United States: NLRB General Counsel Allows Complaints Against Franchisees To Proceed Against Franchisor Under Joint-Employer Theory

On July 29, 2014, the Office of the General Counsel of the National Labor Relations Board (NLRB) announced that 43 charges of unfair labor practices that allegedly occurred at McDonald's franchise locations across the country could proceed as formal complaints against franchisor McDonald's, USA, LLC ("McDonald's") in addition to the local franchises on the legal theory that McDonald's is the joint employer, along with its franchisees, of the affected employees. This announcement means that not only will McDonald's have to incur the expense of defending against the unfair labor practice complaints, it might be held jointly liable, along with its franchisees, for any unfair labor practices that may ultimately be found.

Under the National Labor Relations Act (NLRA), employees may file unfair labor practice charges against any employer or union claiming that their NLRA rights have been interfered with. The NLRB General Counsel investigates unfair labor practice charges and makes the decision whether to issue a formal complaint. Some of the charges filed against McDonald's and its franchisees, for example, allege that the employer made coercive statements to prevent unionization, interrogated employees regarding their views on unionizing, and retaliated against employees for engaging in protected concerted activity. Formal complaints not resolved through a settlement proceed before an administrative law judge (ALJ). After hearing evidence, the ALJ assigned to a particular complaint will issue a recommended decision, which becomes final if it is not appealed to the NLRB. Thus, in the McDonald's cases, if the underlying charges are not resolved through settlement, formal complaints of unfair labor practices will be issued against McDonald's and its franchisees and will be heard before an ALJ.

The factual basis for the NLRB General Counsel's position that McDonald's is a joint employer of its franchisees' employees has not yet been made public. Traditionally, the NLRB has found joint employer status when two employers both exert sufficient control over the terms and conditions of employment for the same group of employees. However, in a separate and unrelated case, Browning-Ferris Industries, the NLRB appears to be re-evaluating the proper test to determine joint-employer liability. That case concerns a union challenge to an NLRB regional director's holding that a waste services company and a staffing agency were not joint employers. The NLRB General Counsel filed an amicus brief in the Browning-Ferris case, urging the NLRB to abandon its existing joint-employer test and rule that a joint-employer relationship exists when, "under the totality of the circumstances," one of the employers wields enough influence over the other entity's employees' working conditions such that meaningful collective bargaining cannot happen without the first employer's presence.

Practical Implications

The announcement of the NLRB General Counsel's position in the McDonald's cases is a matter for concern, but not a cause for panic or any pre-emptive action. It is important to remember that this announcement is not a decision of the NLRB that McDonald's is liable as a joint employer with its franchisees or that it is, in fact, a joint employer of the franchisees' employees; rather, it represents the opinion of the Office of the NLRB General Counsel that formal complaints alleging unfair labor practices can at least go forward under the theory that McDonald's could be liable as a joint employer. There has been no binding legal finding that the franchisor-franchisee relationship between McDonald's and its franchisees actually constitutes a joint-employer relationship. Of much greater importance than the General Counsel's announcement as to McDonald's will be the decision by the NLRB in the Browning-Ferris case and any decision by the NLRB with respect to whether McDonald's is actually liable as a joint employer with one or more of its franchisees.

Until those decisions are issued, franchisors should consider (a) reviewing their agreements with franchisees to determine whether they provide for appropriate indemnification in the event of joint-employer liability and (b) reviewing their own insurance policies to determine if coverage exists for such liability. Franchisors should also make sure that franchisees in fact have insurance policies in place that cover these types of claims and name the franchisor as an additional insured. Kilpatrick Townsend's Labor, Franchise, and Insurance Coverage practice teams will continue to monitor these joint-employer issues and keep you informed of significant developments as they occur.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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