Recent NLRB Decision Could Have Detrimental Impact On Franchisor and Franchisee Arrangements

by | Dec 24, 2018 | Blog

The recent Browning-Ferris Industries decision issued on August 27, 2015 by the National Labor Relations Board (NLRB) is a critically important decision because it has overturned an over three decades long “joint employer” standard. This case involves Browning-Ferris Industries (BFI)’s use of an outside staffing firm. The union sought to represent the workers employed by the staffing firm and argued that they should be deemed employees of BFI and thus able to be part of the union.

According to the old standard, a company utilizing the services of employees of another company would not be considered a joint-employer unless it had direct control over the employees’ working conditions, such as the direct ability to hire and fire employees. Based on this new decision and standard, two or more employers are considered joint employers if they share or codetermine those matters governing the essential terms and conditions of employment. It is somewhat unclear now what are considered the essential terms and conditions of employment”. As the Court’s decision states, the essential terms and conditions of employment certainly include, hiring, firing, discipline, supervision, and direction,” but the NLRB states that it intends to be inclusive and that this list is non-exhaustive. Hence, many employers, particularly within the franchise and outside staffing contexts, are very nervous by the NLRB’s so-called non-exhaustive list. Indeed, if a company is deemed a joint employer, it could then be subject to collective bargaining and a large variety of employment-related claims formally reserved for the direct employer.

While this case doesn’t involve franchise arrangements, it is clear that the decision could have a detrimental impact on such arrangements in the franchise industry. Franchisors may start withdrawing valuable support and resources fearing that these resources may be used as evidence of control. On the one hand, franchisees are independent businesses and do not want the franchisor telling them who to fire or how to run their business on a day-to-day basis. On the other hand, franchisees generally expect resources from franchisors and enter into these franchise contracts to benefit from the brand name, experience and support. For a franchisor to maintain ownership and control of its trademark, it must protect the brand quality. If it loses this control, it can lose rights to its trademark. So trademark law and employment law appear to pull the franchise industry in opposite directions. Franchisors fear that certain support and controls create a risk that may make the franchisor a joint employer. T here are sure to be many cases in the future litigating this issue in many contexts including the franchise context.

References from Ross Eisenbrey’s BLOG at