In August, 2015 the National Labor Relations Board (NLRB) sent shockwaves throughout the U.S. franchising community when the Board’s majority in its Browning-Ferris opinion concluded that a company that possessed even an unexercised right to assert indirect control over an employee’s essential terms of employment could be a joint employer with the direct employer.
A joint employer could be liable for certain unfair labor practices. Moreover, as a joint employer, both the joint employer and the direct employer could be required to collectively bargain with the direct employer’s employees.
Franchisors and franchisees have been frightened that to avoid liability, franchisors would either abandon all support and direction to franchisees related to their labor practices, or they would assert direct controls over franchisees’ business operations, depriving franchisees of the independent decision-making over ordinary business practices that is the hallmark of being a small business owner. Both franchisors and franchisees feared being unionized and forced into some as-yet-unknown form of collective bargaining with franchisees’ employees.
The International Franchise Association has lead a business coalition to overturn the Browning-Ferris decision, arguing that only direct control over essential employment terms should be the standard for determining whether a company is an employer. Although efforts to change the law in Congress have not succeeded, the NLRB itself, now dominated by a majority of Republican-appointed commissioners, has proposed to adopt a rule defining “joint employer.” In its notice of proposed rulemaking, the NLRB set out its proposed to revert to the joint employer standard that had been embraced by the Board between 1985 and its Browning-Ferris decision.
“An employer may be considered a joint employer of a separate employer's employees only if the two employers share or codetermine the employees' essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees' essential terms and conditions of employment in a manner that is not limited and routine.”
The US Circuit Court for the District of Columbia on Browning-Ferris Industries of California, Inc. v. National Labor Relations Board 2018 WL 6816542 (D.C. Cir. Dec. 28, 2018) recently decided the appeal of the NLRB’s Browning Ferris decision that was argued in March of 2017. Although the decision was expected to either clarify or reject the NLRB’s August 2015 decision holding that a company could be a joint employer if it had an unexercised right to directly or indirectly control an employee’s terms and conditions of employment, it did neither. Rather, while agreeing that evidence of indirect control or unexercised control over the essential terms of employment is the correct standard for determining the existence of a joint employment relationship, the court remanded the case to the NLRB to distinguish between restrictions on essential employment terms and controls that are “intrinsic to ordinary third-party contracting relationships”
The court also held that the joint employer test also requires the Board to find that the controls of the putative joint employer over employment terms and conditions will permit meaningful collective bargaining over those terms.
In a 2-1 opinion, the court majority determined that the definition of “employer” is a common law concept that is exclusively within the purview of courts to decide. The courts owe no deference to decisions of the NLRB relating to the definition of employer or employee. Overruling nearly thirty years of NLRB decisions, the court concluded that the NLRB’s “right-to-control standard is an established aspect of the common law of agency,” and upheld the general theory on which the Board decided Browning-Ferris.
The court found the Board’s decision deficient in two respects, which it must address on remand:
1. The Board must “differentiate between those aspects of indirect control relevant to status as an employer, and those quotidian aspects of common-law third party contract relationships” that do not relate to essential terms of employment.
2. After finding the elements of joint–employer status, the Board must then determine which of those elements of control over essential terms and conditions of employment permit meaningful collective bargaining. Moreover, the Board must “clarify what “meaningful collective bargaining’ might require in an arrangement like this.”
As a consequence, on remand, what constitutes “indirect control” in the context of the parties to the case will be addressed. Unfortunately, the court gave little guidance to the Board about how to do that. Even if it does articulate the indirect control standards in the context of the BFI business, it is unclear how those standards will apply to indirect controls commonly found in franchise relationships.
The Board will also need to explain how collective bargaining over essential employment terms can be conducted in the case of the relationship between Browning-Ferris and Leadpoint, the direct employer of employees in the NLRB’s case. How collective bargaining might occur in franchise relationships remains unaddressed, and will most likely remain unaddressed when the Board issues its next Browning-Ferris decision.
How does the decision affect the NLRB’s proposed joint employer rule? The joint employer standard in the proposed rule differs from the court’s joint employer definition. The NLRB will need to decide whether it should revise the proposed draft to adopt the court’s standard and whether to focus its attention on establishing rules relating to the definition of “indirect control” and how the collective bargaining process would work when joint employers are involved.
Far from resolving the joint employer issue at the NLRB, the DC Circuit’s opinion has merely redirected the inquiry.
Carl E. Zwisler, IDI country expert for franchising in USA