Franchisors Risk Liability as “Joint Employer” Under NLRB Decision

Browning-Ferris Industries of California, Inc. 362 NLRB No. 186 (Aug. 27, 2015)

As one commentator noted, the most important franchise case of 2015, Browning Ferris,” isn’t a franchise case”.  By a 3-2 vote, the U.S. National Labor Relations Board (NLRB) overturned 30 years’ of precedent in adopting a new, broader, more lax definition of “joint employer”.

According to the new standard, a joint employer is no longer required to exercise “direct and immediate” control over the terms and conditions of workers’ employment. Instead, “indirect”, and even “reserved” control, have the potential to establish joint-employer status.

Given the uncertainty created by the NLRB’s decision, which has implications beyond unionized workplaces, and until the decision plays out in court cases, appeals and legislative action, franchisors should ensure that:

  • franchise agreements and operations manuals do not authorize the franchisor to exercise control over franchisees’ employment practices even if such control is not actually – or ever – exercised; and
  • franchisors do not themselves or through third parties, exercise control over (i.e., significantly influence) franchisees’ “employment practices”, including hiring, firing, discipline, supervision, direction of work, hours, and wages.


January 21, 2016

On January 20, 2016, the U.S. Department of Labor issued detailed “guidance” setting forth the Obama Administrations view of what constitutes a “joint employer” and when a firm can be held liable for labor law violations of a staffing agency or contractor it hires, or the conduct of the firm’s franchisees.

The guidelines focus on the “economic realities” of the relationship – whether the employees of the contractor or franchisee are “economically dependent” on the firm or franchisor. The guidelines provide examples of when a “horizontal” joint employer relationship will be deemed to exist, and list several factors relevant to determining if a “vertical joint employer” relationship exists.

The Administrator of Department’s Wage and Hour Division noted that the guidance is in response to the increasing variety of arms-length relationships between companies and workers.

The guidelines are not legally binding, nor are they entitled to the deference sometimes accorded formal regulations, however, they maybe useful to employers and franchisors seeking to address potential issues proactively.

“Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act.”

Administrator’s Interpretation No. 2016-1 (PDF) January 20, 2016.