NLRB Upends Franchising And Contracting In Landmark Case

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In a decision involving Browning-Ferris Industries, federal labor officials Wednesday drastically changed a rule impacting contractors and franchises across the country.

Under the National Labor Relations Act, a company can be considered an employer over a company it contracts with if it has significant control over its employees. Known as the joint-employer standard, the rule helps to resolve labor disputes when it’s not clear what company the dispute arose from. The National Labor Relations Board (NLRB) is tasked with solving such disputes.

“In this decision, we consider whether the Board should adhere to its current standard for assessing joint-employer status under the National Labor Relations Act or whether that standard should be revise to better effectuate the purposes of the Act, in the current economic landscape,” the NLRB decision noted.

Cases involving McDonald’s, CNN, and Browning-Ferris have provided the NLRB the opportunity to revisit the standard. The Browning-Ferris decision means the standard will expand significantly to include more businesses that contract with one another.

“Within that mandate they obviously have to consider who the employer is,” James Stone, a managing shareholder at Jackson Lewis, told The Daily Caller News Foundation. “They have a joint-employer standard now but it’s much more narrow.”

Since announcing its interest in revisiting the standard last year, the NLRB has defended the potential changes. It argued in the McDonald’s case that franchisors often times have too much control over the independent franchisees they contract with for them to be consider their own operations.

“Through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations of our Act,” the NLRB argued.

Many lawmakers and business leaders, however, became immediately concerned. They argued that expanding the standard could undermine contracting and the franchise model. Angelo Amador, senior vice president of labor and workforce policy at the National Restaurant Association, argued the decision could dismantle the franchise model.

“The Board is overturning years of established law that has worked to help grow business and feed our economy,” Amador said in a statement to TheDCNF. “The NLRB is already using its new rationale to dismantle the franchisor-franchisee model, which would stifle entrepreneurship and obstruct small businesses’ ability to continue to create jobs in an increasingly challenging economic and regulatory environment.”

The impact could be great. Many different businesses rely on franchising and contracting. Restaurants, cleaners, staffing agencies and retailers are just a few broad examples.

“The NLRB’s new standard could force Silicon Valley startups to hire the receptionists and cleaners they currently get from staffing or property management companies,” Competitive Enterprise Institute vice president for strategy Iain Murray noted in a statement to TheDCNF. “It will adversely impact the innovative sharing economy, where technology has drastically lowered transaction costs, enabling people to come together to share services in novel new business relationships. In the end, some jobs will be absorbed by companies’ corporate headquarters, to minimize unexpected liability; some jobs will be eliminated.”

Some have argued the decision to expand the standard is to benefit unions. If every franchisee under a corporate brand name is considered one operation, unions have the option of unionizing the entire thing as opposed to each individual business within the system.

“Obviously the board is pro-union right now,” Stone noted. “This labor board has been strikingly activist.”

“It extends the board’s long track record of siding with union leaders instead of America’s workers and job creators,” Republican Reps. John Kline and Phil Roe said in a statement. “Under the president’s watch, the National Labor Relations Board has pushed a culture of union favoritism that is detrimental to workers and employers.”

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