NLRB illuminates franchise’s “joint employer” status

Nutritionality, a franchisee of the restaurant chain Freshii, and the franchisor itself are not joint employers under either the NLRB’s current standard or under the traditional joint employer standard being urged by the Office of the General Counsel, NLRB Associate General Counsel Barry J. Kearney said, because there is no evidence that Nutritionality shares or codetermines with Freshii matters governing the essential terms and conditions of employment of
Nutritionality’s employees.

Freshii Development is a “fast-casual” restaurant chain that operates over 100 stores as franchises. Nutritionality, Inc., which operates a single Freshii store in Chicago, signed a franchise agreement and typically employs 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, is 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.

Franchise agreement

The franchise agreement grants a franchisee the right to “own and operate” a restaurant using Freshii’s “business system, business formats, methods, procedures, designs, layouts, trade dress, standards, specifications and [trademarks],” which Freshii retains the right to modify. Freshii may terminate the franchise agreement for 20 different reasons, including failure to comply with the operations manual or mandatory system standards. These system standards may regulate any aspect of the operation and maintenance of the restaurant, including as relevant here: staffing levels, appearance, service, and job functions for restaurant employees; standards for training managers; payment systems; and “any other aspects of operating the restaurant” that Freshii determines to be useful.
But the agreement also states that system standards do not include “any personnel policies or procedures,” which Freshii may make available for franchisees’ optional use and that the franchisee alone will “determine to what extent, if any, these policies and procedures might apply” to its restaurant operations. Freshii “neither dictates nor controls labor or employment matters for franchisees and their employees,” according to the agreement.

The current standard

According to the Board’s current standard, two separate entities are joint employers of a single workforce if they “share or codetermine those matters governing the essential terms and conditions of employment.” This means the business entity must meaningfully affect the employment relationship “such as hiring, firing, discipline, supervision, and direction.” Other factors also have been considered in making a joint employer determination, including involvement in decisions relating to wages and compensation, filling job vacancies (and determining how many), work hours, assigning work and equipment, employment tenure, as well as involvement in the collective bargaining process.

No involvement in employment relationship

Under the current standard, Freshii did not appear to meaningfully affect any matters pertaining to the employment relationship between Nutritionality and its employees, the advice memo said. Freshii “played no role” in decisions about hiring, firing, disciplining, or supervising employees. The fact that potential applicants can submit resumes through Freshii’s website to be considered for jobs at franchise locations did not change that fact; there was no evidence that Freshii screened the resumes or did anything except forward them to individual franchises.
Instead, Nutritionality appeared to be solely responsible for determining wages, raises, or benefits of its employees; the owner regularly increased and decreased employees’ wages without Freshii’s involvement. Plus, Nutritionality used a different employee handbook with different personnel policies than Freshii’s Chicagoland development agent. This was consistent with the franchise agreement, which gives the franchisee the power to determine whether or not to use Freshii’s personnel policies or procedures.

No involvement in scheduling

Freshii is not involved in Nutritionality’s scheduling or in setting work hours of its employees. The franchisor did provide guidance on how to calculate labor costs to ensure that restaurants are not over- or understaffed, but neither directly nor through scheduling software or its development agent did it make decisions about Nutritionality’s staffing. In fact, there are at least three different point-of-sale systems being using by Chicago-area Freshii franchises, the memo noted.

“Restaurant” training

Owners and managers must attend required training prior to opening a franchise, but this training deals primarily with operating a restaurant. The training also offers recommendations and guidance (as does Freshii’s Operations Manual and handbook) on employee personnel policies, such as hiring, scheduling, and disciplinary practices, but following those policies is not required. After the initial training, no future training is required.
“Product and customer experience”

Any control Freshii’s exerts is geared to “ensuring a standardized product and customer experience,” not to matters governing essential terms and conditions of employment. Freshii’s requirements regarding uniforms, initial training of employees, and store hours, without more, are not a basis for finding a joint employer relationship and are not evidence of control over labor relations but instead establish Freshii’s legitimate interest in protecting the quality of its product and brand, explained the memo.

Monthly reviews

Monthly reviews by Freshii’s development agents are limited to inspecting franchisees’ adherence to Freshii’s mandatory brand standards (primarily the menu and food products); they are not used to examine any employment-related policies, and the memo saw no evidence that a review ever had affected an employee’s terms and conditions of employment through discipline or discharge. Although here the Chicagoland development agent recommended to Freshii that Nutritionality’s franchise agreement be terminated because it continually failed to meet brand standards (notably, not because of labor relations, working conditions, or employee scheduling or compensation), Freshii did not follow that recommendation nor attempt to terminate Nutritionality’s franchise. Finally, even after Nutritionality’s owner asked Freshii, via the development agent, for advice on the incidents at issue here, Freshii remained silent and did not instruct Nutritionality’s owner as to how to respond to the employees’ organizing efforts.

Return to “traditional joint employer standard”

Nor could Freshii be considered a joint employer under the “traditional” joint employer standard, a return to which the NLRB is considering. Under that standard, the Board would find joint employer status where, under the totality of the circumstances (including how the separate entities have structured their commercial relationship), the “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.” Direct, indirect, and potential control over working conditions are not distinguished; instead, a joint employer finding results where “industrial realities” make an entity essential for meaningful bargaining.

Again, Freshii and Nutritionality would not be joint employers of Nutritionality’s employees under a return to the “traditional” standard. Freshii does not significantly influence the working conditions of Nutritionality’s employees, with no involvement in hiring, firing, discipline, supervision, or setting wages. Because Freshii does not directly or indirectly control or otherwise restrict the employees’ core terms and conditions of employment, meaningful collective bargaining between Nutritionality and any potential collective-bargaining representative of the employees could occur in Freshii’s absence, concluded the memo. (Nutritionality, Inc., dba Freshii, April 28, 2015, released May 12, 2015; Case numbers 13-CA-134294, 13-CA-138293, and 13-CA-142297.)

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