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Franchisor and Franchisee: Two Peas In A Pod (But What Will The NLRB’s Ruling Really Produce?)

The National Labor Relations Board’s (NLRB) long-anticipated decision in Browning-Ferris Industries, 362 NLRB No.186, will dramatically impact business for companies ranging from leased employee staffing arrangements to franchisor-franchisee models.

The August 27, 2015 decision just turned 30 years of established precedent on its head. Since the mid-1980’s, the NLRB has followed a standard finding an entity to be a joint employer of another entity’s employees only if it had significant control over the employment terms of those employees, such as the right to hire, fire, discipline, supervise or direct the day-to-day methods by which employees completed their job duties.

Now, under Browning-Ferris, the Board formulated a new joint employer standard supported by the NLRB’s general counsel, who filed an amicus brief urging the Board to look at the economic realities of the employers’ business relationship upon employees in creating the new test. The dissent predicted that the new test will usher in a “sea change” in labor relations and business relationships.  In this instance, the dissent got it right!

The Decision

A Teamsters local sought to organize 240 individuals employed by a staffing company (Leadpoint Business Services) who were assigned to work at a sorting facility owned and operated by Browning-Ferris (BFI).

The contract between BFI and Leadpoint contained common staffing provisions. For example, it provided that Leadpoint would have sole responsibility for the recruitment, testing, hiring, supervision, evaluation, discipline and firing of its employees. In addition, BFI reserved the right to reject specific personnel offered by Leadpoint, set the hours of operations at the facility, determined which sorting streams would be run each day and set certain productivity standards to be met by Leadpoint employees.

The union sought to have Leadpoint and BFI determined as joint employers.  The matter came before the Board when the Teamsters appealed the determination of an NLRB regional director who applied the former standard and existing precedent and found Leadpoint and BFI were not joint employers. NLRB accepted the appeal, and it invited interested parties to weigh in on whether the standard should be changed, and if so, what the standard should be.

The New Joint Employer Test

The Board’s Democratic majority (Chairman Pearce and Members Hirozawa and McFerran) renounced its current standard, providing that it may find joint employer status if (i) both entities are employers within the meaning of the common law, and (ii) both “share or codetermine those matters governing the essential terms or conditions of employment.”  The Board acknowledged that its new standard is very fact-specific. Joint employer status can be found if the entity has the authority to control employees’ terms and conditions of employment, even if that authority is never exercised. Nor would the control need to be direct—control through an intermediary would suffice.

Applying this new standard, the Board found that BFI was a joint employer of the Leadpoint employees due to its direct, indirect or potential control, including:

  • BFI could reject personnel offered by Leadpoint, and required Leadpoint employees to be drug tested and to comply with BFI safety and productivity standards;

  • BFI impacted the Leadpoint employees’ work schedules by setting hours of operation, break times and both the number and speed of sorting streams running;

  • BFI impacted Leadpoint employee wages by dictating that such wages cannot exceed wages paid to BFI employees for similar work.

Impact For Franchisors and Franchisees

The potential impact of this case is far-reaching and will take years of Board proceedings and possible litigation to fully resolve.

Critically, the new standard threatens the franchisor-franchisee model which has been such a successful model in the American economy. Up until now, the Board has generally not found franchisors to be joint employers of its franchisees’ employees, even if the franchisor retained some control over the franchisees’ methods of operation. In this regard, the dissent stated that they were “concerned that the majority effectively finds that a franchisor even with this type of indirect control would be deemed a joint employer.” Most franchisors will share the dissent’s concern.

What’s Next In The Joint Employer Debate?

The Browning-Ferris decision leaves employers with more questions than answers.

The NLRB majority noted that a joint employer will only have to negotiate the terms and conditions of employment that it controls. But who determines who controls what terms? Who does the actual bargaining? What if one of the joint employers has an existing collective bargaining agreement covering other employees?  All of these questions remain unanswered.

As for BFI, there is no direct appeal as there would be in other types of cases. The ballots that were impounded pending the resolution of this case will now be counted. If the union is certified as the bargaining representative, BFI could refuse to bargain and be found guilty of an unfair labor practice.  Only then, could BFI appeal to a federal court of appeals and challenge this ruling. At the moment, it is expected that this is the route BFI will take. Only time will tell.

© 2022 ArentFox Schiff LLPNational Law Review, Volume V, Number 246

About this Author

Schiff Hardin represents management in labor matters and employment-related litigation, and provides counsel to employers with respect to all legal aspects of employer-employee relations. Our firm's labor law practice encompasses both the private sector and the public sector for large and small employers in a broad range of markets and industries. Our Labor and Employment Group works cooperatively with attorneys in our Employee Benefits and Executive Compensation Group to provide our clients with comprehensive assistance in every aspect of the employer-employee relationship.