NLRB Sets Path for Rulemaking Resolution of the Joint Employer Standard

The latest news regarding a possible path for resolution of the standard by which a franchisor may be held to be a “joint employer” of its franchisees’ employees, and thus liable for those employees’ claims for violations of employment laws, comes in the form of a rulemaking pronouncement by the National Labor Relations Board (“NLRB” or “Board”). The NLRB earlier this month indicated that it intends to issue a Notice of Proposed Rulemaking clarifying the joint employer standard “as soon as possible, but certainly by this summer.” NLRB chairman John Ring made the statement in a June 5, 2018 letter directed to certain U.S. Senators.

The NLRB’s announcement, and a promise of clarification, comes at a time when the “joint employer” standard is less than clear, especially for franchisors. In 2015, an Obama administration NLRB decided in the Browning-Ferris Industries case that there could be joint employment liability if a company merely has unexercised indirect control over the subject employees. Browning-Ferris Industries was later overturned in late 2017 by a Trump-appointed NLRB in Hy-Brand International Contractors, Ltd., which re-imposed the direct control standard in effect prior to Browing-Ferris. However, the NLRB then vacated its Hy-Brand decision early in 2018 over ethical considerations surrounding the recusal of one of its Board members amidst conflict of interest charges. The foregoing is generally thought to have revived Browing-Ferris and its indirect control test as the applicable standard for joint employment liability.

As we wrote in 2015 when the Browning-Ferris decision was published, the NLRB specified that the case was not a franchise decision. The Board distinguished a case referenced by the dissent, stating that decision rested on the particulars of a franchise relationship, “none of which are present here.” So, the resurrected Browning-Ferris standard still does not provide franchisors with any bright-line guidance as to what specific elements of control must be present for them to be deemed a joint employer of its franchisees’ workers.

While the uncertainty for franchisors continues, the Board’s pronounced rulemaking efforts may provide some measure of optimism for a more workable joint liability standard in the franchise context. First, in the rulemaking format, the NLRB is not limited to the facts of a specific dispute. Also, any Notice of Proposed Rulemaking would be accompanied by a public notice and comment period. Presumably, then, the NLRB can by rulemaking craft guidelines that are specifically applicable to and address concerns across a variety of business formats and relationships, including franchise systems. In other words, the NLRB’s rulemaking approach provides the Board with an opportunity to replace the Browning-Ferris standard, wherein the franchise business format was arguably excluded, with a rule expressly including and providing guidance for the franchise relationship.

Any franchise-inclusive guidance of this nature could eliminate the uncertainties in applying case-by-case, fact-specific non-franchise decisions such as Browning-Ferris for the instructive benefit of franchisors. Franchisors should thus monitor the NLRB rulemaking process carefully, with any eye toward determining the proposed rule’s utility as guidance for administering policies and contractual and other relationships with franchisees where the joint employer standard may be implicated.