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National Labor Board Reverses Joint Employment Decision in Browning-Ferris

The International Franchise Association received an early Christmas present last Thursday when the National Labor Relations Board overruled its 2015 Obama-era decision by a 3-2 vote in the closely watched Browning-Ferris Industries case concerning the controversial topic of "joint employment."

The issue was whether unions and workers could hold franchisors and other business groups accountable for employment practices of franchisees, independent contractors and staffing agencies.

"We applaud the NLRB for reversing the Browning-Ferris standard which caused needless confusion and uncertainty for America's 733,000 franchise businesses and 7.6 million employees," IFA's senior vice president of government relations & public affairs Matt Haller stated in a press release. He added, "Today's decision helps create certainty for franchisors and franchisees in the in the near term and highlights the need for long-term certainty in this area. Clearly, the board majority agrees with a significant bipartisan majority of House members who voted last month to create a bright line joint employer test in both the NLRA and FLSA (Fair Labor Standards Act) by passing the Save Local Business Act. We urge the Senate to act swiftly to codify this direct control standard, so the franchise sector can remain the job creating and economic opportunity generating powerhouse that it has always been."

History of the previous ruling

The case revolved around Browning-Ferris Industries (BFI), a California-based recycling company, that used the staffing services of Leadpoint, currently known as Republic Services. In the 2015 decision, the NLRB found that BFI was a joint employer with Leadpoint, the company that supplied its cleaning and sorting of recycled products employees. The board relied on indirect and direct control that BFI possessed over essential terms and conditions of employment of the workforce supplied by Leadpoint, as well as BFI's reserved authority to control such terms and conditions.

NLRB had ruled 3-2 in August 2015 to redefine its standard for determining joint-employer status. The board explained at that time that the revised edition was designed "to better effectuate the purposes of the [Fair Labor Standards] Act in the current economic landscape." Its Office of Public Affairs explained, "With more than 2.87 million of the nation's workers employed through temporary agencies in August 2014, the board held that its previous joint employer standard has failed to keep pace with changes in the workplace and economic circumstances."

Politics at work

With a new administration in the White House, things are changing. Business Insider reported last week that the labor board's newly minted Republican majority members overturned the Obama-era ruling "that had irked business groups by making it easier for unions and workers to hold companies accountable for the practices of staffing agencies, contractor and franchisees with which they partner." It explained, "Many companies use franchising or contract labor in part to avoid the costs and responsibilities of directly employing workers. But a company found to be a joint employer can be required to bargain with unions and may be held liable for labor law violations by contractors, staffing agencies or franchisees."

President Donald Trump appointed two Republicans to the five-member NLRB earlier this year, giving his party a 3-2 majority for the first time in a decade. Business Insider stated that Trump's appointees, who joined the board in August and September, are widely expected to revisit a series of recent NLRB decisions that business groups say unfairly favored unions.

After last Thursday's ruling, the board stated the Democratic majority in Browning-Ferris "overstepped its authority by altering the legal definitions of employment." The two Democrats on the NLRB dissented saying "the [2015] decision was legally sound," explaining that the [current] majority failed to provide any "real-world examples or even remotely plausible hypotheticals" that show how the Browning-Ferris standard negatively affected businesses."

Last Thursday's NLRB majority said that while the panel in Browning Ferris Industries was driven by a "well-intentioned" desire to protect employees' collective bargaining rights with third parties, the standard it created has five major problems. They include that the BFI test exceeds the board's statutory authority and that the change the board wrought regarding the NLRA's definition of 'employer' is solely within the province of Congress."

In the 3-2 vote, the board's Republican members overturned the standard set in BFI that under the National Labor Relations Act, a company and its contractors or franchisees can be deemed a single joint employer even if the company hasn't exerted overt control over workers' terms and conditions.

"We return today to a standard that has served labor law and collective bargaining well, a standard that is understandable and rooted in the real world," the board majority said. "It recognizes joint employer status in circumstances that make sense and would foster stable bargaining relationships."

