United States: It's All In The Family: Shifting Standards For Joint-Employer Liability

Last Updated: January 30 2015
Article by John W. Hargrove

The concept of joint-employer liability is popping up in the news a lot again. This is because the NLRB is taking a more aggressive view on joint-employer standards under the National Labor Relations Act, particularly as to how these standards apply in the franchisor-franchisee setting. In December, the NLRB filed complaints in 13 different regions against McDonald's franchisees and against McDonald's corporation jointly. These complaints involve over 75 NLRB charges filed by employees of McDonald's franchises.

Background on Joint-Employer Liability

Joint-employer liability—when one company is tagged with the legal obligations of another company—is not new. Nonunion and union subsidiaries of the same parent company must be careful not to be deemed the same company. Otherwise, the nonunion subsidiary could be found responsible for the labor obligations of the union subsidiary. Sister companies and parent-subsidiary companies in any context must be careful to maintain their independence so as to avoid being brought into the litigation of another company. Staffing companies and their clients must be careful to define employment obligations of each company. Successor companies should follow all corporate formalities so that, for example, a seller is not brought into the legal disputes of the buyer. One specific example of this would be potential seller liability for the buyer's WARN Act violations after the closing date of the sale.

So, what are the joint-employer liability rules, and how are they changing? As background, there really are two separate concepts, although they often are blurred. The first one is the "single-employer" doctrine. Under this doctrine, two ostensibly separate companies are treated as one. "Double-breasting" analysis—the potential liability of a nonunion subsidiary for a union's subsidiary's labor obligations—usually occurs under the single-employer doctrine. Usually the analysis involves these four factors: 1) interrelation of operation, 2) common management, 3) common ownership, and 4) centralized control over labor relations. Factor 4 always is the biggie.

The second concept, the "joint-employer" doctrine, comes up more often when two different companies have control over the same employee or the same set of employees. This issue can arise when two separate companies are not even related. Think staffing companies for example. The standards under the joint employer doctrine are not quite as clear. The NLRB uses language like "sharing or codetermining matters governing the essential terms and conditions of employment." The focus is on the ability to hire, fire, and supervise.

Why Is the NLRB Picking on McDonald's?

Turning to the McDonald's cases, these obviously arise in the franchise context. Some would argue that franchisor-franchisees are more closely related than simple staffing company-client relationships. For example, a staffing company might staff industrial companies and country clubs alike, and of course, that staffing company would have very little say over operational or branding issues for its clients. One the other hand, as the NLRB's argument goes, McDonald's Corporation does have operational and branding control over the stores of its franchisees. The NLRB is focusing on these exact issues in the franchisor-franchisee context to attempt to draw the franchisor into the employment liability zone. To oversimplify the Board's new approach, the Board now is taking the position that potential control over labor matters is all that is needed for joint liability, not just actual control.

What are the tips for your company to avoid joint-employer liability? Try some of these:

  1. Keep your human resources and payroll functions separate and independent.
  2. Maintain separate lines of supervision.
  3. Do not comingle equipment and resources unless all of the exchanges of such clearly are accounted for in some business fashion.
  4. Do not have one company and its c-suite governing the operation of a second company.
  5. Certainly maintain separate books and tax records.
  6. Keep brands separate.
  7. Take care of the obvious stuff, like don't use the same telephone number and switchboard.
  8. Use contracts, subcontracts, and consulting contracts to maintain arm's length business obligations between the services of the companies.
  9. Maintain confidentiality of trade secrets and bidding information.
  10. Keep those union and nonunion workers as far from each other as possible.

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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