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NLRB May Now Decide to Use Lengthy Rulemaking to Address Joint Employer Standard

As the franchise community anxiously awaited the National Labor Relations Board judge to decide on whether or not to approve McDonald’s Corporation’s settlement agreement to prevent it from being ruled as a “joint employer” with its franchisees on labor violations, the NLRB may choose an alternate route via the elongated rulemaking process.

As background, the NLRB expanded the scope of joint-employment in 2015 in the NLRB Browning-Ferris case, but then reverted to a more rigorous showing that had been required for years in Hy-Brand Industrial Contractors, Ltd. But recently, under extensive political pressure, the Board vacated Hy-Brand due to NLRB Board Member William Emanuel’s participation in the decision; Emanuel’s former firm, Littler Mendelson, represented one of the unsuccessful parties in Browning-Ferris and was under pressure by lawmakers to recuse himself, that from the National Law Review yesterday.

“Since then, with cases pending before the Board and courts involving potential joint-employer liability, parties on both sides of this issue have been on the edge of their seats awaiting guidance,” the legal report stated. 

The Office of Information and Regulatory Affairs last week published the NLRB’s submission that the Board is considering rulemaking to address the standard for determining joint-employer status under the National Labor Relations Act instead of decision-making. The National Law Review reported that submission was “a stark and unconventional departure from the Board’s normal practices.” It explained, “This is unusual because the Board has only engaged in rulemaking a few times in its 83-year history, one of which ended badly,” after the agency’s attempt to require all employers to post a notice of rights under the NLRB.

The Law Review said that “an apparent benefit of pursuing change through the rulemaking process, rather than an adversary proceeding, is that “there does not appear to be the same potential arguments that [NLRB] member Emanuel or any other board member must recuse him or herself based on the identities of the interested parties.”

This submission was prepared at the request of recently-confirmed NLRB Chairman John F. Ring, a Republican. He emphasized the importance of restoring clarity in determining joint-employer status, and he touted that proceeding down this path allows the Board to hear “all views” on this critical issue before reach a decision. The new chairman also promised that the Board would issue a proposed rule “as soon as possible” after hearing from all interested parties on the issue.

“The Board has formally taken the necessary steps to begin the long public comment process associated with rulemaking here. The regulatory agenda includes a proposal, but notably does not indicate the participation of Members Mark Gaston Pearce and Lauren McFerran, the Board’s two Democratic-members,” The National Law Review stated.

If the proposed rule receives support from a majority of the five-member Board, the next step would be the issuance of a Notice of Proposed Rulemaking, which will open the process for public comment to receive at least one round of written comments on the proposed rule. The report said the Board “may also elect to hold public hearings, which may include cross-examination, and provide additional comment periods to obtain more information.” It also explained that although the next Board can reverse any decision made through this current process, subsequent Board members will also have to “trudge through the arduous and prolonged formalities of rulemaking and notice-and-comment period to accomplish that objective.”

In closing, the National Law Review states, “The Board’s potential use of rulemaking here is quite an interesting reaction to the extensive political pressure placed by lawmakers on the Board’s members to recuse themselves from cases involving parties currently or formerly represented by their prior firms.

Franchisee community mostly sides with franchisors on joint-employment issue 

Taking the rulemaking route instead of decision-making will no doubt be a safer path, not only for the world’s largest hamburger chain, but also for thousands of other franchisors, and the organization that represents them, the International Franchise Association. 

The NLRB charges made against McDonald’s were first filed in November 2012, after fast-food workers and other employees began demonstrating across the country, and the globe, marching for higher wages and benefits to publicly protest working conditions, alleging that franchisors, such as McDonald’s, had excessive control over their franchisees and should be held responsible for all labor violations in their stores. The demonstrations were organized by the Fight for $15 campaign, backed by the SEIU (Service Employees International Union).

Franchisors have been warned since the joint employment issue raised its ugly head. Demonstrating too much control over franchisees is now one of the biggest issues for franchisors, and they are cautioned by their attorneys and in webinars put on by big franchisor law firms to back off or the franchisor will be accused of being a “joint employer” with their franchisees on labor violations or, in some cases like janitorial services, be ruled as the employer, not the franchisor, of their franchisees. The Federal Trade Commission has cautioned people for decades on its website about the risks of purchasing a commercial cleaning service franchise for that very reason, too much control over the franchise by franchisors. 

In December 2014, the NLRB consolidated 291 complaints, finding 86 of them meritorious. Eleven cases were resolved and 71 remained under investigation. That means six long years after the first NLRB actions first started on these 71 cases, nothing has been resolved. Now it looks like the same legal process will more than likely be extended again, this time through the NLRB’s rulemaking procedure.  

After McDonald’s rushed in to present its proposal to the NLRB before deadline in April, agreeing to pay a range from $20 to $50,000 to several dozen workers and supporting the settlement by taking responsibility for the establishment of a $250,000 settlement fund, an attorney for the Fight for $15 campaign stated that McDonald’s settlement “does nothing to hold the $5 billion company accountable for violating its workers’ rights.” She said the workers who were retaliated against for organizing, “deserve a ruling in their case [and] not a settlement hammered out at the last minutes in collusion with the Trump administration.”

In spite of the excessive control big franchisors demonstrate in their systems, and all the litigation that is taking place in court rooms surrounding joint employment, it’s surprising how many franchisees, who are considered to be independent business owners, side with their franchisors on the issue of joint employment. Now many on both sides think the NLRB rulemaking process will speed up the McDonald’s joint employer decision.

The Asian-American Hotel Owners Association, AAHOA, the world’s largest hotel owners’ association, representing nearly 18,000 members, explained its position on the issue today, saying it welcomes the NLRB reconsideration of joint-employer standard. President, CEO Chip Rogers said, “AAHOA members are encouraged by this first step towards rectifying one of the most egregious and disastrous actions ever taken by the NLRB. The Browning-Ferris Industries decision created chaos and uncertainty amongst franchisors and franchisees alike and continues to threaten the successful franchise business model that has been the path to small business success for so many AAHOA members. The joint-employer doctrine is one of the most important issues facing hoteliers today, and we are optimistic that Chairman Ring understands the value in resolving this matter. That said, we will continue to advocate for a statutory fix provided by H.R. 3441, the Save Local Business Act, which would codify the historical joint-employer standard and prevent the type of politicized bureaucratic bulldozing of decades of precedent that got us here in the first place.”

However, one long-term multi-franchisee who wishes to remain anonymous disagrees. He said, “As soon as a Democrat is president and appoints a new NLRB board member, it will go back. The cat is out of the bag. It will never go away. It will just be more or less prominent.”


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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.