Statute with Limitations?

NLRB’s Joint-employer Campaign Provides Some Food for Thought

By PETER VICKERY

Is a franchisor liable for the labor practices of a franchisee? Are they joint employers? No, not according to the law. The franchisee is the employer, not the franchisor. But you would never guess that from the attitude of the National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC).

Together, these two agencies are trying to foist labor-practices liability onto parties whose business models are predicated on its absence.

The joint-employer concept is a creature of the common law, which is a flexible thing, evolving on a case-by-case basis to meet society’s changing needs. But some areas of law achieve a certain degree of stability, which makes life in general (and business in particular) more predictable. One such area of settled law is the relationship between franchisees and the people they employ.

For more than three decades, the NLRB and the courts have applied the principle that the franchisee — not the franchisor — is the employer of the individuals who work in the franchisee’s place of business. If a franchisor actually exercised significant control over the terms and conditions of employment — such as hiring and firing decisions, rates of pay, day-to-day supervision, and scheduling — the story would be different. In the absence of that control, franchisees and franchisors are not joint employers.

But now, the NLRB is pursuing charges against franchisors for the alleged labor practices of franchisees, asserting that they are joint employers.

Certainly, a franchisor has to involve itself in aspects of a franchisee’s operations in order to police and protect the brand. Depending on the provisions of the intellectual-property agreement, this can entail monitoring and instructing a franchisee’s employees with regard to quality control. But that kind of involvement, no matter how deep, does not constitute significant control over labor relations. Nevertheless, the NLRB asserts that it does.

The first targets in the board’s crosshairs are McDonald’s and Browning-Ferris Industries. The goal is to make it easier for unions to organize fast-food employees and temporary workers hired by staffing agencies.

Just to be clear, the law has not changed. In 1982 the U.S. Court of Appeals for the Third Circuit articulated the sufficient-control standard, and two recent rulings from California reiterated the point that franchisors and franchisees are not joint employers. The rules governing how the NLRB defines the term ‘joint employer’ are the same as well. What has changed, however, is the identity of the NLRB’s general counsel. In November 2013, President Obama appointed Richard Griffin, formerly general counsel to the International Union of Operating Engineers, which represents not only workers in construction and petrochemicals, but also in service industries. As the NLRB’s legal chief, Griffin made the decision to go after McDonald’s Corp.

Those who agree argue that the NLRB board is doing no more than meeting its “responsibility to adapt the [National Labor Relations] Act to the changing patterns of industrial life,” as Supreme Court Justice Brennan put it in the 1975 case of NLRB v. Weingarten. There is no doubt that Justice Brennan, the champion of the ‘living Constitution,’ wrote those words. What is in serious doubt is whether Congress can delegate to an executive agency the power to ‘adapt’ a statute. The Constitution vests the legislative power exclusively in the legislative branch. If Congress wants to adapt a statute to the changing patterns of industrial life, it — and it alone — is free to do so.

By launching complaints against franchisors on the basis of joint-employer status in the face of settled law, the NLRB is taking a tack similar to the one some commentators have described as the sue-and-settle approach. Rather than go through the cumbersome process of adopting new rules and regulations, some agencies and their allies in the economic areas they regulate (their de facto constituents) prefer a faster route.

The sue-and-settle approach involves agencies collaborating with advocacy groups to achieve a policy objective by leaning on businesses until they agree to the group’s demands, bypassing the rule-making process. Together, the advocacy group and the agency accomplish via a consent decree what they could not have accomplished through the statutorily mandated regulatory route, replete with notice, review, public input, and political accountability.

What the NLRB is engaged in with its joint-employer campaign is a variant on sue-and-settle. While Mr. Griffin embarked on the case against Browning-Ferris, but without pausing, the board invited public comment on its new definition of joint employer. One of the supportive comments came from the EEOC, which seems to welcome the prospect of expanding the range of potential defendants subject to its jurisdiction in discrimination cases. If the NLRB and EEOC succeed, the ramifications will extend well beyond the fast-food and staffing sectors.

Peter Vickery practices law in Amherst; (413) 549-9933; www.petervickery.com