franchising update: nlrb and the joint employer threat · intro re: joint employer issue...
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Franchising Update: NLRB and the Joint Employer Threat
Presented by
Mark S. VanderBroek
Daniel M. Shea
Nelson Mullins Riley & Scarborough LLP
January 12, 2016
Nelson Mullins Riley & Scarborough LLP
Intro Re: Joint Employer Issue
Franchising model: franchisor licenses trademark and
operating methods (system) to franchisees.
Franchise agreement/manuals: franchisor controls
goods/services sold by franchisee.
Trademark law: requires licensor control.
But too much franchisor control over franchisee risks:
Franchisor as joint employer of franchisee
employees
Franchisor liability for franchisee actions
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Nelson Mullins Riley & Scarborough LLP
Overview of Joint Employer Issues
1. Employment Risks
A. National Labor Relations Board (NLRB ) Activity
Attack on McDonald's
Browning-Ferris Decision
Freshii Advice Memorandum
B. Potential Issues Under Other Employment Statutes
Title VII, Civil Rights Act
Fair Labor Standards/Family and Medical Leave Act
2. Franchisor Vicarious Liability Risks
3. Minimizing Joint Employer Risks
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Nelson Mullins Riley & Scarborough LLP
Employment Risks – NLRB
NLRB – Background re: Joint Employer Standard
Supreme Court has indicated the common law test should be used
under the NLRA, ERISA and a number of the discrimination laws.
NLRB v. United Ins. Co. of America, 390 U.S. 254, 256 (1968).
Common law test is fact specific and considers many factors.
Particular focus on putative employer's control of “manner and
means of performing the work,” but no one factor is
determinative.
Courts have also identified "entrepreneurial opportunities" as the
touchstone of the common law test – whether the putative
independent contractors have a "significant entrepreneurial
opportunity for gain or loss." FedEx Home Delivery v. NLRB, 563
F.3d 492 (DC Cir. 2009).
NLRB recently attempting to expand joint employer standard.
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Nelson Mullins Riley & Scarborough LLP
Employment Risks - NLRB
McDonald's Complaints (2014)
NLRB issues complaints against McDonald's and franchisees for
unfair labor practices (retaliation for union organizing activities).
Charge that McDonald's a "joint employer" so jointly liable.
Important factors (per NLRB General Counsel):
McDonald's own and leases real estate (control and policing of
on-site union activities).
McDonald's Involvement in franchisee employee scheduling.
- Real time scheduling management software.
- Franchise consultants ensure compliance.
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Nelson Mullins Riley & Scarborough LLP
Employment Risks - NLRB
NLRB Browning-Ferris decision (August 2015)
Overruled 30 years of precedent, and established broad standard for
who can be deemed joint employer of an employee.
Old Standard: Whether party had direct and immediate control
over the employee. Laerco Transportation, 269 N.L.R.B. 324
(1984)
New Standard: Control need not be immediate and direct over
employee, where party preserved authority to control.
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Nelson Mullins Riley & Scarborough LLP
Employment Risks – NLRB
BFI had 60 employees at recycling facility and contracted with
temporary labor supplier for 150 additional employees.
BFI involved in hiring, wages, discipline and other employee
controls.
The Union (IBT) wanted to represent all 210 employees.
NLRB reversed ALJ and found joint employer relationship
holding that collective bargaining would be hindered without
BFI.
BFI decision is far from over and is part of continuing policy of
current administration to help unions organize workers to reverse
decline of organized labor by giving employee status to temporary
workers, independent contractors and supervisors.
