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NLRB ‘Joint Employer’ Ruling Overturned — What Does it Mean for Restaurants?

On Dec. 14, 2017, the National Labor Relations Board (NLRB) overturned a 2015 Obama-era policy that made it easier for workers—including employees of chain restaurants—to unionize and hold companies accountable for the actions of franchisees and contractors. The decision to overturn the ruling is being welcomed by business groups, and will likely cause franchisors (i.e. […]

On Dec. 14, 2017, the National Labor Relations Board (NLRB) overturned a 2015 Obama-era policy that made it easier for workers—including employees of chain restaurants—to unionize and hold companies accountable for the actions of franchisees and contractors.

The decision to overturn the ruling is being welcomed by business groups, and will likely cause franchisors (i.e. many fast food companies) to breathe a sigh of relief, as it once again establishes “joint employers” as only companies who exercise direct control over their workers.

The 2015 decision, involving Browning-Ferris Industries, ruled that a company could be considered a “joint employer” with a subcontractor or franchisee if it has – in addition to direct control – indirect or implied control over the terms and conditions of employment or the workplace.

If you’re scratching your head or wondering what we’re talking about… don’t worry — we’ve laid it for you below.

What Does “Joint Employer” Mean?

Two companies are “joint employers” when they share “direct and immediate” control over the same employees and working conditions. For example, a quick service restaurant chain could be considered the “joint employer” of employees at the companies franchise locations if the corporate offices participate in the hiring, firing, and discipline of the workers, or if corporate dictates work schedules and supervises the day-to-day work being performed.

What Changes with this New NLRB Ruling?

The 2015 rule expanded the definition of joint employer beyond just having direct control over a subcontractor or franchisee’s employees to having indirect or implied control, thereby making employers potentially liable for labor-law violations committed by their subcontractors or franchisors. As such, large fast-food chains could be sued by workers employed by the chain’s franchisees for violating safety or other regulations even though the larger corporation had only indirect control over the employees.

After this new reversal, franchise workers will only be seen as employees of the parent corporation if the company has direct control over workers—which is not typically the case. As a result, joint employer status now requires proof that companies do have joint control over an individual’s employment, rather than simply the right to do so.

Who Does the New Ruling Impact?

Countless industries with non-traditional workplace arrangements (e.g., franchise networks, temporary workers, subcontractors, etc.) could be impacted by these changes. These industries include but are not limited to restaurants and other franchises, healthcare, hospitality, construction and employment services companies.

What Does it Mean for Restaurant Operations?

This far-reaching decision has implications for many businesses that operate with a franchise model, including big fast-food corporations. Under this new ruling, a company such as McDonald’s can essentially say it’s not responsible for how employees of its franchised locations are treated as it relates to labor law violations. So, what are the implications for hourly employees or employees who belong to a union or were employed through a third-party contractor?

The 2015 ruling made it easier for workers to form small “micro-unit” unions within larger workforces.

The 2017 reversal could impact an employee’s ability to win concessions from employers through collective bargaining, and even to unionize in the first place.

Critics say it will make it easier for large companies to “pass the buck” when it comes to the treatment of employees at their franchises, whether in regards to unfair wages, union busting, change working conditions, or other violations of labor laws.

Are Any Restaurants Immediately Impacted?

The ruling casts doubt upon the NLRB’s ability to argue, as it has in the much-publicized McDonald’s litigation, that franchisors are joint employers with franchisees. The General Counsel is arguing that McDonald’s is the joint employer of franchisee employees across the country. The trial has been ongoing since March 10, 2016. However, the new ruling calls into question the continuing vitality of that litigation—as well as the scores of additional unfair labor practice charges against franchisors and/or franchisees now siloed at the NLRB awaiting a McDonald’s ruling.

What is the Industry Response to the New Ruling?

Ever since the 2015 ruling, many business groups have been lobbying in Washington to reverse the ruling. Three of the most vocal groups include the National Restaurant Association (NRA), the National Retail Federation (NRF), and the International Franchise Association (IFA).

In response to the 2017 ruling, the NRA’s Executive Vice President for Public Affairs Cicely Simpson stated: “We applaud today’s decision from the National Labor Relations Board. The 2015 Browning-Ferris ruling stacked the deck against small businesses and inserted uncertainty into day-to-day operations. Today’s decision restores years of established law and brings back clarity for restaurants and small businesses across the country.”

The IFA’s Senior Vice President of Government Relations and Public Affairs Matt Haller stated: “Today’s decision helps create certainty for franchisors and franchisees in the near term and highlights the need for long-term certainty in this area.”

What is the Opposition Saying About the Ruling?

Not everyone is pleased with the ruling. The rapid-fire action has sparked outrage from labor advocates as well as current and former Democratic members of the NLRB. The two Democrats on the board dissented, saying the 2015 Browning-Ferris decision was legally sound and the majority failed to provide any “real-world examples or even remotely plausible hypotheticals” that show how the standard harmed businesses.

Christine Owens, executive director with the National Employment Law Project, said in a statement: “In this economy, employers are increasingly subcontracting out vital parts of their business to other contractors and/or using temporary employment agencies to fill vital positions. The Browning-Ferris decision recognized that in these arrangements, companies that contract out work may still retain control over the conditions and standards that govern the work and how the workers doing the jobs are treated. Browning-Ferris rightly held these companies responsible for the labor standards under their own control. With this reversal, the NLRB has decided to let them off the hook.”

This controversial ruling will not end here. Undoubtedly, it will continue to ignite both support and disagreement in the business world at large. Stayed tuned for future updates on the ruling’s impact in the restaurant industry.

Additional Labor Compliance Resources Available

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