The majority was composed of NLRB Chair Philip Miscimarra, who penned a dissent in BFI, and the board's two newest members, Bill Emanuel and Marvin Kaplan. Democratic members Mark Gaston Pearce and Lauren McFerran, who were both in the majority in BFI, issued a joint dissent. [Note: Today, the NLRB announced that tomorrow is the last day of Chairman Miscimarra's term. The board thanked him for his "leadership and commitment to employees, employers, and unions of our great nation and to our Agency."]

Washington Free Beacon reported that the new ruling earned the praise of management-side labor lawyers. Michael Lotito, a veteran attorney at Littler Mendelson, said the board ruling would give employers more certainty over their dealings with employees and rein in an agency that had increasingly gone beyond the letter of the law. He criticized the 2015 NLRB for exceeding its authority to create policy, rather than enforce the letter of the law laid down by Congress in the National Labor Relations Act and Fair Labor Standards Act.

"Agencies are making law that Congress should be enacting," he told Free Beacon. "What the board did was a very welcome development. What is disconcerting is why [the new ruling] was necessary. … The agency is supposed to be subservient to Congress, accountable to them and they've evolved in a way that is accountable to no one."

Senator Lamar Alexander (R., Tenn.), chairman of the Senate Committee on Health, Education, Labor & Pensions, also praised last week's ruling. Free Beacon reported that one of the largest issues facing the new regulatory regime was that franchise corporations would freeze out young entrepreneurs who did not have access to expensive insurance and lawyers in favor of larger, more established employers.

Senator Alexander expressed that the reversal would allow smaller players access to the marketplace.

"The Obama NLRB's decision changing the joint employer standard was the biggest attack on the opportunity for small businessmen and women to make their way into the middle class that anyone has seen in a long time—threatening to destroy the American Dream for owners of the nation's 780,000 franchise locations," Alexander said in a statement. "Our committee worked to confirm two board members this year with the goal of restoring fairness to the board, and today's decision by the Board in the Hy-Brand Industrial Contractors case is good news for all Americans."

IFA's Matthew Haller emphasized that the industry welcomes the change, but wants to go a step further to prevent future regulators from overturning the decision.

"The decision, while important and a huge victory for rationale thought, simply makes the case for Congress to finish the job," Haller said. "No one wants to have two bosses, and there is still great uncertainty under the FLSA, or under a future NLRB, with respect to joint employment."

Not everyone praising NLRA's latest ruling

Chicago Tribune reported last Saturday that for McDonald's Corporation, the largest franchise operator in the world, the new ruling by the NLRA last week is not only a validation of its model, but it bodes well for a decision in a separate case NLRB staffers are pursuing that challenges the corporation's liability. It said, "The agency in 2014 issued 13 complaints against McDonald's and some of its franchisees, calling them joint employers and alleging they violated labor rights of employees at various restaurants nationwide."

The Tribune then explains, "McDonald's only runs about 10 percent of its 14,000 U.S. restaurants. The rest are operated by franchisees, who McDonald's says are independent operators who control things like setting prices and wages. But McDonald's still tells franchisees how to operate their restaurants, providing direction on everything from how to staff locations to when to clean the bathrooms. McDonald's declined to comment."

The report also quoted Christine Owens, executive director of the National Employment Law Project, a labor advocacy group, saying, "In this economy, employers are increasingly subcontracting out vital parts of their business to other contractors and/or using temporary employment agencies to fill vital positions. Browning-Ferris rightly held these companies responsible for the labor standards under their own control. With this reversal, the Trump NLRB has decided to let them off the hook."

As a sideline, the Tribune reported, "Also Thursday, a Chicago appeals court ruled that Jimmy John's workers can sue both the sandwich chain's franchisees and the company itself in a class-action case that alleged the employees weren't paid for all the overtime they worked.


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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.