Note: This post is a snippet of our 2018 Top 100 Global Franchises report. The entire report can be viewed here.
Last year, joint employment was a very hot and contentious topic, with McDonald’s at the heart of it. This year, it has continued to be in the news.
Since 2015, companies have been operating under an informal guidance from the National Labor Relations Board (NLRB) that defined joint employment as when a company exercises any control over working conditions or if it reserves the authority to do so—a significantly larger umbrella than previously. The ruling potentially put franchise headquarters on the hook for working conditions at a franchise in addition to the individual franchisee, a situation that many franchise industry leaders rebuked.
With moves taken last year, it can be concluded that the new U.S. Secretary of Labor, Alexander Acosta, also felt that the previous rulings were too broad in reach.
In June, Acosta withdrew the informal guidance from 2015, as well as an additional one made in 2016. The withdrawal reestablished that joint employment liability can only come with “direct control” over a worker’s situation. The reversal of direction was solidified in December when the National Labor Relations Board (NLRB) officially overturned the precedent, which was being used by workers to challenge companies like fast-food and hotel chains over labor practices they felt were detrimental to them.
The IFA, which had lobbied for the reversal, was pleased with the decision. On the day the decision was announced, IFA Senior Vice President of Government Relations & Public Affairs Matt Haller said, “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.”
Although the decision in effect decreased the official standard of liability for employers in many cases, the Department of Labor was sure to remind employers of their responsibility to workers in its mid-year release on the matter, reminding employers of their responsibilities under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.
But issued guidances are only a guideline, not a whole say on the matter in terms of law. The latest development in the joint employment saga is an indication that Peter Robb, new general counsel of the NLRB, is moving towards settling the McDonald’s case.
However, legal observers point out that even with a settlement the story may not end there. “You're not going to get a joint employer finding from this board, but at least there's a record,” former NLRB chair Wilma Liebman has said, noting the NLRB often reverses itself when another party takes power. “It's a setback [for those who brought the complaints forward], but I don't know that I would call it permanent.”
UPDATE: Things continue to shift. In late February 2018, the December 2017 ruling was vacated because one of the voters should not have voted on the matter due to a conflict of interest.
UPDATE 2: In March 2018, McDonald's reached a settlement that allowed it to avoid being designated a joint employer of workers at McDonald's franchises, meaning the corporate office won't be held liable for its franchisees' violations. The settlement terms weren't immediately available.
Brazil Also Addresses Joint Employment
Meanwhile in Brazil, the Brazilian Franchise Association (ABF) hopes to decrease the legal risks of franchising in Brazil and formally clarify the positions for all the parties involved in a franchise agreement via a new Franchise Disclosure Act.
The new Franchise Disclosure Act is intended to fill in the gaps left by the original Franchise Disclosure Act. The original act, which entered into Brazilian law in 1994, didn’t regulate the relationship between the parties, and – maybe most importantly – it didn’t explicitly express the liabilities of any of the parties involved. A fact that some employees and labor unions are trying to exploit in current disputes. To this point in time, the Brazilian Labor Courts have been concluding the definition of a franchise within the original act is sufficient enough to not assign joint employer status in many cases.
Within the bill the new Franchise Disclosure Act is filed under states that “a franchise shall not characterize a consumer relationship, ‘economic group,’ nor characterize an employment relationship, between the franchisor and the franchisee or the franchisee’s employees, even during the training period.” A clarification the ABF hopes decreases the number of court battles franchisors and franchisees go through.
For more details, please see our post on Brazil’s new Franchise Disclosure Act.