In July 2014, the National Labor Relations Board’s General Counsel determined that McDonald’s USA LLC is a joint employer that could be held jointly liable for labor law violations committed by its franchisees.
In December 2014, the NLRB followed up by filing 13 complaints against franchisees and McDonald’s for alleged violations at franchise locations.
The NLRB is seeking to challenge the existing legal standard by which administrative courts determine if joint liability should attach to a franchisor. The current standard is to examine several factors involving direct employee control, such as hiring, firing, promoting, disciplining, and scheduling. The NLRB’s proposed standard would examine whether the franchisor “possessed and/or exercised control over the labor relations policies” of the franchisee to be considered a joint employer for alleged labor violations.
The practical effect of NLRB’s proposed standard, if adopted, is that franchisers could be held liable for employment decisions that they were in no direct way involved in making or even aware took place.
While the NLRB’s current complaints against McDonald’s will be heard in administrative court, not in the general court system, the tendrils of the NLRB proposed standard could very well have implications in civil lawsuits.
Appeals from the administrative court will likely reach the federal court system and possibly the Supreme Court. Depending on the facts and issued involved in cases that are appealed, precedent may be set that applies the NLRB standard or a new rendition of the joint employer standard to civil lawsuits. Additionally, the scope of how franchisers may be considered joint employers could expand beyond labor-based lawsuits into any number of areas of potential liability for a business entity.
The legal standard of determining liability in personal injury and contract cases against business entities is contingent, in many cases, on identifying whether the wrongful act was committed by a controlled agent or employee of the business, or whether the wrongful act was committed by an independent contractor of the entity. In general terms, entities are more likely to be held liable for actions of controlled agents/employees and less likely to be held liable for actions of independent contractors.
What degree of control the entity has over the agent and whether the agent is controlled or independent is determined on the specific facts of each case. A franchise agreement is a contract which, by its nature, creates some distance of control between the franchiser and the franchisee over operations of the franchisee’s business.
A shift in the paradigm of how control is defined, which is what the NLRB’s interpretation is seeking to enact, may close the distance that many franchisees and other contract employees are legally considered to have from the franchiser or contracting entity. In other words, having a piece of paper that says a subcontractor or franchisee is independent from the contracting entity may mean less in the future when determining whether the contracting entity is, in fact, a joint employer.
Several methods to better separate control between contracting parties are available, such as clear policies printed and posted at worksites and in employee manuals, as well as clearly defining responsibilities over workers in those contracts that are intended to establish independent contractor status. Additional clarity will be needed from the court system before knowing how much may change in defining joint employer status.
Franchisers and other contractors should strongly consider revisiting the language in any agreements that are believed to separate the contracting entity from responsibility and liability for the subcontractor or franchisee’s actions.
• Brad Stewart is an attorney with Zukowski, Rogers, Flood & McArdle in Crystal Lake. Stewart devotes most of his practice to corporate and local government law. He can be reached at firstname.lastname@example.org.