The General Counsel of the NLRB Opens the Door for Franchisors to be Liable for the Actions of their Franchisees

3d-person-at-restaurant with hamburgerBy Ashley T. Kasarjian, Michael J. Coccaro and Gerard Morales

In a directive that has rocked the franchise world, the National Labor Relations Board (“NLRB” or the “Board”) Office of the General Counsel determined that McDonald’s USA, LLC, as the franchisor, could potentially be held liable for the actions of its franchisees under the “joint employer” theory. The General Counsel’s decision has authorized numerous unfair labor practice complaints based on alleged violations of the National Labor Relations Act (“NLRA”) to potentially proceed against both the franchisor and franchisee entities.

According to the NLRB’s Office of Public Affairs, 64 cases are currently pending investigation and 43 additional cases have been found to have merit, potentially resulting in McDonald’s—the franchisor—being named in numerous ongoing matters relating to the franchisee entities. In total, McDonald’s has over 3,000 franchisees. With over 35,000 locations worldwide and more than 14,000 of those locations being in the United States, only a small fraction of the McDonald’s restaurants are company-operated.

This decision is consistent with an earlier amicus brief that was filed approximately one month ago on behalf of the NLRB General Counsel in Browning-Ferris Industries of California, Inc. The amicus brief argued that the Board “should abandon its existing joint employer standard” that finds joint employer liability when an employer exercises direct or indirect control over significant terms and conditions of employment of another entity’s employees and, instead, “adopt a new standard that takes account of the totality of the circumstances, including how the putative joint employers structured their commercial dealings with each other.”

Subjecting a franchisor to liability otherwise reserved for the franchisee-employers could potentially obliterate the heart of the franchise business model and affect businesses throughout the United States. Franchisors simply do not exert the level of control (or in many cases any control) over the franchisees’ employees’ terms and conditions of employment so that the franchisors would be considered “employers.” Until now, franchisors have not been involved in the run-of-the-mill disagreements among employees and the franchisees. If franchisors are suddenly brought into such disputes, as the General Counsel of the NLRB has suggested may occur here, it essentially eliminates one of the prime reasons a potential franchisor may choose to enter into the franchise model as opposed to just obtaining investors or lenders. Franchisors may be forced to exercise more control and, as a result, spend more money and provide more oversight of the day-to-day tasks of their franchisees. It chips away at much of the upside of the franchisor/franchisee relationship for the franchisor, and will arguably make it more difficult and costly for small business owners and individuals to become franchisees.

The directive really becomes a catch-22 for franchisors who, based on the presumption that they may be viewed as a joint employer, must now consider whether they need to exercise more control over the terms and conditions of the franchisees’ employees’ employment. Do they need to weigh in on wages, hiring decisions, terminations, disciplinary issues and other actions that are typically delegated contractually to the franchisees? And if the franchisors do those things, have the franchisors now perpetuated the argument that they now, in fact, should be treated as joint employers?

Jeopardizing franchisor/franchisee relationships is only the tip of the iceberg. There are also broader implications with this new guidance that extend far beyond the potential that franchisors may arguably be considered “employers” under the NLRA. It remains to be seen whether the NLRB will begin more actively pursuing “joint employer” cases against parent companies or corporations that would otherwise not have been included in the earlier definition of “employer” under the NLRA. It also begs the question as to whether other agencies, such as the Equal Employment Opportunity Commission or Department of Labor, will follow the NLRB General Counsel’s lead. For example, the issue of “joint liability” comes up in the context of the Fair Labor Standards Act (FLSA), which follows the “economic realities” test when determining liability for claims by subcontractors and independent contractors. The Family and Medical Leave Act (FMLA) addresses “joint employer coverage” in its regulations and identifies when two or more businesses may be considered joint employers under the FMLA. Similarly, many statutory and common law tests focus on the level of control an entity has over another company and/or that company’s employees. Accordingly, the issue of joint employer liability is important for any company to understand that utilizes temporary agencies, subcontractors, independent contractors, leased employees or operates any business model in which services or work is performed by entities or employees other than its own. It is essential because companies may be individually and jointly responsible for those entities’ compliance with the laws.

The investigation of the charges against McDonald’s franchisees is still ongoing. McDonald’s has issued a statement that it “will contest this allegation in the appropriate forum.” Procedurally, the next step will be for McDonald’s to address any complaints filed against it before an administrative law judge and, then, the issue could arguably go up to the full Board and even the Supreme Court. McDonald’s reiterated in its statement that it does “not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of [its] franchisees’ employees.” This is definitely one super-sized issue that will be making the headlines for a while.

