Lawmakers seek clarification on franchise joint employers

Thirteen Members of Congress signed a letter asking the National Labor Relations Board (NLRB) to clarify the extent to which an Advice Memorandum (NLRB Advice Memorandum 177-1650-0100, on April 28, 2015), issued after the NLRB took up consideration of a new joint employer standard but before it was established in Browning Ferris (Browning Ferris Industries of California, Inc. dba BFI Newby Island Recyclery, 2014-15 CCH NLRB ¶16,006, 362 NLRB No 186. Case No 32-RC-109684, August 27, 2015; NLRB Advice Memorandum GC 16-02 (Revised) on March 28, 2016) can be relied upon by the franchise industry. The requested clarification is aimed at dispelling confusion among small business owners.

Freshii determination

In the Advice Memorandum which was based on Nutritionality, Inc., dba Freshii, Cases 13-CA-134294, 13-CA-138293, and 13-CA-142297, NLRB Associate General Counsel Barry J. Kearney said that Nutritionality, a franchisee of the restaurant chain Freshii, and the franchisor itself were not joint employers under either the NLRB’s then-current standard, or under the traditional joint employer standard that was being urged by the General Counsel, because there was no evidence that Nutritionality shared or codetermined with Freshii matters governing the essential terms and conditions of employment of Nutritionality’s employees.

No joint employer relationship

Freshii Development was a “fast-casual” restaurant chain operating over 100 stores as franchises. Nutritionality, Inc., which operated a single Freshii store in Chicago, signed a franchise agreement and typically employed between five and nine employees. In 2014, Nutritionality fired one employee and disciplined and fired another for trying to unionize the workforce. NLRB Region 13 found merit to unfair labor practice allegations but sought advice from the Office of the General Counsel as to whether Nutritionality, as a franchisee, was a joint employer with Freshii and/or Freshii’s franchise development agent. The General Counsel’s Advice Memorandum concluded that there was no joint employer relationship.
In a May 8 Letter addressed to Associate General Counsel Kearney, the lawmakers point to uncertainty about whether businesses can rely on the Freshii memorandum because it appears fact-specific to Freshii’s circumstances and the NLRB subsequently established a new joint employer standard in Browing Ferris that applies to all businesses, including franchises.

New Browning Ferris

Perhaps the most important aspect of the new joint employer standard articulated in Browning Ferris is that the NLRB no longer requires that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Nor does the NLRB require that to be relevant to the joint employer inquiry, a statutory employer’s control must be exercised directly and immediately.
Under the new standard, if otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint employer status.

Questions posed for clarification

Given the NLRB’s post-Freshii decision in Browning Ferris, the lawmakers have asked Kearney to clarify the following issues related to the Freshii Advice memorandum:

  • May the April 28th memorandum be used as a blueprint for all franchise systems notwithstanding the joint employer standard established in late August 2015?
  • How much flexibility will franchisors have to implement, articulate, and enforce brand standards before they are deemed to cross the line into the forbidden areas of “indirect,” “unexercised,” or “potential” control for joint employer purposes? (U.S. Congress, House of Representatives Letter, May 8, 2017.)

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