NLRB Browning-Ferris Ruling’s Potentially-Broad Implications for Franchising

For franchisors, one of the benefits of the franchise model has always been the ability to shift away liability for the actions of customer-facing employees. As long as franchisors follow certain, relatively well-established principles, they can insulate themselves from this liability by avoiding classification as a “joint employer” of their franchisees’ employees.

Or, should we say, they could insulate themselves from this liability.

In a landmark decision, the National Labor Relations Board (NLRB) dismissed roughly 30 years of precedent in order to adopt a much looser standard for establishing joint employer status. While existing law required proof of “direct” control, the NLRB’s ruling in Browning-Ferris states that “indirect,” or even “reserved” control may be enough to establish a joint-employer relationship.

The “Direct” Control Test Prior to Browning-Ferris

Prior to the NLRB’s Browning-Ferris decision, factors considered in determining joint employer status included:

  • Hands-on control regarding hiring and termination
  • Direct involvement in supervision and direction of employees’ activities
  • Direct responsibility for employee discipline

The “Indirect” Control Test Following Browning-Ferris

Following the Browning-Ferris ruling, joint employment may be established through:

  • Indirect control exercised through an intermediary employer
  • Reservation of the right to exert control through a contractual relationship, even if the right is not exercised

Why does this matter? As a general rule, companies that are considered joint employers must comply with all applicable laws and regulations that apply to the employment relationship. This includes laws that prohibit things like harassment and discrimination in the workplace. So, if a franchisor is deemed to be a joint employer with its franchisees, the franchisor could potentially face liability in a discrimination lawsuit even though it played no part in the franchisee’s alleged discriminatory employment practices.

What the NLRB’s Decision in Browning-Ferris Means for Franchisees

While the NLRB’s decision in the Browning-Ferris case perhaps has the greatest potential to be disruptive for franchisors, it will no doubt have direct impacts for franchisees as well. For example, following Browning-Ferris, franchisees can most likely expect:

1. Franchisors Will Use Even Stronger Language in their Franchise Agreements.

Franchise agreements have long included language stating that franchisees are solely responsible for establishing their employment policies and practices. However, franchisors have also traditionally included non-binding “guidelines” in their operations manuals, and they almost universally reserve the right to modify the terms of their operations manuals over time. Following Browning-Ferris, franchisees can expect to see franchisors taking a new approach to employment-related issues designed to directly address the potential implications of the NLRB’s ruling.

2. Franchisors Will Offer Even Less Assistance than in the Past.

While franchisor assistance is notoriously limited, especially in certain sectors and well-known franchise systems, following Browning-Ferris franchisees can expect to receive even less assistance than in the past. In order to avoid the potential of a lawsuit, franchisors will do everything possible to distance themselves from their franchisees’ day-to-day operations.

It should be noted that the NLRB’s Browning-Ferris ruling remains a source of significant contention, and a prior joint employment decision from the NLRB casts some doubt on Browning-Ferris’s applicability to certain franchise relationships. Legislation limiting the NLRB’s ability to impose joint employer liability on franchisors is currently pending before Congress as well. However, at present, franchisees are forced to contend with this uncertainty and the lengths to which their franchisors will go to protect themselves.

Goldstein Law Firm | Experienced, Nationwide Representation for Franchise Disputes

If you are facing an employment-related dispute in your franchise, or if you are struggling to deal with your franchisor’s response to the NLRB’s Browning-Ferris ruling, national franchise lawyer Jeffrey M. Goldstein can help. For a free, confidential consultation, call the Goldstein Law Firm at 202-293-3947 or submit a request online today.

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