Aug 1, 2014

The Door is Opening to Unionization in Franchised Operations - NLRB Lessens Burden to Prove Franchisor and Franchisee are Joint Employers

Alert | Franchise Law Alert

What the Board Said

The General Counsel of the National Labor Relations Board made good on his threat to seek to expand the traditional joint employer test. If followed by the Board, which is probable, the new test will find McDonald’s corporation and many of its franchisees are joint employers and co-liable for the unlawful acts of the other. The Board will likely disregard franchise agreements when ruling on unfair labor practice charges pertaining to union organizing and interference with rights protected by Section 7 of the National Labor Relations Act, as well as collective bargaining and myriad other allegations of unlawful employer conduct.

The General Counsel urged the Board to adopt a new standard that would result in finding a joint employer relationship “under the totality of the circumstances, including the way the separate entities have structured their commercial relationship, the putative joint employer wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.” The General Counsel recently argued, “the broader standard would allow employees to use traditional economic weapons to exert lawful economic pressure on those parties who realistically control the economics of the relationship – even if they do not ‘directly’ control working conditions.”

McDonald’s has more than 3,000 franchisees that operate 90% of its 14,000 U.S. restaurants.

Ruling Applies to Many Industries, Not Just Fast Food

Although McDonald’s and the fast food industry as a whole are dominating the headlines, this ruling has much broader implications. Candidly, this decision changes the rules for thousands of small businesses and goes against decades of established law regarding the franchise model in the United States.

This decision extends the new joint employer standard to other industries and companies besides McDonald’s and fast food chains. Manufacturers, real estate management firms, cleaning companies, any employer using temporary agencies or professional employment organizations, car dealerships, hotels, and subcontractors – to name a few – are subject to the more lenient joint employer test.

SEIU May Now Successfully Organize Fast Food Restaurants

Fast Food Forward, a group backed by the Service Employees International Union (SEIU), has been staging demonstrations for two years in which McDonald’s and other fast food workers have called for higher wages and the right to organize. Most notably, there have been five one-day strikes demanding $15 wages that fast food workers conducted against McDonald’s and other fast food restaurants since 2012. The SEIU has filed nearly 200 unfair labor practice charges with the NLRB on behalf of McDonald’s workers alleging that employees were laid off, terminated, or had their hours cut in retaliation for engaging in such activity.

The Board’s General Counsel has ruled that at least 43 of these unfair labor practice charges have merit. At least some of these charges allege that McDonald’s corporation, as the franchisor, is liable for the alleged unlawful acts of its franchisees. McDonald’s says the NLRB’s decision was wrong because the company does not determine or help determine decisions on hiring, wages, or other employment matters. Yet, the SEIU claims that McDonald’s orders its franchise owners to strictly follow its rules on food, cleanliness, and employment practices including the size of the staff at different times of the day, and that McDonald’s often owns the restaurants that franchisees use.

If these charges are not settled to the Board’s satisfaction, i.e. consenting that McDonald’s and its franchisees are joint employers, the Board will issue a Complaint on the charges and they will be litigated.

Changes to the Joint Employer Test are Imminent

As stated above and covered in a recent Roetzel Recap: Labor Relations (linked here), General Counsel Richard Griffin, Jr. announced his intent to ask the Board to revisit the standards for determining when and in what circumstances two or more employers could be found to be joint employers. The General Counsel invited amicus briefs on the issue and asked interested parties to share their views on the following questions:

         1. Should the Board adhere to its existing joint-employer standard or adopt a new standard?

         2. What considerations should influence the Board’s decision in this regard?

         3. If the Board adopts a new standard for determining joint-employer status, what should that standard be?

         4. If the standard is multi-factored, what factors should be examined?

The amicus briefs were due in late June and it now appears that the General Counsel has reached his decision that a new standard should be adopted and that it should be a much broader one than has been applied in the past. Amicus briefs have not been requested in the McDonald’s case, yet.

The General Counsel seeks to overturn 30 years of established law regarding the U.S. franchise model. Prior to 1982, a company was considered a joint employer when two or more employers exerted “significant control” over the same employees. Since then, the Board has adopted a narrower standard, holding that a company could be deemed a joint employer only when it directly controlled, for example, a franchisee’s or a temporary employment agency’s employment practices. In other words, whether two entities constitute a joint employer under the National Labor Relations Act requires an analysis of whether they share the ability to directly and immediately control or co-determine essential terms and conditions of employment, including matters such as hiring, firing, discipline, supervision, and direction.

With the decision on Tuesday, the General Counsel appears to be embracing the earlier “significant control” standard. This more lenient standard will dramatically assist labor unions in organizing franchisees, franchisors, temporary employment agencies, and staffing companies. To be clear, undermining franchise and staffing relationships are key to organizing significantly sized swaths of employees. Large corporate entities could see a domino effect where the actions of a small group of employees open the doors to unionization among millions of workers under the corporate umbrella.

Perfect Storm: Joint Employer Test, Micro Units, Ambush Elections

The NLRB’s trifecta of recent anti-employer rule changes is creating a perfect storm against companies wishing to remain union free. The Board and courts have consistently upheld unions organizing very small subsets of employees, called micro-units, instead of the traditional wall-to-wall bargaining units. Likewise, the NLRB has steadfastly moved forward with unleashing ambush (or “quickie”) elections on companies later this year.

Under ambush elections, the time between when a union files a petition with the NLRB seeking an election to the time when the election is held averages between 35-40 days. Ambush elections will decrease this time to as few as 11-15 days. This decrease is a monumental hurdle employers must overcome since statistical evidence provides that the longer an employer has to campaign against a labor union the higher the likelihood the company will prevail in a union election.

Traditionally, unions were required to organize most, if not all, employees in a company’s facility. For example, in a grocery store, all cashiers, produce, bakery, frozen food, etc. workers would vote collectively whether to be in a union. The recent approval of micro-units allows just the cashiers or just the bakery employees to form and join a union. Effectively, a single grocery store could have as many as 10 different unions with their own collective bargaining agreements covering 10 different departments.

Now with a more lenient joint employer test, the following scenario is a reality: Three of the six cashiers of a McDonald’s franchisee meet for a drink after work and complain about working conditions. They decide to file a petition for a union election the next day. An election is held 13 days later and four of the six cashiers vote to be in a union. Their union then files a unit clarification petition with the NLRB seeking to add cashiers from the franchisee’s other stores as well as corporate McDonald’s employees to the bargaining unit under the more lenient joint employer test; the union wins. Hundreds of cashiers are now union members because of the perfect storm. The drive-thru employees are next, followed by the cooks, followed by the temporary employment agency that supplies the workers – different unions, different collective bargaining agreement, different terms and conditions of employment.

Companies, whether non-union or partially union must proactively learn how the perfect storm can occur at their workplaces, how to recognize the signs of the storm brewing, how to stave off the storm, and how to remain union-free. These laws are not going away; make sure your freedom and flexibility in running your company doesn’t go away, either.

For further information, please contact any of the listed Roetzel attorneys.

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