Joint Employer Relationships: Liability for Franchisors?

Joint employer liability has been and continues to be a hot-button topic for franchisors. An August 2015 ruling by the National Labor Relations Board (NLRB) further accelerated this issue, and has franchisors taking a scrupulous look at the degree of control they have over their franchisees and their employees, as well as other third parties.

What is Joint Employment?

Joint employment can exist when an employee is employed by two (or more) employers such that the employers are responsible, both individually and jointly, for compliance with applicable laws and regulations. This may include but is not limited to ensuring that each employee receives accurate and timely disclosure of employment terms and conditions, a written statement of earnings and deductions, and payment of wages when due, including applicable overtime pay. When statutory and regulatory obligations are not met, a franchisor and the franchisee can both be held liable where a joint employment relationship exists—and face potential penalties.

Joint Employment Standard: Then and Now

For more than 30 years, the National Labor Relations Act (NLRA) was interpreted by the NLRB to find joint employment where more than one employer had the authority to control terms and conditions of the employees’ employment, and to exercise the authority “directly” and “immediately” over issues such as hiring and termination, as well as employee management, supervision, and discipline.

The NLRB expanded its interpretation in the NLRB’s August 2015 Browning-Ferris Industries decision, which overturned a decades-long regulatory and legal precedent for determining whether a joint employer relationship exists under the National Labor Relations Act.

Franchises Already in Hot Water

Popular franchises may soon see the impact of this expanded interpretation of joint employment under the NLRA. McDonald’s Corp. is facing accusations of labor violations and wage and overtime claims at franchisee restaurant locations. Both the franchise and the parent company could be found liable in court over these claims.

Similarly, franchise employees at Friendly’s Ice Cream stores have filed complaints with claims of having to work unpaid during breaks and after clocking out following shifts. Employees are claiming that the parent corporation is involved in the day-to-day operations of franchise stores and is therefore subject to joint employment status. This means both the franchisor and franchisees could face trial.

How Franchisors Can Move Forward

Given the expanded interpretation of the joint employment standard by the NLRB, as well as the DOL and EEOC’s own definitions as applied to the laws they enforce, joint employer liability will remain a hot topic for franchisors.

Seek legal counsel now to review all agreements and policies to help determine how best to your mitigate liability. Encourage franchisees to retain the services of qualified professionals, including legal counsel and/or HR consultants or other third-party providers that offer payroll and outsourced employer functions that can assist them in their compliance efforts.

To help reduce the risk of being found jointly liable for franchisee employees while still maintaining essential quality controls, franchisors should consider:

• Recommending their franchisees implement a human capital management solution
• Encouraging their franchisees to utilize a time and attendance system
• Suggesting franchisees develop an employee handbook and have it reviewed by legal counsel for continued compliance with applicable federal, state, and local laws.
• Setting standards for use of the franchise trademark
• Offering franchisees a clear explanation of the franchise relationship that they may choose to provide to their employees to clarify the franchisee is their sole employer

And avoid:

• Getting involved in hiring or firing processes and decisions
• Mandating specific work schedules for franchisees
• Requiring franchisees to follow specific employee management procedures or policies
• Offering legal advice to franchisees or their employees