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NLRB proposes new joint-employer rule

Draft walks back Obama-era standard that could have made franchisors liable

The National Labor Relations Board on Friday is expected to publish its long-awaited new rule that will tighten the standard under which franchisees and franchisors are considered “joint employers.”

Under the draft rule, which will be published in the Federal Register and will be subject to a 60-day public comment period, a franchisor would be considered a joint employer of a franchisee’s employees only if it “possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment, and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.” 

The rule rolls back an Obama-era opinion in the 2015 case involving Browning-Ferris Industries of California Inc., which broadened the definition of joint employers in a way that could have held franchisors liable for labor infractions by franchisees. 

“What this proposed rule would do is put back into place a standard that existed for more than 30 years that only found different companies to be joint employers when both exercised direct and immediate control over employees’ working conditions,” said Michael Sullivan, chair of the labor-and-employment practice at law firm Goldberg Kohn in Chicago. 

“The board in Browning-Ferris reversed that 30 years of precedent and said if one of the parties was capable or had the authority to exercise control, they could be considered joint employers, whether or not they exercised it,” he said. “That was a dramatic change in the law that had tremendous implications for all sorts of affiliated employers, but in particular franchisors and franchisees.”

Mark Kisicki, an attorney with Ogletree Deakins who represented Browning-Ferris in the case, said the proposed NLRB rule is a “return to normalcy” of the old standard.

“One of the key issues we’ve had as management-side lawyers in advising employers about the Browning-Ferris standard the NLRB adopted was that there was no clarity as to how that standard would apply and really what it meant,” said Kisicki. “But going to the historical standard, we have significant case law that explains what that standard is.”

Under the draft rule, he said, a franchisor generally would not be considered a joint employer unless they exercise sufficient direct and immediate control over things like hiring, setting pay rates or managing worker performance, he said.

That definition was a key issue in an NLRB case targeting McDonald’s, which was settled earlier this year

The NLRB’s proposed rule, however, falls short of a more-specific definition proposed by the federal Save Local Business Act, which passed in the House last year but appears to have stalled in the Senate.

That legislation stated more specifically how a joint employer might exercise control over a franchisee’s workers, including hiring and firing, determining pay and benefits, day-to-day supervision, scheduling or discipline.

Lawmakers, however, have questioned the NLRB’s ethics in vacating the Browning-Ferris decision, arguing that one board member, William Emanuel, should have recused himself from the process due to conflict of interest.

Since January 2016, the Department of Labor said it would determine whether a franchisor was also a joint employer on a case-by-case basis.

In May, however, NLRB chairman John Ring said businesses needed more clarity on the issue.

On the draft proposal, Ring is supported by Emanuel and board member Marvin Kaplan. 

Board member Lauren McFerran dissented. 

Contact Lisa Jennings at [email protected]

Follow her on Twitter: @livetodineout

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