NLRB Rollback a Return ‘to the Land of Sanity’
In a major walk-back for the franchise industry, the National Labor Relations Board seeks to return to prior guidance on joint employer issues.
The board put forth a sweeping update that would essentially take the body’s guidance back to the era before the landmark Browning-Ferris court case. The key change after that case, as franchise law watchers will remember, was that if the purported joint employer had the potential to exercise control over the primary employer’s employees, they could be named a joint employer.
According to the proposed regulation, the NLRB would look for purported joint employers that “possess and exercise” control.
“Under the proposed rule, an employer may be found to be a joint employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship,” read the NLRB proposal.
This is a big deal. For anyone paying attention to franchise law for the past few years, expanding joint employer exposure had some declaring the franchise model dead. That had franchisors dialing cutting back on support, general counsel rewriting franchise disclosure documents and generally taking any step to avoid the murkiness brought about by the regulation, the many updates and case history that came after the decision.
“This is really excellent news for franchising as a business model,” said Michael Joblove, founding partner at the legal firm Genovese Joblove & Battista. “It adds stability and preserves the franchise model. What Browning-Ferris did was dilute the model by taking away one of the fundamental underpinnings of franchising.”
He said this new regulation brings stability back to the model and to the legal framework around it by recognizing the partition between franchisee and franchisor. That’s the core of the industry, he said, and means a strong relationship where franchisees can execute on franchisor recommendations without dragging the parent company into unit- or market-level employment matters.
David Kaufmann, founding member and and senior partner at Kaufmann Gildin & Robbins LLP, said the Browning-Ferris decision was correct in naming the parent company a joint employer and it would under the new, broader guidelines, but the following regulation was purely political.
“It flew in the face of established law, 40 years of court decisions, every state and federal franchise definition and entirely disregarded the business foundation of franchising. Think of how nuts this was,” said Kaufmann.
And there were some equally nutty responses.
“A number of folks, franchisors and their counsel, were reacting far too extensively to Browning-Ferris, those of us who occupied this field for a while knew that it would be knocked on its behind by the courts or the NLRB, so while some were running around saying, you can’t establish rules for franchisees,’” said Kaufmann. “We were saying, ‘It’s your duty. That’s why franchisees pay good money to become franchisees.’”
He said that the sky wasn’t quite falling, but it could have been a big deal and made some franchise systems untenable or much more expensive. So the new guidance is a breath of fresh air.
“We’re going back to the land of sanity we all inhabited before Browning-Ferris,” said Kaufmann.
There will be 60 days for public comment before the regulation is enacted, and Kaufmann said he foresees some loud blowback, but believes ultimately that the new regulation will go through.
In a note from Robert Cresanti, president and CEO of the International Franchise Association, he urged franchise stakeholders to get loud as well, and get involved in the comment period.
“We are hopeful the final rule will provide clear lines for the determination of joint-employer status and a recognition that brand controls and other support provided as part of the franchise business model do not constitute factors that can be used to find joint employment between franchisors and franchisees,” wrote Cresanti.
Franchise stakeholders can read the full new regulation and comment at Regulations.gov through November 13.