Suppose you are a franchisor — a company that sells franchises of its brand. If one of your franchisees violated federal labor law, would you be legally liable, too? Or suppose you are a staffing agency and your employees’ rights are violated by one of your client companies. Is that company liable for the violations? Or are you?
Your legal liability depends on whether you can be considered a joint employer with the other organization. If a franchisor, for example, were to exercise direct control over significant personnel matters at franchisees, that franchisor might be considered a joint employer with the franchisees. That could mean the franchisor would be liable for its franchisee’s labor law violations — at least to the extent that it exercised direct control over the matter.
In 2015, the National Labor Relations Board (NLRB) issued a somewhat controversial ruling that might have greatly expanded which organizations were considered joint employers. It said that, in determining whether a joint employer relationship exists, it would take into account whether an employer exercised indirect control or had reserved the authority to do so.
That ruling was quite unpopular with business groups such as the U.S. Chamber of Commerce, which worried the ruling might entirely overturn the franchise model and disrupt supply chains throughout the economy. The Chamber made overturning the 2015 standard one of its top priorities.
D.C. Circuit Court orders NLRB to limit joint employer definition
Recently, the U.S. Court of Appeals for the D.C. Circuit ruled that the 2015 standard was too broad. It did say that indirect control by one company might well create a joint employment relationship. However, it determined that the NLRB had not properly defined what degree of indirect control was sufficient to create that relationship. It ordered the board to revise its ruling to reflect a more traditional legal understanding of an employment relationship.
Meanwhile, the NLRB — whose current majority was appointed by President Trump — has already proposed to change the 2015 standard. In September, the board proposed restoring an earlier standard which requires direct control. That proposal could be adopted as a final rule by June.
With these developments, most companies will probably not be defined as joint employers with their franchisees or staffing agencies unless they exercise direct control over significant issues such as hiring, pay and working conditions. For an assessment of whether your company is a joint employer, contact an experienced labor and employment attorney.