Summary: The National Labor Relations Board has revised its definition of “joint employer,” which is troubling to many companies, particularly franchisors and franchisees.
On Thursday, the National Labor Relations Board decided to modify its definition of “joint employer,” CorpCounsel.com reported.
The 3-2 ruling, which was issued in the case of Brown Ferris Industries Inc., creates a gap in a previous legal divide between a company and its contractors. Companies may now face additional liability for violations of employment laws.
The case questioned whether Leadpoint Business Services, a staffing agency, and BFI, a company that operates recycling facilities, can be deemed “joint employers” of Leadpoint employees that were contracted to BFI. The board ruled that they could, and noticed a growth in the “diversity of workplace arrangements” in the country, such as temporary work, triggered the need for restatement of the former definition.
Last year, many felt the California franchise industry was up in the air.
The board decided that both companies were employers under common law definitions. Additionally, both companies exercised control over other factors such as employment terms and conditions, to meet criteria for the legal definition of employer.
The ruling is disturbing to some. However, the ruling may have a bigger effect on franchise law. The Los Angeles Times reports the decision could impact major companies like Wal-Mart, which subcontracts warehouse work, and fast food restaurants like McDonald’s, which uses the franchisor-franchisee model.
Many argue that fast food wages are insufficient.
The decision supports the recent notion that franchisors and franchisees may be treated as “joint employers.” Therefore, corporate offices may be liable for the actions of individual franchisee-operated locations.
In 2014, Subway reportedly violated pay and hourly rules.
Forbes also added that the decision essentially reversed several decades of practice where companies had to demonstrate “direct and immediate” control over workers. Now, regulators will look to see if a company had the potential to impact pay and working conditions—regardless of whether that power was actually used or not. The decision may affect routine business decisions as well. The New York Times adds that the ruling may make it easier for unions to negotiate on behalf of fast food workers.
Jania Bailey, a board member of the International Franchising Association, as well as chief executive of FranNet, a consulting firm that pairs franchisees and franchisors, commented, ““If this goes into effect then the franchiser has to step in and have a standard for hiring, human resources, payroll, everything. It basically nullifies this independent business model.”
Sources: CorpCounsel.com and Forbes
Photo credit: Politico.com