United States: Restaurant Franchisor And Franchisee Are Not Joint Employers, According To NLRB Advice Memo

Last Updated: May 13 2015
Article by Michael J. Lotito

Offering franchisors a glimmer of hope on the joint employment front, the National Labor Relations Board's Office of the General Counsel recently issued a memorandum of advice that concluded a franchisee, franchisor, and the franchisor's development agent were not joint employers under the National Labor Relations Act. Notably, the advice memorandum issued by Associate General Counsel Barry Kearney found that a Chicago-based franchisee and franchisor were not joint employers under either the current standard for determining joint employment, or the significantly looser standard advocated by NLRB General Counsel Richard Griffin. The advice memorandum found no evidence the entities codetermined any matters "governing the essential terms and conditions of employment" with the franchisee's employees. 

Under the current standard that has been in place for more than 30 years, the relevant inquiry for finding joint employment is whether an entity exerts a significant and direct degree of control over another business's employees and their essential terms and conditions of employment. Griffin has been vocal about instituting a "traditional" theory of joint employment, which is that an entity is considered a joint employer if it "has the potential" to control such terms and conditions of employment, or if "industrial realities" otherwise makes it an essential party to meaningful collective bargaining. 

In the scenario addressed by the advice memorandum, a "fast-casual" restaurant franchisee allegedly terminated an employee and disciplined another for attempting to unionize the workforce. The NLRB's Division of Advice considered whether the franchisor and its "development agents" who cultivate new franchises and help monitor brand standards for existing franchises should be deemed joint employers with the franchisee for purposes of unfair labor practice liability. 

In concluding no joint employment relationship exists, the Division of Advice discussed the provisions of the franchise agreement, as well as the degree of control (or lack thereof in this instance) exercised by the franchisor over the franchisee's operations. The memorandum emphasized the following key facts in making this determination: 

  • The franchise agreement specified that the franchisor "neither dictates nor controls labor or employment matters for franchisees and their employees...."
  • Although the franchise Operations Manual contained guidance on human resources matters, the franchisor did not require franchisees to follow such guidance.
  • Individual franchisees were exclusively responsible for hiring, setting employee wages and benefits, and disciplining and discharging their employees.
  • The franchisor was not involved in the franchisee's setting of employee work hours.
  • Any trainings franchisee owners and managers were required to attend dealt primarily with operating a restaurant, not employee management.
  • The franchisor's control over the franchisee's operations were "limited to ensuring a standardized product and customer experience, factors that clearly do not evince sharing or codetermining matters governing essential terms and conditions of employment."
  • Other than passively monitoring sales and costs, the franchisor was not actively involved in the point-of sale systems or any scheduling software that might have been used.
  • Although the development agent recommended that the franchisor take action against the franchisee for failing to meet brand standards, there was no evidence the franchisor took any action against the franchisee.
  • Upon hearing from the development agent that the franchisee's employees had asked for union recognition, neither the franchisor nor the development agent took any action or otherwise followed up with the franchisee. 

In essence, the franchisor's and development agent's involvement with the franchisee was limited to protection and maintenance of brand quality only. There was no indirect or direct control over the franchisee's employees' terms and conditions of employment. While this advice memorandum is limited to this one particular case, and the Board's decision in Browning-Ferris—which would have much broader implications—is imminent, this analysis does indicate the NLRB's Division of Advice still respects the traditional franchise model and that a finding of joint employment is not to be presumed.

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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