NLRB rules for 'joint employer' standard, harming franchises

The National Labor Relations Board has done an enormous favor for its union friends, voting 3-2 along party lines to change the rules regarding franchises and their franchisees.

In essence, franchisers are now going to be liable for the labor practices of their franchisees, despite the fact that most are independent businesses who make their own rules regarding their own employees.


The ruling said parent companies can be held liable for labor violations committed by franchisees and contractors even when they have only indirect control. It is expected to impact a broad range of U.S. industries built on franchising and contract labor, from fast food and hospitality to security and construction.

Business groups and lawyers strongly criticized the ruling, saying it would force companies to the bargaining table even when they have little say over working conditions.

"The NLRB's actions today will subject employers to increased uncertainty, liability for workplaces that they don't actually control, and ramped up pressure tactics to ease union organizing," said Glenn Spencer, a vice president at the U.S. Chamber of Commerce.

The decision could also make it easier for unions and workers to win higher wages and better working conditions since they would be negotiating directly with parent companies.

Business groups have said such a ruling, which came in the case of waste management company Browning-Ferris Industries Inc, would endanger companies that rely on franchising, contracting and supply chains, and kill jobs.

Michael Lotito, a lawyer at Littler Mendelson in San Francisco who works with industry groups, said companies will have two main options moving forward: take more control over workers, which would upend existing business models, or back away and risk losing control over brand identity.

"The NLRB has totally upset the apple cart with respect to an understanding over accepted business risk," he said.

Browning-Ferris, which the board said is a joint employer of workers at a California recycling plant who were hired by a staffing agency, can appeal the ruling. But a court could overturn this particular decision while leaving the standard adopted by the board on Thursday intact, said John Raudabaugh, a professor at Ave Maria Law School in Florida and former NLRB member.

If it stands, the ruling is likely to have a direct impact on a series of pending NLRB cases against McDonald's Corp and dozens of its franchisees around the country. The fast food giant has argued that it is not a joint employer because it does not hire and fire franchise workers, and Thursday's decision may complicate the company's argument.

There are more than 800,000 franchises in the U.S., generating $2 trillion in economic activity and emplying 18 million workers.  The franchise model has allowed hundreds of thousands of people to own their own businesses where they may not have been able to otherwise. 

The NLRB assault on the franchise model will give unions a huge leg up in unionizing fast food and other franchise workers.  Instead of having to negotiate with independent businesses, unions can now target the parent company. 

All this will do is speed up the process of replacing people with machines.  And millions of workers are likely to pay the price for it.

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