On July 29, 2014, the Office of the General Counsel of the
National Labor Relations Board (NLRB) announced that 43 charges of
unfair labor practices that allegedly occurred at McDonald's
franchise locations across the country could proceed as formal
complaints against franchisor McDonald's, USA, LLC
("McDonald's") in addition to the local franchises on
the legal theory that McDonald's is the joint employer, along
with its franchisees, of the affected employees. This announcement
means that not only will McDonald's have to incur the expense
of defending against the unfair labor practice complaints, it might
be held jointly liable, along with its franchisees, for any unfair
labor practices that may ultimately be found.
Under the National Labor Relations Act (NLRA), employees may file
unfair labor practice charges against any employer or union
claiming that their NLRA rights have been interfered with. The NLRB
General Counsel investigates unfair labor practice charges and
makes the decision whether to issue a formal complaint. Some of the
charges filed against McDonald's and its franchisees, for
example, allege that the employer made coercive statements to
prevent unionization, interrogated employees regarding their views
on unionizing, and retaliated against employees for engaging in
protected concerted activity. Formal complaints not resolved
through a settlement proceed before an administrative law judge
(ALJ). After hearing evidence, the ALJ assigned to a particular
complaint will issue a recommended decision, which becomes final if
it is not appealed to the NLRB. Thus, in the McDonald's cases,
if the underlying charges are not resolved through settlement,
formal complaints of unfair labor practices will be issued against
McDonald's and its franchisees and will be heard before an
ALJ.
The factual basis for the NLRB General Counsel's position that
McDonald's is a joint employer of its franchisees'
employees has not yet been made public. Traditionally, the NLRB has
found joint employer status when two employers both exert
sufficient control over the terms and conditions of employment for
the same group of employees. However, in a separate and unrelated
case, Browning-Ferris Industries, the NLRB appears to be
re-evaluating the proper test to determine joint-employer
liability. That case concerns a union challenge to an NLRB regional
director's holding that a waste services company and a staffing
agency were not joint employers. The NLRB General Counsel filed an
amicus brief in the Browning-Ferris case, urging the NLRB
to abandon its existing joint-employer test and rule that a
joint-employer relationship exists when, "under the totality
of the circumstances," one of the employers wields enough
influence over the other entity's employees' working
conditions such that meaningful collective bargaining cannot happen
without the first employer's presence.
Practical Implications
The announcement of the NLRB General Counsel's position in
the McDonald's cases is a matter for concern, but not a cause
for panic or any pre-emptive action. It is important to remember
that this announcement is not a decision of the NLRB that
McDonald's is liable as a joint employer with its franchisees
or that it is, in fact, a joint employer of the franchisees'
employees; rather, it represents the opinion of the Office of the
NLRB General Counsel that formal complaints alleging unfair labor
practices can at least go forward under the theory that
McDonald's could be liable as a joint employer. There has been
no binding legal finding that the franchisor-franchisee
relationship between McDonald's and its franchisees actually
constitutes a joint-employer relationship. Of much greater
importance than the General Counsel's announcement as to
McDonald's will be the decision by the NLRB in the
Browning-Ferris case and any decision by the NLRB with
respect to whether McDonald's is actually liable as a joint
employer with one or more of its franchisees.
Until those decisions are issued, franchisors should consider (a)
reviewing their agreements with franchisees to determine whether
they provide for appropriate indemnification in the event of
joint-employer liability and (b) reviewing their own insurance
policies to determine if coverage exists for such liability.
Franchisors should also make sure that franchisees in fact have
insurance policies in place that cover these types of claims and
name the franchisor as an additional insured. Kilpatrick
Townsend's Labor, Franchise, and Insurance Coverage practice
teams will continue to monitor these joint-employer issues and keep
you informed of significant developments as they occur.
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.
