August 20, 2019

August 20, 2019

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August 19, 2019

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New Texas Law Says Franchisors Generally Not Employers of Franchisees’ Workers

The Texas Labor Code has been amended to provide that a franchisor is not considered an employer for claims related to employment discrimination, wage payment, the Texas Minimum Wage Act, and the Texas Workers’ Compensation Act, among other laws. According to S.B. 652, this is so unless the franchisor has been found by a state court of competent jurisdiction to have exercised a type or degree of control over its franchisee or its franchisee’s employees not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand. The amendment goes into effect on September 1, 2015.

The bill was introduced by state Senator Charles Schwertner, reportedly because of franchisors’ concerns that recent National Labor Relations Board actions targeted franchisors for franchisees’ labor law violations. The NLRB’s General Counsel has issued unfair labor practice complaints asserting that certain franchisors are “joint employers” with their franchisees who allegedly have violated employees’ rights. This has opened franchisors to lawsuits for the actions of franchisees, critics assert. Current NLRB decisions treat two companies as joint employers only if both exercise a significant degree of direct control over the same employees. Direct control requires that putative joint employers have control over terms and conditions of employment of the subject employees. This includes hiring and firing, setting work hours, determining compensation and benefits, and exercising day-to-day supervision.

Senator Schwertner commented that the NLRB actions “called the common understanding of a franchisor-franchisee relationship into question….” That common understanding is that a franchisee is responsible for all employment decisions regarding employees of the franchisee and the franchisor has no interaction with or authority over the franchisee’s employees.

Despite the new law’s protection for franchisors in Texas, it is uncertain how the exception — in this case, the type of control exerted by a franchisor that is not customarily exercised to protect a franchisor’s trademark and brand — will be interpreted. Although the NLRB General Counsel’s actions may have been the catalyst for the new Texas law, because of the strong pre-emptive reach of the NLRA, it is unlikely that the law will affect NLRB decision-making about joint employment. Many believe the Board's analysis of the issue is likely to change in the not-too-distant future. In a brief filed with the Board in connection with Browning-Ferris Industries (Case 32-RC-109684), the NLRB’s General Counsel has urged the Board to abandon the current “direct control” joint-employer standard and replace it with a “totality of the circumstances” test — one based on whether an alleged joint-employer exercises either direct or indirect control over the subject employees who work for another employer, and even to consider whether the alleged joint-employer has “unexercised potential to control working conditions” of those employees.

Jackson Lewis P.C. © 2019

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About this Author

Kristin L. Bauer, Jackson Lewis, employment agreements lawyer, non solicitation issues attorney
Principal

Kristin L. Bauer is a Principal in the Dallas, Texas, office of Jackson Lewis P.C. She represents management exclusively in workplace law and related litigation.

In addition to handling an active employment litigation docket, Ms. Bauer counsels management on preventive strategies, including termination decisions, investigations, employment agreements, non-compete and non-solicitation issues, wage and hour laws, policies and handbooks, and other issues affecting the workplace. She also provides advice and counsel to...

(214) 520-2400
Philip B. Rosen Jackson Lewis  Preventive Practices Lawyer & Collective Bargaining Attorney
Principal

Philip B. Rosen is a Principal in the New York City, New York, office of Jackson Lewis P.C. He is a member of the firm's Board of Directors and co-leads the firm's Labor and Preventive Practices Group. He joined the firm in 1979 and served as Managing Partner of the New York City office from 1989 to 2009.

Mr. Rosen lectures extensively, conducts management training, and advises clients with respect to legislative and regulatory initiatives, corporate strategies, business ethics, social media, reorganizations and reductions-in-force, purchase/sale transactions, sexual harassment and other workplace conduct rules, compliance with the Americans With Disabilities Act, wrongful discharge and other workplace litigation, corporate campaigns and union organizing matters, collective bargaining, arbitration and National Labor Relations Board proceedings. He has been quoted by the press on many labor matters, including the National Labor Relations Board’s recent initiatives on protected concerted activity and the proposed Notice Posting requirements.

Mr. Rosen has extensive experience advising clients developing integrated corporate-wide labor relations strategies - whether the organization is union-free, partially unionized or entirely unionized. He has led teams conducting multi-facility labor-related legal assessments where clients are seeking to develop creative, strategic legal approaches which anticipate major issues and achieve a company’s labor relations goals. Mr. Rosen also has advised clients being confronted with corporate campaigns and requests for neutrality agreements. He has represented organizations seeking to maximize management rights through their development of pro-active employee relations approaches to remain union-free. He also has advised unionized organizations on lawful negotiating strategies – in situations ranging from “hard bargaining” to recapture management rights to more “cooperative” negotiations – in all cases, providing legal advice designed to assist clients in achieving their primary goals.

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