Roz Goldstein explores the implications of the United States joint employer ruling, the reversal of the decision in 2017, and how franchise businesses can thrive within the changing legal landscape
Are franchisors joint employers? This question has haunted the franchise world since the controversial ‘joint employer ruling’ (Browning-Ferris) passed in 2015. This ruling expanded the legal classification for joint employment in the US, meaning franchisors could be classed as joint employers and held partially responsible for franchisees’ staff.
The ruling had implications for anyone with an interest or involvement in the US franchise market, especially those in the restaurant sector. It meant franchisors could be held accountable for their franchisees’ practices and labor law violations. Many hailed the development as a strengthening of workers’ employment rights. Others saw it differently. Steve Caldeira, then president of the International Franchise Association (IFA), claimed the ruling would destroy “the fundamental tenets of the franchise model”.
Fortunately, the franchise industry and its vast restaurant sector continues to thrive. So what have been the implications of the ruling and where do franchisors stand legally today?
The Joint Employer Ruling (2015)
In the United States, the term ‘joint employer’ means two or more employers share legal obligations for employees. These obligations can include everything from implementing employment standards to bargaining with trade unions. The contentious question is, who is a ‘joint employer’?
Previously, a company needed to have ‘direct control’ over staffing, to be deemed a ‘joint employer’. This all changed with the 2015 Browning-Ferris decision when the US National Labor Relations Board (NLRB) expanded the test for joint employment to include everyone with ‘indirect or unexercised control’ over employees. The NLRB argued these changes addressed the needs of the modern workforce and gig economy.
The changes meant franchisors who had ‘reserved the right’ (within their franchise agreement) to exercise control over the franchisees’ relationships with their employees, could be classed as a joint employer, even if they had not exercised that control. Franchisors could also be classed as joint employers where their control had been limited or routine. This included, franchisors providing employee-related support services (such as training or scheduling software). This created the potential for large-scale class actions against franchise brand owners.
The Ruling’s impact on restaurants
The Quick Service Restaurant (QSR) has arguably been the most affected by the ruling. QSR accounts for the biggest global franchise sector today, with over 190,600 franchises in the US alone. Many felt the joint employer ruling threatened the strong growth and stability traditionally associated with the sector.
The fast-food giant McDonald’s was the first QSR franchisor to fall foul of the new joint employment standards. The US Labor Board argued that because McDonald’s controlled certain working conditions, policies, and software, they were a joint employer and therefore shared liability for labor law violations within McDonald’s franchises. Charges were brought and the case raged from 2015 until it was settled in 2018.
Later changes to the ruling
In December 2017, the NLRB revised the 2015 joint employer ruling in a vote commonly called the ‘Hy-Brand’ decision. The decision returned the tests for joint employment to the previous standards. This Hy-Brand decision meant franchisors would only be deemed as joint employers if they held ‘exercised control’ over essential employment terms of their franchisees’ employees. The change was welcomed by many in the franchise world. The Restaurant Association stated that the decision: “restores years of established law and brings back clarity for restaurants and small businesses.” However, the change wasn’t to last.
One of the board members who voted on the Hy-Brand decision was found to have a potential conflict of interests. This annulled the ‘Hy-Brand’ 3-2 vote. As a result, the NLRB vacated the Hy-Brand decision and reinstated the Browning-Ferris joint employment standards on 26th February 2018.
So what does this mean for franchisors today? At time of print, the Browning-Ferris standards stand. Franchisors can still be classed as joint employers in the US if they have ‘indirect or unexercised control’ over their franchisees’ staff. However, don’t let this dissuade you from pursuing your franchising plans.
Joint employment continues to be hotly debated within the business and political world, and there are signs the 2015 Browning-Ferris ruling will be completely reversed under the Trump administration. In the meantime, it’s important to maintain clear communication with your franchisees to dispel uncertainty.
Communicate changes with your franchisees
Here are some actions you can take now to thrive within the ever-evolving legal landscape
1. Establish Your Legal Position
Firstly, make sure you understand your legal position. Updates regarding joint employment will be announced on the NRLB website. If you are uncertain about whether you and your franchisees are joint employers, seek legal advice. This will establish the legal relationship and allow you to set boundaries or make changes that protect your business.
2. Review & Update Your Commercial Contracts
You should be familiar with your business’ commercial contracts. These include everything from the franchise agreements to employee contracts. These documents should clearly define your legal position, including the relationship between you and your franchisees’ employees. Do your commercial contracts reflect how your business operates now or do they need updating?
3. Provide an Accessible Operations Manual
It’s best practice to provide franchisees with an operations manual and franchisee handbook. You could include a section within the manual that clarifies what the joint employer ruling means for franchisees and the business. This section will likely need updating in the future so it’s worth having a digital version of the manual which allows you to update the contents as and when legal changes occur.
4. Generate Conversations
As the joint employment saga shows, national employment law can be complex. It’s essential to create a space, online or in person, where franchisees can access up-to-date information and have the opportunity to discuss any changes that affect them. Importantly, use this space to reassure franchisees, share ideas and clarify what support they will receive from you.
To succeed, modern franchise businesses must function with the ever-changing economic, political and legal landscape. Yet, one thing is certain, your business success depends on the relationship you have with your franchisees. Work together to be ready for whatever changes lie ahead.
ABOUT THE AUTHOR
Roz Goldstein is the managing director and founder of Goldstein Legal, a UK-based law firm specializing in national and international franchise law. Goldstein Legal’s strong industry reputation is built on years providing tailored legal advice to clients in the USA, UAE, and Europe. Roz founded the firm in 2006, after almost 20 years’ experience as an in-house lawyer for major publicly listed companies. She uses her commercial background and franchising expertise to deliver business-focused solutions for franchisors and franchisees. Roz sits on the British Franchise Association (bfa) board of directors as the bfa’s legal representative and is a bfa Qualified Franchise Professional (QFP). https://www.goldsteinlegal.co.uk/
