New NLRB 'joint employer' rule faces legal challenge

Franchising

Hoteliers still reeling from the National Labor Relation Board’s dramatic change to the legal test for joint employer liability may find some solace in the fact that this issue is destined for appellate review.

In August 2015, the NLRB threw a mammoth monkey wrench in the traditional hotel franchisor/franchisee model when, in its highly controversial Browning-Ferris Industries of California decision, it revised the test for the joint employer doctrine, dramatically easing the criteria for a company to be considered a joint employer. BFI has now filed an appeal with the U.S. Court of Appeals for the D.C. Circuit in an attempt to overturn the NLRB’s new joint employer standard.

Under the new union-backed standard, a finding of joint employment only requires that a business exercise “indirect” (or potential) control over workers. A company may be held liable not only for its own labor violations, but also for those of other entities. In its appeal, BFI contends that the NLRB’s new joint employer standard runs counter to the prevailing definition of “employee” under federal law, destabilizes collective bargaining relationships and is “hopelessly vague.”

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The BFI case is relevant not only to franchisor/franchisee relationships, but, in fact, all relationships in which tasks and responsibilities are outsourced. The recent joint employer rulings affect all companies that outsource any aspect of their business. This includes contractors, suppliers or even outsourced cleaning or IT work. All of these business relationships can now be subject to review under the new joint employer standard. Unfortunately for hoteliers, the appellate court is unlikely to adjudicate the matter before year end, thereby ensuring that joint employment will remain a critical labor issue in the interim.

Golden Arches Attacked

In a related case, a much-anticipated courtroom showdown between the NLRB and fast-food giant McDonald’s began in March 2016 before an administrative law judge in Manhattan. McDonald’s is likely to argue that the BFI decision cast too wide a net, noting that McDonald’s franchisees set wages, hours and working conditions and, consequently, are responsible for any alleged unfair labor practices. The underlying case may take two to three years to reach its conclusion, which many legal experts predict will occur in front of the U.S. Supreme Court.

It is unclear whether a franchisor is safe, under the new rule, to discuss brand and system standards with a franchisee. However, once the franchisor starts instructing the franchisee how to handle personnel issues and offers solutions, a finding of joint employment is likely. Franchisees will also be affected by the BFI decision.

For example, franchisors might be inclined to exert more control over their franchisees because the NLRB’s decision opens the door to greater legal liability if something goes wrong. This could have a chilling effect on small business owners, who might be more apt to forego the franchise model altogether. At the same time, franchisors might eschew small operators in favor of larger businesses that can ensure compliance with employment procedures.

In any event, the precedent set by both the BFI and McDonald’s cases will impact all U.S. businesses that outsource work or operate under a franchise model, including, most notably, hotels.

Dana Kravetz is the managing partner at Michelman & Robinson, a national law firm with offices in California and New York. As leader of the firm’s Labor and Employment Litigation group, he focuses his practice on counseling hotel and restaurant management.