After ‘Browning-Ferris,’ Is It Now Safe for Franchises and Small Businesses?

December 29, 2017Articles The Legal Intelligencer

“Is it safe,” was the question asked by Lawrence Olivier’s character in the motion picture, “Marathon Man.” The same question is asked by franchise and small businesses after the NLRB’s recent decision on joint employment in Hy-Brand Industrial Contractors, 365 NLRB 156 (2017). The 3-2 decision explicitly reversed the board’s unlimited joint employment standard announced in Browning-Ferris Industries, 362 NLRB No. 186 (2015), when the board was controlled by appointees from the previous administration.

Small business and franchisers felt unsafe under Browning-Ferris, which announced a broad test for joint employment that broadly defined the doctrine of joint employment. The joint employment doctrine is  where two entities could both be found to be an employer, subject to withholding tax, unemployment compensation and other emoluments of employment. The Browning-Ferrisstandard held the mere right to control terms and conditions of employment, regardless whether that right was actually exercised, constituted joint employment. This meant that more than one company could be forced to collectively bargain with those workers and may be exposed for unfair labor practices under federal law, and workplace safety and pay disputes.

Organized labor welcomed the opportunity to organize McDonald’s workers employed by the franchisee and trial lawyers welcomed the deep pockets of newly found employers for vicarious liability. Franchisors and other small businesses lobbied against this joint employment standard as it would disrupt the business methods, financing and benefits of their operations by exposing them to workers they had never hired, fired or controlled. Organized labor viewed this lobbying as disguised hostility to the right to organize. After Browning-Ferris, calls for Congress to impose a uniform test for joint employment erupted as additional uncertainty was introduced into business structures and banking.

With the change of administrations came the change in the composition of the NLRB Board. In Hy-Brand, the board majority reinstated the “direct and immediate” control standard, holding that the Browning-Ferris standard is a distortion of common law as interpreted by the board and the courts, it is contrary to the [Fair Labor and Standards] Act, it is ill advised as a matter of public policy, and its application would prevent the Board from discharging one of its primary responsibilities under the act, which is to foster stability in labor-management relations.” Not satisfied with this blistering criticism, the Hy-Brand Board stated that the NLRB had exceeded its authority in re-defining common law agency principles and formulated an unpredictable test which harmed labor relations. The result is that the joint-employment standard that was in place for decades was reinstated.

Still, it is not safe for franchising and small business. What the NLRB did in a single, anomalous decision can be accomplished by any court in any state and any state legislature. Common law concepts of agency are state law concepts and govern the definition of employment. Most states have courts which define agency using different formulations, and sometimes ones contrary to the others. Some state legislatures have stepped in and legislatively overruled the Browning-Ferrisdecision as to state law definitions of employment. The opposition could easily occur as well, and a broad employment standard could be the law of a state by legislative or judicial enactment. We have now a patchwork of state laws defining employment which conflict with other states, creating conflict of law issues from issues of taxation, banking and restrictive covenants.

The political fight over joint employment is not over. If dependent upon NLRB composition, we can expect this to be a political football revisted every election cycle. We may see similar issues arise in the states. None of this uncertainty bodes well for commerce, which depends upon foreseeability for encouraging investment. For these reasons, lobbying will continue in state legislatures and in Congress for a predictable definition for joint employment, which satisfies business needs for predictability and allows workers’ rights to be protected.

A large bipartisan majority passed The Save Local Business Act (HR 3441) in November 2017, that would create a permanent statutory solution to the quagmire of joint employment. Expect strong opposition to be mounted in light of the Hy-Brand decision and the loss it represents to labor unions and worker advocates. Critics say no legislation is necessary because the cost of compliance of the joint employer standard in minimal if employers comply. Employers say despite best efforts, they cannot prevent exposure to employment related liability in every case and that such criticism ignores the common sense needed in expanding commerce.

The legislative imperative is on the backburner now because of the Hy-Brand decision. Federal joint employment legislation is waiting there, perhaps for the next election cycle.

Reprinted with permission from the December 29 issue of The Legal Intelligencer. (c) 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.