Article main image
Jul 30, 2014

By Michael J. Lotito

In a move that could have a dramatic impact on the franchise business model, National Labor Relations Board General Counsel Richard Griffin has announced that his office intends to name a parent franchisor as a respondent in cases involving alleged unfair labor practices committed by franchisees if the parties are unable to reach a settlement.

According to the Board, the agency is currently investigating the various charges, and may name the franchisor company — fast food giant McDonalds  — as a joint employer should a complaint be issued.

How much control do franchisors have?

This decision comes as the Board is reviewing amicus briefs filed in a separate matter, Browning-Ferris. The NLRB solicited briefs to help it decide whether to adhere to its existing joint-employer standard or adopt a new one. Generally, under the current standard, legally separate entities that exert a significant and direct degree of control or co-determination over employees and their essential terms and conditions of employment are considered joint employers under the NLRA.

During last month’s House subcommittee hearing to address this issue, one witness said that this joint employer model should not apply to franchisors (like McDonalds) and their franchisees, as the franchisor-franchisee relationship is built on a division of roles and responsibilities, with the individual franchises independently running their businesses.

Franchisors set standards to protect their trademark and maintain product consistency, but franchisees are in charge of hiring, firing, and managing other aspects of the workplace.

If found to be joint employers, franchisors would be liable for the decisions and employment practices made by their individual franchises, forcing them to exert more control over day-to-day operations and workplace decisions.

Such a change could result in a complete overhaul of the franchise model.

Labor Dept. looking at the franchise model, too

The NLRB is not the only agency to have taken an interest in the franchise industry.

David Weil, the new Wage and Hour Division Administrator at the U.S. Department of Labor, was the principal investigator on a report for the DOL: Improving Workplace Conditions through Strategic Enforcement: Report to the Wage and Hour Division Strategic Enforcement.

In this paper, Weil claims that the “fissuring” of the employment relationship, particularly via franchises, contributes to wage and hour law noncompliance. During a Senate committee hearing to consider his nomination last year, Weil clarified that his concern is not with the franchise model per se, but rather with employers using franchising improperly as a means of subverting the law.

While the franchisor has not yet been named in an official complaint, the readiness of the NLRB General Counsel to consider it a joint employer should give many employers pause.

This was originally published on Littler Mendelson’s Workplace Policy Update blog. © 2014 Littler Mendelson. All Rights Reserved. Littler®, Employment & Labor Law Solutions Worldwide® and ASAP® are registered trademarks of Littler Mendelson, P.C.