United States: Michigan Franchisors Not Joint Employers Of Employees Of Franchisees Absent Agreement

On March 22, 2016, Michigan joined Wisconsin, Texas, Louisiana, and Tennessee by amending its Franchise Investment Law to make it clear that unless otherwise specifically provided for in the franchise agreement, a franchisee is considered the sole employer of workers to whom it pays wages or provides a benefit plan.1  This amendment – one of six bills signed into law by Governor Rick Snyder since December 2015 – is designed to protect franchisors in the wake of the uncertainty created by the National Labor Relations Board's ruling in Browning-Ferris Industries of California, Inc.2 pertaining to when a company may be considered a joint employer.

In the 30+ years preceding its August 2015 decision in Browning-Ferris, the NLRB had consistently held that two employers were considered to be "joint employers" only when the two entities exerted such direct and significant control over the same employees that they shared or co-determined matters governing the essential terms and conditions of employment.3  Relevant factors to be considered when determining whether such "direct and significant" control existed included the right to hire, terminate, discipline, supervise and direct the employees.4  Because this type of relationship rarely exists between a franchisor and the employees who work in its franchised stores, franchisors were generally not considered to be joint employers of those workers.

In Browning-Ferris, the NLRB announced that it was returning to the "traditional" joint employer standard that preceded its 1984 decision in TLI, Inc.5 and that the Board will now find that two or more entities are joint employers of a single workforce if they share or codetermine matters governing the essential terms and conditions of employment.  The Board also expanded those terms and conditions to include such indicia of "indirect control" as "dictating the number of workers to be supplied; controlling scheduling, seniority, and overtime; and assigning work and determining the manner and method of work performance".6  

By rejecting the long-standing and well-established rule that an entity's control over employees had to be "direct and significant" for the entity to be considered a "joint employer", Browning Ferris introduced significant uncertainty as to when a franchisor could be found to be a joint employer of its franchisee's employees.  This is no small concern considering the duties, responsibilities, and potential liabilities that accompany such a finding, including the obligation to jointly bargain with a franchisee's unionized workforce.

In addition to amending the Franchise Investment Law, four of the five bills signed by the Governor amend the definition of "Employer" in the Michigan Employment Security Act,7 the Workforce Opportunity Wage Act (the State's minimum wage law),8 the Michigan Occupational Safety & Health Act,9 and the Payment of Wages and Fringe Benefits Act10 to clarify that "(e)xcept as specifically provided in the franchise agreement, as between a franchisee and franchisor, the franchisee is considered the sole employer of workers for whom the franchisee provides a benefit plan or pays wages."  The fifth bill adds a new section to Michigan's Worker's Disability Compensation Act to provide that a franchisee's employee is not an employee of the franchisor for purposes of the Act unless "(t)he franchisee and franchisor share in the determination of or codetermine the matters governing the essential terms and conditions of the employee's employment" and ". . .  both directly and immediately control matters relating to the employment relationship, such as hiring, firing, discipline, supervision, and direction."11

What Franchisors In Michigan Should Do Now:

1) Consider amending your franchise agreements to clearly state that for all purposes permitted under Michigan law, the franchisee, and not the franchisor, is the sole employer of workers for whom the franchisee provides a benefit plan or pays wages.

2) Review your franchise agreements and how you interact with your franchisee and its employees to assess whether you could be considered a joint employer for purposes of the Worker's Disability Compensation Act.  If you find that you are involved – either under the terms of the franchise agreement and/or your course of dealing with the franchisee and its employees – in determining the essential terms and conditions of employment and that you have some control over the hiring, firing, discipline, supervision, or direction of those employees, you should consider revising your agreement to address this issue and if necessary, changing the way you interact with your franchisee and its employees.

3) Contact your employment counsel if you have any questions or concerns about the laws discussed in this article.

Footnotes

1 MCL 445.1501, et seq.; Section 4b.

2 BFI Newby Island Recyclery, 362 NLRB No. 186 (2015).

3 TLI, Inc., 271 NLRB 798 (1984); NLRB v. Browning-Ferris Industries of Pa., Inc., 691 F.2d 1117, 1123 (3d Cir. 1982).

4 TLI, Inc., supra at 798 (1984).

5 The dissenting Board members rejected this rationalization, asserting that the majority's new test does not return to pre-1984 standards and instead will find joint employment if there is any evidence of indirect control, even when no evidence of direct control exists.

6 BFI Newby Island Recyclery, supra.

7 MCL 421.1, et seq.; Section 41(11) (effective May 23, 2016).

8 MCL 408.411, et seq.; Section 2(d) (effective May 23, 2016).

9 MCL 408.1001, et seq.; Section 5(2) (effective May 23, 2016).

10 MCL 408.471 et seq.; Section 1(d) (effective May 23, 2016).

11 MCL 418.101 et seq.; Section 120 (effective March 22, 2016).

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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