The NLRB’s Browning-Ferris Industries Joint Employer Ruling – Should Franchisors Read the Fine Print

In a 3-2 recently rendered decision, the National Labor Relations Board (NLRB) ruled (with a lengthy dissent) that Browning-Ferris Industries of California, Inc. (BFI) and a third-party staffing agency, Leadpoint Business Services, were “joint employers” of the workers supplied by Leadpoint for a BFI recycling facility. The result of the holding is that the International Brotherhood of Teamsters and other unions will now be able to bargain jointly with BFI and Leadpoint in labor matters.

While there is no doubt this ruling will affect the temporary staffing industry, many in the franchising industry fear it also jeopardizes the franchise business model. What is the appropriate takeaway from the BFI decision for franchisors? The answer might lie in the fine print.

In the BFI decision, the NLRB specified that the case was not a franchise decision. The Board, in a footnote, distinguished a case referenced by the dissent, stating that decision rested on the particulars of a franchise relationship, “none of which are present here.” In another footnote, the NLRB stated that the dissent wrongly characterized the majority’s opinion as “fundamentally alter[ing] the law” in relation to number of business relationships, including the franchisor-franchisee relationship. To the contrary, the Board noted, “none of those situations are before us today.”

So, did the franchising industry dodge a bullet with the BFI decision? Maybe. On the one hand, the BFI ruling can be viewed as narrow, even in its effect on the staffing industry, as it would come into play only when workers provided by contractors seek union representation. And the ruling by its own language distinguishes the franchise relationship.

On the other hand, the BFI ruling does expand the traditional joint-employer test by taking into consideration reserved, unexercised and even indirect elements of control by the putative joint employer. The BFI case thus does nothing to dispel the worries of franchisors that were generated by the Board’s finding last December that McDonald’s Corporation was to be treated as a joint employer of its franchisee’s employees. The franchising industry saw some reprieve in a subsequent NLRB advice last April that a fast casual restaurant company, Freshii’s, did not exert enough control over one of its franchisees to be deemed a joint employer. However, neither the McDonald’s finding nor the Freshii’s advice memoranda have the effect of creating law, and, even so, which of those two factual situations should inform franchisor behavior and policy?

Since the BFI decision also 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 franchisee’s workers, the uncertainty for franchisors continues, at least until the McDonald’s dispute is adjudicated. Perhaps the only clarity that the BFI decision brings is its consistency with the Obama administration’s apparent view that franchising, temporary staffing and similar business models can work to the disadvantage of workers by denying them the benefits of unionization, minimum and overtime wages.