*This article was authored by me and my colleagues, Michael Coccaro and Jerry Morales, and was originally sent out earlier today by Snell as a Legal Alert. My personal opinion is that the article will have the most impact if enjoyed with a soda, hamburger, and side of fries.

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For the Arizonans – Fantastic Local Organizations

desert Arizona landscapeAs readers of Employment and the Law know, I try to focus the blog posts on issues that impact Arizonans the most. After posting several years worth of employment law articles and best practices (where has time gone??), I wanted to take a minute and highlight some fantastic local organizations. I realized I have a diverse group of Arizonans who follow my blog who are not only as passionate about employment law as I am, but ALSO equally involved in our community. Here are the three organizations I wanted to highlight. Drum roll please…

image002Colleen’s Dream Foundation is an organization that supports ovarian cancer research for early detection and improved treatment. I had the honor of meeting the woman behind The Dream when I was – of all things – taking the bar exam in 2007 (it turns out this post is law-related!). 2007 also turned out to be the same year that Colleen was diagnosed with ovarian cancer. A superstar mom of four daughters, as well as a daughter, sister, and friend to many, Colleen was the inspiration behind The Dream.

At Colleen’s Dream Foundation, we feel it is important to raise money for research that will lead to reliable early detection testing and improved treatment for ovarian cancer. Because so little is known about ovarian cancer in proportion to other women’s health issues, we have an incredible opportunity for research and education.

We are working with some of the top research hospitals and universities that are researching ovarian cancer.  Offering seed funding ($5,000-$10,000 grants) to young investigators, we will fund cutting-edge research by some of the brightest, young minds in the world.

Readers of my blog know that- if there is an infographic – it will find its way to this blog. One thing that is great about Colleen’s Dream is that the organization not only works to fund groundbreaking research, but also works to bring awareness to women who might not otherwise know the signs and symptoms of ovarian cancer.


If you want to get involved, plan on going to their signature event- an annual Golf Tournament and Evening of Dreams in February of each year. It is truly among the best events of the year, and it makes you feel all warm and fuzzy inside** because it’s for a great cause. And there’s also Kicking for the Dream, a project that engages young kicking specialists in an effort to raise awareness and fundraise for ovarian cancer research. There’s no doubt you’ll be hearing more and more about this project and likely even see many of the players at the Evening of Dreams.

Valley Youth Theatre. This is where talent meets cute meets hard work and fun. Valley Youth Theatre holds auditions all year long for kids 7 to 19 to perform in the organization’s musicals and plays. And these productions are TOP NOTCH. Their past season included classics like Snow White & the Seven Dwarfs, Peter Pan, and the Winnie the Pooh Christmas Tail.

Founded in 1989, Valley Youth Theatre (VYT) is a professional-quality theatre company dedicated to helping young people achieve their full potential through meaningful engagement, education, and excellence in the performing arts.

I simply can’t imagine a better place for kids to learn the performing arts, build friendships with other children, and get out of the summer/winter/fall/spring heat (yes, all four seasons have heat).

Maricopa Community Colleges Foundation. I have been on the Board of the MCCF for several years now. The Foundation is a 501(c)(3) nonprofit organization designated by the Maricopa Community Colleges to receive and manage gifts on behalf of the ten colleges, two skill centers and numerous education centers dedicated to educational excellence and meeting the needs of the businesses and citizens of Maricopa County.

Amber Cruz (left) is the first recipient of the Snell & Wilmer Leader Scholarship!

Amber Cruz (left) is the first recipient of the Snell & Wilmer Leader Scholarship!

Annually, the Colleges educate more than 250,000 students. Many are completing the first two years of a four-year degree while thousands of others are readying themselves for entry into the workforce through state-of-the-art career programs. Since the Foundation’s inception in 1977, more than $21 million in grants and scholarships have been awarded.

The Foundation’s scholarships are wide-ranging and impactful. To give a few examples, I have heard first-hand how they have permitted working single mothers to attend a few classes at a time and still pay the mortgage, they have allowed underrepresented students to be the first in their families to graduate college, and allowed students to attend focused classes to develop their trades.

This past year I spoke at the Heroes of Education dinner, which honors those who have a proven personal and professional commitment to supporting students and educational opportunities. The 2014 recipient was Vince Roig, Founding Chairman of the Helios Education Foundation. For those who are wanting to get involved, mark your calendars – the 10th Heroes of Education Dinner will be on April 16, 2015 at the Sheraton Downtown Phoenix Hotel.

**Speaking of “warm and fuzzy,” the cutest dog in the world was auctioned off to a good home at the Colleen’s Dream 2014 gala. To make it EVEN sweeter, Neil Rackers and his wife won the puppy, but when another person approached Neil at the bar and told him that his wife really wanted the dog, they BOTH agreed to make the full donation of the winning auction amount to Colleen’s Dream and Neil gave the gentleman the dog to take back to his wife. How sweet is that? Double the donations for a great cause!

