The Changing “Joint Employer” Framework Poses Concerns for Franchisors
A recent Advice Memorandum published by the National Labor Relations Board (NLRB) provides clarity on how the Board might apply the NLRB General Counsel’s proposed joint employer test and how this new test differs in practice from the existing customary standard. Typically, courts and the NLRB have looked to the level of control a franchisor exercises over its franchisees in determining whether the franchisor is a joint employer. For example, if the franchisor retained power over hiring and firing decisions or set employees’ work schedules or work hours, the franchisor was more likely to be classified as a joint employer. A push by the NLRB’s General Counsel, however, seeks to make the term more inclusive such that franchisors would be considered joint employers even where their control over franchisees is limited.
In the Advice Memorandum, which is not binding as law, the NLRB analyzed whether a franchisor was a joint employer with its franchisee under both the current framework and the NLRB’s proposed standard. In the Memorandum, the NLRB concluded that franchisee Nutritionality, Inc. is not a joint employer with its franchisor Freshii Development, LLC or Freshii’s franchise development agent for the Chicagoland area. Under the current framework, the NLRB pointed to the fact that Freshii did not “meaningfully affect any matters pertaining to the employment relationship between Nutritionality and its employees.” For example, Freshii played no role in decisions regarding hiring, firing, disciplining or supervising employees or setting employees’ work hours. To the extent Freshii did control Nutritionality’s operations, it was limited to ensuring a standardized product and customer experience.
Under the NLRB General Counsel’s proposed new standard, which looks to whether the “putative joint employer wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence,” Freshii and Nutritionality were likewise not joint employers because Freshii did not directly or indirectly control the employees’ core terms and conditions of employment. As a result, meaningful collective bargaining between Nutritionality and any potential collective-bargaining representative of the employees could occur in Freshii’s absence. Although the current and new proposed standards are similar insofar in that they focus on the degree of control the franchisor exercises over the franchisee, the new standard would require franchisors to reevaluate whether the current arms-length relationship they have established comports with Board precedent for evaluating whether a related corporate entity is essential to having meaningful collective bargaining negotiations.
The McDonald’s litigation before the NLRB is another pending case where the joint employer definition is at issue. Since December 2014, the NLRB Office of the General Counsel has issued complaints against McDonald’s franchisees and their franchisor, McDonald’s USA, LLC, as joint employers for allegedly violating employees’ rights. Specifically, the complaints allege that the defendants engaged in “discriminatory discipline, reductions in hours, discharges, and other coercive conduct” in response to the employees’ union activities. The General Counsel issued the complaints against both the franchisees and the franchisor based on its finding that McDonald’s USA, LLC exercised sufficient control over its franchisees’ operations to make it a joint employer. Initial hearings before the NLRB began on March 30, 2015 to resolve some of the claims with additional hearings to resolve the remaining claims to be scheduled at a later date.
Another recent case, CNN America, Inc., provides some insight into how the NLRB might rule in the McDonald’s litigation. There, the NLRB concluded that CNN and its subcontractor Team Video Services were joint employers when CNN decided to insource work that was previously performed by Team Video Services’ unionized employees and, on March 20, 2015, rejected CNN’s motion for reconsideration. Given this outcome, speculation is that the NLRB likely will find against the franchisees and franchisor in the McDonald’s litigation, though whether it would do so on the basis of the existing joint employer standard or a new one is still unknown.
At least one court remains unpersuaded by the NLRB General Counsel’s proposed joint employer standard. In January 2015, the U.S. District Court for the Southern District of California in Vann v. Massage Envy Franchising, LLC granted summary judgment in favor of the franchisor Massage Envy, concluding that it was not a joint employer with its franchisees in response to allegations of California wage and hour law violations. The court focused on the fact that Massage Envy’s franchisees controlled employees’ wages and hours, possessed the exclusive right to control hiring and firing decisions, and served as the sole point of contact for employees. While Massage Envy distributed its Operations Manual to franchise owners; required massage therapists to pass a background check; and maintained policies on attire, the types of massages offered, what types of products could be used during a massage, and the types of conversation that should be had with clients, none of this was enough to establish that Massage Envy exercised the requisite level of control to qualify as a joint employer.
While it is too early to accurately determine how the appellate courts will eventually rule on the McDonald’s cases, there should be little question that the NLRB is preparing to apply its newly articulated standard in the months ahead. Given this changing landscape, it is important that franchisors stay up to date on these developments and reassess how their policies and procedures would fare under this new and somewhat radical attempt to expand the NLRB’s jurisdiction.
 Nutritionality, Inc. d/b/a Freshii, Nat’l Labor Relations Bd., Apr. 28, 2015, http://apps.nlrb.gov/link/document.aspx/09031d4581c23996.
 Id. at 6.
 The NLRB General Counsel proposed this standard in Browning-Ferris Indus. of California, Inc. See Amicus Brief of the General Counsel at 2, 16-17, Browning-Ferris Industries of California d/b/a BFI Newby Island Recyclery, Case 32-RC-109684 (June 26, 2014), http://apps.nlrb.gov/link/document.aspx/09031d45817b1e83. The case remains pending.
 Nat’l Labor Relations Bd., NLRB Office of the General Counsel Issues Consolidated Complaints Against McDonald's Franchisees and their Franchisor McDonald's, USA, LLC as Joint Employers (Dec. 19, 2014), http://www.nlrb.gov/news-outreach/news-story/nlrb-office-general-counsel-issues-consolidated-complaints-against.
 Nat’l Labor Relations Bd., McDonald’s Fact Sheet, http://www.nlrb.gov/news-outreach/fact-sheets/mcdonalds-fact-sheet.
 CNN Am., Inc., 361 NLRB No. 47 (Sept. 15, 2014).
 CNN Am., Inc., 362 NLRB No. 38 (Mar. 20, 2015).
 No. 13-CV-2221-BEN (S.D. Cal. Jan. 6, 2015) (order granting summary judgment).