Law 360: Lawmakers Ask NLRB For Franchise Joint-Employer Clarity

A group of congressional Democrats has asked the National Labor Relations Board to clarify the standard for determining joint employment in franchisor-franchisee relationships in light of its Browning-Ferris decision finding joint employment when more than one company has the authority to control the terms and conditions of employment.

The letter sent Monday to NLRB Associate General Counsel Barry Kearney wants to know whether the NLRB’s April 2015 memorandum — concluding that Freshii Development LLC was not jointly liable with a Chicago franchisee — could be used as a “blueprint” for other franchise systems, notwithstanding the Browning-Ferris decision later that year.

Under the August 2015 Browning ruling, if an entity reserves the authority to control the terms and conditions of employment over another entity — even if it is not exercised — then it’s considered a joint employer.

“We have heard from constituents and other stakeholders concerned about whether, and to what extent, they can rely on the Freshii memorandum as a blueprint for clear guidance on the joint employer issue in the franchisor-franchisee relationship,” states the letter, signed by 13 Democrats from the House of Representatives.

“Uncertainty remains as to whether businesses may rely on the Freshii guidance because the memorandum appear fact-specific to Freshii’s circumstances[,] and the NLRB’s new joint employer test outlined in Browning-Ferris created a new standard for all businesses including franchised businesses,” the letter says.

The leading signatory, Rep. Scott Peters, D-Calif., said in a written statement provided to Law360 that businesses, especially small businesses, need certainty.

“Franchisees and franchisors deserve clarity as they continue working to grow successful businesses and create jobs,” Peters said.

The International Franchise Association applauded the legislators’ efforts to hone in on the joint employer rule.

Suzanne Beal, the organization’s assistant vice president of government relations and public policy, said the businesses deserve as much “clarity and certainty” as possible.

“Locally owned businesses are not comforted by unpredictable, individual analyses based on an extremely broad joint employer doctrine,” Beal said in a written statement.

The House Democrats’ letter notes that the Freshii memorandum concluded that the franchisor and franchisee were not joint employers — then the curveball Browning Ferris standard was adopted. The discrepancy between the two makes it difficult for franchisors to assess potential liability under the joint employer concept, the letter states.

“Understandably, the franchisors are seeking clarity with respect to their potential exposure for franchisee misconduct, as the Freshii franchisor-franchisee relationship differs significantly from many franchise arrangements,” the lawmakers state. “For example, while the Freshii franchisee did not use the franchisor’s sample employment policy-handbook, it is common in other franchise relationships for franchisees to utilize franchisor-recommended policies and procedures to enhance their prospects for success.”

Franchisees are also struggling to determine how the NLRB will rule on the joint employer question, the letter states.

“They are concerned that some franchisors, fearful of the uncertain landscape, may turn away from offering new franchisee opportunities[,] opting instead for corporate growth and related vertical integration, until a clear, bright line test exists for franchised businesses,” the letter states.

In light of the NLRB’s post-Freshii decision in Browning Ferris, the lawmakers asked how much “flexibility” franchisors have to “implement, articulate, and enforce brand standards” before they will have crossed the line into “control for joint employer purposes?”

The April 2015 NLRB advice memorandum came from the board’s Division of Advice, part of the Office of the General Counsel. It concluded that Freshii Development and a franchise development agent were not joint employers with Freshii franchisee Nutritionality Inc., which operates a Freshii store in Chicago and was accused of firing two employees for trying to unionize its workforce.

Freshii and Nutritionality didn’t qualify as joint employers under either existing NLRB law or the new standard proposed by General Counsel Richard Griffin in the separate case involving Browning-Ferris Industries of California Inc. and a staffing agency, according to the advice memo.

At the time of the memorandum’s release, management-side lawyers told Law360 that it didn’t do much to put to bed concerns about the NLRB adopting a new test under which more employers could qualify as joint employers, putting them on the hook for alleged labor law obligations and potentially saddling them with collective bargaining obligations.

The 10-page memo had more than three pages explaining why Freshii and Nutritionality were not joint employers under the NLRB’s current standard, but devoted just three paragraphs to analyzing why they didn’t qualify as joint employers under the standard advocated for by Griffin.

Under the general counsel’s proposed standard, joint employer status exists when a company has enough influence over the working conditions of the other entity’s employees so that meaningful bargaining couldn’t occur without that first company being present.


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