Not a franchise case; BFI unlike typical franchise setting. 7
Nelson Mullins Riley & Scarborough LLP
Employment Risks – NLRB
Freshii Advice Memorandum (NLRB General Counsel Office, April 2015)
Facts re Freshii Franchise System:
Standard Franchise Agreement
Operations Manual – includes suggestions but not requirements
for employee hiring, scheduling and management
Required POS system but no labor scheduling component
Development Agents – handled training and inspections
No evidence Freshii guiding franchisee on possible union
organizing campaign
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Nelson Mullins Riley & Scarborough LLP
Employment Risks (con't)
Freshii Advice Memorandum (NLRB General Counsel Office, April 2015)
NLRB: Freshii not a joint employer
Under NLRB then-current standard – because no evidence
Freshii shares or codetermines matters governing essential
terms/conditions of employment of franchisee employees
Under NLRB new (Browning-Ferris) standard – because Freshii
not significantly impacting working conditions of franchisee
employees
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Nelson Mullins Riley & Scarborough LLP
Employment Risks – Other Statutes
Title VII of the Civil Rights Act of 1964
In 1997 guidance to staffing agencies, Equal Employment Opportunity
Commission (EEOC) pointed out that two entities qualify as joint employers
of the worker "where both have the right to exercise control over the workers
employment." 2 EEOC Compl. Man. §605 (BNA).
Third Circuit in Faush v. Tuesday Morning, Inc., (2015) found retail client of
staffing agency could be considered temporary worker's employer where
retailer supervised worker's day-to-day performance, provided training, and
kept track of worker's hours (claim for alleged discrimination by retailer).
In Betts, et al v. McDonald's Corporation (Va.), employees of franchisee sued
for race discrimination and harassment. McDonald's named a co-defendant
citing the workforce software, operating manuals, employee surveys,
corporate assessment of applicants prior to hiring, and other factors
including the Franchise Agreement.
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Nelson Mullins Riley & Scarborough LLP
Employment Risks – Other Issues
Fair Labor Standards Act/Family and Medical Leave Act
FLSA/FMLA case law has not crystallized around a fixed set of common law test
factors, but more on "totality of circumstances" including "economic realities"
rather than a checklist.
Six frequently-cited factors for joint employer - including degree of control
exercised by alleged employer over employee.
DOL regulations:
When parties are "joint employers" each will be liable "individually and
jointly, for compliance with all of the applicable provisions of the
FLSA…with respect to the entire employment for the particular work
week." 29 CFR § 791.2(a).
Where two or more businesses exercise some control over work
conditions of the employee, the business may be joint employer under
FMLA." 29 CFR § 825.106(a).
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Nelson Mullins Riley & Scarborough LLP
Franchisor Vicarious Liability Risks
Franchisor Vicarious Liability for Acts of Franchisee or
Franchisee Employees
Courts analyze under one of two tests:
Means and Manner Test. Whether franchisor controls the
means and manner of operation of franchisee's business.
Domino's Pizza, Inc. v. Parker (Fla.) – plaintiffs injured by
Domino's franchisee delivery driver. Court ruled franchise
agreement and operating manual evidenced sufficient
control by franchisor to raise question of fact regarding
liability.
Pizza K v. Santagata (Ga.) – similar facts, franchisor not
liable because didn't control time and manner of franchisee
work or supervision of delivery drivers. 12
Nelson Mullins Riley & Scarborough LLP
Franchisor Vicarious Liability Risks
Instrumentality Test. Whether franchisor controlled the
instrumentality that caused harm to the plaintiff.
Hong Wu v. Dunkin Donuts, Inc. (N.Y.) – franchisor
not liable for assault on franchisee employee. Did not
control instrumentality that caused harm, because it
did not mandate specific security measures.
Keri v. Rasmussen (Wis.) – franchisor not liable for
franchisee employee who left work and shot ex-
girlfriend. Franchisee had sole control over hiring
and supervision of employees.
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Nelson Mullins Riley & Scarborough LLP
Minimizing Franchise Joint Employer Risks
General Conclusions re: Joint Employer Issues
Joint employer standard is changing
It's all about "degree of control"
Very fact dependent
Suggestions to Minimize Risks
Review/revise franchise agreements
Audit /revise operations manuals
Review training programs and field practices
No mandated employee scheduling software
Other 14
Nelson Mullins Riley & Scarborough LLP
Franchising Update: NLRB and the Joint Employer Threat
Thank you!
For copy of PowerPoint or Freshii NLRB Memorandum:
mark.vanderbroek@nelsonmullins.com 404-322-6675
daniel.shea@nelsonmullins.com 404-322-6229
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