NLRB Declares War on Franchises

The National Labor Relations Board issued a ruling that revised its “joint employer” standard, making the parent company of independently owned franchises responsible for many labor practices.

The case at issue involved a California Teamsters local who asked the NLRB to declare Browning-Ferris and a staffing agency “joint employers.” The staffing firm, Leadpoint Business Services out of Phoenix, had been supplying Browning-Ferris with temporary workers and the Teamsters wanted the board to recognize the bargaining rights of the subcontracted labor.

But as Reuters points out, the impact of the ruling will severely impact the franchise industry.

The board, in a 3-2 decision that will likely be appealed in U.S. court, said the existing standard, under which companies had to have “direct and immediate control” over employment matters such as hiring and firing to be considered employers, was outdated and did not reflect the realities of the 21st century workforce.

“We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority,” Board Chairman Mark Pearce wrote.

The decision means large companies that use a franchise model or staffing agencies will in many cases be required to bargain directly with unions and employees, potentially making it easier for them to win higher wages and better working conditions.

Business groups have said such a ruling, which came in the case of waste management company Browning-Ferris Industries Inc, would endanger companies that rely on franchising, contracting and supply chains, and kill jobs.

“Every business-to-business relationship is at risk,” said Michael Lotito, a lawyer at Littler Mendelson in San Francisco who works with industry groups.

The decision came as McDonald’s Corp (MCD.N) is facing a series of NLRB cases brought against dozens of its franchisees around the country. The fast food giant has argued that it is not a joint employer because it does not hire and fire franchise workers, and Thursday’s decision may make it more difficult for the company to make its case.

Unions and others who support the change say it is necessary to bring companies that indirectly control working conditions to the bargaining table and to curb the use of “permanent temps” who are paid less and do not get the same benefits as ordinary employees.

The ruling also means franchises and smaller companies that provide workers will be insulated from liability when labor violations are triggered by corporate policies, said Jeanne Mirer, a lawyer who authored a brief in the case on behalf of the Communication Workers of America and workers’ rights groups.

“Now the arrangement can be put back into balance in a way that gives fuller protections to workers and the leased company,” she said.

The dissenting NLRB members on Thursday said the board had exceeded its authority by redefining employment, and that the ruling would create uncertainty for businesses nationwide.

Just who and what is the NLRB screwing with? Franchises account for more than $2 trillion of America’s economy. There are more than 800,000 franchises nationwide with more than 18 million employees. All of that is threatened by the ruling of the labor board that seeks to destory independent franchise business owners. Why should McDonald’s or Burger King allow any independent actions by a franchisee if they are the ones who are going to be on the hook for any potential labor law violations?

There’s always a chance a federal court won’t see it the way that the NLRB sees it, but in the meantime, if you were thinking about opening a franchise operation, wouldn’t a ruling like this give you second thoughts? The uncertainty generated by this ruling will almost certainly have a negative impact on the franchise industry, thus placing another drag on an already sluggish economy.