Franchisee employees may be considered "joint
employees" of the franchisor for purposes of collective
bargaining and other employment issues under the National Labor
Relations Board's recent decision in Browning Ferris
Industries of California, Inc. (BFI), a decision that could
expose franchisors to labor law liability for conducting common
franchisor activities.
In BFI, the NLRB abandoned its "direct control"
standard for establishing an "employer" for labor law
purposes, which focused on the hiring, firing, and control over the
day-to-day management of employees, and adopted an "indirect
control" standard. Under the "indirect control"
standard, many matters that franchisors would consider typical in a
franchise system may now be considered evidence of control, and
make the franchisor a "joint employer." These include
monitoring operational procedures, wearing specified uniforms,
meetings with suppliers, direction of minimum safety rules and
requiring certain equipment to be used.
More troubling for franchisors, perhaps, is the fact that the Board
not only adopted the indirect control standard, but said that
"potential" control, such as the reservation of a
right-to-control, was evidence of control even if this control had
never been exercised. While the Board said that it was not deciding
whether this standard applied to franchising, anyone that has ever
reviewed a franchise agreement can see the potential danger.
So, what to do? While the law is obviously in an unsettled state at
this time, certain proactive steps can be taken now:
- Review your form franchise agreement. Franchisors often reserve rights in their franchise agreements that may no longer be important or are now even unnecessary. If possible, consider removing any unnecessary reservation of rights.
- Review your operational procedures, particularly those involving visits to franchise locations and interactions with franchisee employees. Best practice suggests that franchisor representatives should interact only with the franchisee or their supervisory personnel and should refrain from issuing directives to franchisee employees.
- Review documents that establish minimum or mandatory standards. Wherever possible, these should be described as recommendations rather than mandatory requirements. Where the determination has been made that the establishment of a minimum standard is necessary, describe the standard as necessary to assure uniformity or product quality focusing on the brand aspects of the standard rather than how the standard is to be met.
- Consider disclaimers of control over franchisee employees in documents and communications. Most franchisors do not determine employment policies for their franchisees. Disclaimers of these rights wherever possible, particularly in communications to franchisees, may assist in avoiding joint employer liability.
Keep an eye on further developments. The final resolution of
these questions may be some years away, but monitoring further
developments will assist you in restructuring your agreements and
system to be in the best position to avoid joint employer
liability.
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.