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Labor and Employment State Bar Convention


photo_4-87There are so many big developments in employment law that I feel like I am playing catch-up with my posts, but I couldn’t skip the post about the Labor and Employment Section’s all-day seminar at the State Bar Convention in Tucson. The Convention was at the Westin La Paloma Resort and Spa. As usual, the L&E crowd had an all-day program planned for the Friday of the Convention.

Fun Fact:  In Tucson, attendance at the Convention usually averages around 1,200 (with about 500 to 600 more attendees in Phoenix).

Some of the highlights include breakfast with William Gould, a professor at Stanford and former Chair of the National Labor Relations Board. He was a speaker and also joined in a superstar panel discussing employment issues in sports law. My favorite panel was the data and privacy chat with Dan Oseran, Privacy Counsel from eBay, and Becky Winterscheidt a partner at Snell & Wilmer. We discussed privacy policies for HR, the risks with BYOD, litigation implications (i.e., challenges with the collection of documents for discovery), and even touched on employee data in the EU.

photo_3-118Anyway, the point of this post isn’t to recap everything I learned from the Convention but, instead, to convince the readers who don’t regularly go to start going. I just completed Chairing the CLE Committee of the L&E Section of the State Bar, and truly believe the programs our section offers are invaluable- for knowledge, networking, and just getting out of the office and seeing a pretty view (…take a look at my pictures below).

The view from my room at the hotel.

The view from my room at the hotel.

Same view. Same day. Different time.

Same view. Same day. Different time.

Mark your calendars, the Convention next year is June 24-26, 2015 at the Arizona Biltmore Resort & Spa. What that really means is that on June 26 I will be playing chess on the life-sized chess board on the lawn of the Arizona Biltmore. It never gets old. And if it gets hot, the pool is a few feet away. And, of course, I have no doubt the Section’s program will continue to be top notch.

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Yet Another Reason to Prohibit Texting While Driving

If there wasn’t reason enough to ensure that employees refrain from texting while driving so that they do not endanger themselves or others, OSHA has reminded employers that the employer has a legal responsibility to prohibit texting while driving. “It is a violation of the OSH Act if employers require workers to text while driving, create incentives that encourage or condone it, or structure work so that texting is a practical necessity for workers to carry out their job.”  OSHA has even published a Distracted Driving Brochure and dedicated a portion of its webpage to the topic.

If companies have not already, this is the perfect opportunity to revisit policies – including the Bring Your Own Device (BYOD) policy, Company Vehicle Policy, and any policy addressing communications.

The OSHA brochure states vehicles should be declared as “text-free zones,” and there should be clear procedures, times, and places for drivers’ safe use of texting (i.e., not while driving).

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The Department of Labor Proposes to Redefine “Spouse” in the FMLA

The Department of Labor has proposed to redefine “spouse” under the FMLA in light of the Supreme Court’s decision in Windsor, striking down DOMA.  The FMLA provides unpaid leave for eligible employees to care for their spouse due to the spouse’s serious health condition, if the spouse is a covered servicemember and has a serious illness or injury, and for a qualifying exigency related to the military service of the spouse.

The old regulations looked to the employee’s state of residency and how a husband or wife is defined pursuant to that state’s law.  The new regulations look to the law of the jurisdiction in which the marriage was entered into (including for common law marriages) as opposed to the law of the state in which the employee resides.  Further, the FMLA now expressly includes same-sex marriages in addition to common law marriages.  At the time of the publication, nineteen states and the District of Columbia extend the right to marry to both same-sex and opposite sex couples.

Therefore, even if the employee lives in a state that does not recognize same-sex marriage, there will be FMLA coverage for the employee, provided that the marriage was legal in the “place of celebration” where it occurred.

The Department proposed to define spouse in the following manner:

Spouse, as defined in the statute, means a husband or wife.  For purposes of this definition, husband or wife refers to the other person with whom an individual entered into marriage as defined or recognized under State law for purposes of marriage in the State in which the marriage was entered into or, in the case of a marriage entered into outside any State, if the marriage is valid in the place where entered into and could have been entered into in at least one State.  This definition includes an individual in a same-sex or common law marriage that either (1) was entered into in a State that recognizes such marriages or, (2) if entered into outside of any State, is valid in the place where entered into and could have been entered into in at least one State.

Once the regulations are final – and assuming no changes are made from the proposed revisions – no forms will be impacted.  Likewise, the Department of Labor’s forms remain optional. That being said, policies and procedures may need to be updated to reflect the current state of the law.

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