In response to the NLRB's pronouncement of joint employer status between two distinct business entities in Browning-Ferris Industries,[1] a handful of state legislatures, including Texas, have passed legislation to protect the franchise industry from exposure to lawsuits for franchisees' labor and employment law violations. Other states that have passed similar legislation include Louisiana, Tennessee, Wisconsin, Michigan and Utah.[2]
In August 2015, the NLRB issued a decision in Browning-Ferris Industries vastly expanding its joint employer standard. The decision represented a significant departure from decades of established precedent. Prior to Browning-Ferris Industries, two entities were found 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] Under the prior framework, the NLRB considered factors including the right to hire, terminate, discipline, supervise and direct employees and administrative agencies, and courts generally found that control exerted by the joint employer had to be actual, direct and substantial.[4] However in Browning-Ferris Industries, the NLRB rejected the requirement that the joint employer's control be direct and immediate, and instead stated it would no longer require that a joint employer not only possess the authority to control employees' terms and conditions of employment, but also exercise that authority.[5] Under the Board's new joint employer test, an entity can be deemed a joint employer if it does not (1) actually exercise any control over employees' terms and conditions of employment, but (based on a contract or otherwise) theoretically could at some undetermined point, or (2) directly exercise any such control, but rather exercises control through a third party.
In light of the Browning-Ferris Industries decision, the Texas Legislature responded to franchisors' concerns that under the decision franchisors could be targeted for franchisees' labor and employment law violations. In an amendment to the Texas Labor Code that became effective September 1, 2015, the legislature specifically provided in Senate Bill 652 that a franchisor is not considered an employer for claims related to employment discrimination, wage payment, workplace safety, the Texas Minimum Wage Act, and the Texas Workers' Compensation Act among other laws, unless the franchisor has been found by a state court of competent jurisdiction to have exercised a type or degree of control over its franchisee or its franchisee's employees not customarily exercised by a franchisor for the purpose of protecting the franchisor's trademark and brand.[6] The amendment was passed "[i]n an effort to ensure that franchisors in Texas are not held unfairly liable for the actions of franchisees, to prevent frivolous lawsuits and to encourage franchisees to act responsibly."[7] Readers should note the new law does not prevent employment claims if the franchisor exercises control over the franchisee or the franchisee's employees above and beyond what is necessary to protect the franchisor's trademarks and brand and traditional principles of vicarious liability will still apply to such circumstances.
Additional states will likely pass legislation to address joint employer concerns given the NLRB's determination to remain firm on its position to expand joint employer liability. Meanwhile, franchisors will continue to grapple with defining the limits of controls that are "customarily exercised by a franchisor for the purpose of protecting the franchisor's trademark and brand."
Footnotes
[1] BFI Newby Island Recyclery, 2015 NLRB LEXIS 672 (N.L.R.B. Aug. 27, 2015).
[2] Tenn. Code Ann. § 50-1-208(a) (2015); La. Rev. Stat. 23:921(F)(2) (2015); Wisconsin S.B. 422, 2015-2016 Session; MCL 421.1, et seq.; Section 41(11); 8 MCL 408.411, et seq, Section 2(d); 9 MCL 408.1001, et seq., Section 5(2);10 MCL 408.471 et seq., Section 1(d); 11 MCL 418.101 et seq., Section 120; Utah H.B. 116, 2016 General Session.
[3] See TLI, Inc., 271 NLRB 798 (1984); See also NLRB v. Browning-Ferris Industries of Pa., Inc., 691 F.2d 1117, 1123 (3d Cir. 1982).
[4] See TLI, Inc., 271 NLRB at 798; See also Am. Prop. Holding Corp., 350 NLRB 998, 1001 (2007).
[5] BFI Newby Island Recyclery, 2015 NLRB LEXIS 672, *7-8 (N.L.R.B. Aug. 27, 2015).
[6] Tex. S.B. 652, 84th Leg., R.S. (2015).
[7] H. Comm. Rep., Bill Analysis, Tex. S.B. 652, 84th Leg., R.S. (2015).
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