’s, and the Board’s request earlier this year for briefs on the joint employer standard, the Board seems primed to forego the current standard in favor of a more expansive doctrine that places less emphasis on control over day-to-day employment decisions and more emphasis on overall control exercised by the franchisor, including control over significant economic and financial decisions.
While a formal opinion on the General Counsel’s finding of joint liability has yet to be issued, the practical effects of its decision are potentially far-reaching. Elements of control reflected in policies, directives, training requirements, and other acts—even if unrelated to on-the-ground employment decisions concerning franchisee employees—may expose franchisors to joint employer liability. Similarly, there is no analytical reason that the Board could not extend its logic to bargaining obligations—imposing on franchisors and parent companies an obligation to collectively bargain with local unions, or even paving the way for nationwide bargaining units.