Joint-Employer Provision: Small Business Models Under Attack

By Eric Oppenheim Jul 20, 2015

Recent National Labor Relations Board (NLRB) actions could mean big changes for companies, as well as HR professionals who are in the franchising business or subcontract labor. Since 1984, the NLRB has defined a joint employer as one who has direct control over employee hiring, firing, scheduling, pay and benefits. Franchisors have not been recognized as joint employers, as they leave employment decisions to their franchisees. Further, this established standard recognizes the franchisor-franchisee relationship as one of indirect control. The standard has been the foundation of the franchise business model that has provided thousands of people with the opportunity to go into business, and which currently employs 8.9 million individuals.

However, in a recent amicus brief filed by the NLRB, General Counsel Richard Griffin urged the board to view the term of joint employer with a wider lens, encompassing any business that has either direct or indirect control over employees, and even to include any business that has the potential to control the working conditions of employees. In December, McDonald’s franchisees and the corporation were lumped together in 13 complaints to the board, citing a joint-employer standard in terms of responsibility and accountability for the alleged violations. In a similar case, Browning-Ferris Industries, the NLRB will be ruling on whether a direct relationship exists between a company and its subcontracted workers, regarding wages paid, health care and insurance plans provided, and the screening of new hires.

Both cases are aimed at potentially broadening the joint-employer standard, taking into account not only the economic and industrial realities of employment relationships, but incorporating the intentionally flexible standard used by the Equal Employment Opportunity Commission, which considers a broader spectrum of employment conditions.

Franchise businesses will be watching these decisions closely, as the outcomes could determine the degree to which franchisors are liable for the labor practices of their franchisees. Most franchise business owners believe an expanded definition of the joint-employer relationship will not only be destructive to the franchising model but to other third-party business relationships. Furthermore, franchisors could be forced to consolidate to fewer and larger franchisees, which would eliminate opportunities for entry into franchising, particularly impacting women and minorities. A change in the joint-employer doctrine will disrupt 30 years of stability, which has brought about a variety of successful business relationships, career opportunities and jobs that must be protected.

Eric Oppenheim, SHRM-SCP, is a member of the SHRM Labor Relations Special Expertise Panel.


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