Why the NLRB's Whopper of a Ruling Will Have Massive Ripple Effects
The definition of what it means to be an employer, is surprisingly opaque. You would think, any company that has employees is an employer. Seems basic enough, but according to a recent ruling by the National Labor Relations Board, that definition doesn't provide a full picture of the employment landscape.
On Tuesday, the general counsel of the NLRB sent McDonald's Corp. a memo that said it could be held accountable as a joint employer in dozens of outstanding cases before the board related to the fast food coporation's franchisees.
The memorandum, and as yet undisclosed similar directives to various locales over which the NLRB has jurisdiction, have provoked a firestorm of outrage from businesses and business groups that say the memo spells the end of franchising, and represents an uneasy encroachment of greater federal regulation into business life. By contrast, pro-worker groups and some small businesses say that the ruling levels the playng field and will actually make it easier for franchisees, and for workers to organize.
The pirmary issue, which has yet to be decided by the NLRB and potentially in federal appeals courts, is who can now be considered a joint employer.
Opponents of the memorandums say the NLRB is attempting to overturn decades of accepted legal framework around the concept of joint employership, where a discreet wall has allowed large corporations to license their products to franchisees, who are responsible on a local level for hiring, firing, and setting wages. Proponents say redefining who qualifies as a joint employer could lift the veil on abusive corporate practices that make it hard for franchisees to operate and for their workers to organize in the first place.
But first things first. Here's what the NLRB's memo to McDonald's actually says:
The National Labor Relations Board Office of the General Counsel has investigated charges alleging McDonald’s franchisees and their franchisor, McDonald’s, USA, LLC, violated the rights of employees as a result of activities surrounding employee protests. The Office of the General Counsel found merit in some of the charges and no merit in others. The Office of the General Counsel has authorized complaints on alleged violations of the National Labor Relations Act. If the parties cannot reach settlement in these cases, complaints will issue and McDonald’s, USA, LLC will be named as a joint employer respondent.
Joint employment is a complicated concept, and no one over-riding definition exists. Here's how the U.S. Department of Labor defines it in a fact sheet:
Joint employment is determined by applying the “economic realities” test, which examines a number of factors to determine whether a worker is economically dependent on a purported employer, thus creating an employment relationship. Factors to consider may include whether a possible employer has the power to direct, control, or supervise the worker(s) or the work performed; whether a possible employer has the power to hire or fire, modify the employment conditions or determine the pay rates or the methods of wage payment for the worker(s); the degree of permanency and duration of the relationship; where the work is performed and whether the tasks performed require special skills; whether the work performed is an integral part of the overall business operation; whether a possible employer undertakes responsibilities in relation to the worker(s) which are commonly performed by employers; whose equipment is used; and who performs payroll and similar functions. Other factors also may be considered and no one factor is controlling. The ultimate question is one of economic dependence.
Employment law specialist Michael J. Lotito, a partner at law firm Littler Mendelson, in San Francisco, says the current method for determining joint employer status revolves around "direct control"--who hires, fires, directs and evaluates the employee on a day-to-day basis. A company that uses a contractor for janitorial services, for example, could be considered a joint employer because it exerts direct control.
(This classification is also being considered in another case from May, involving waste services company Browing-Ferris Industries, where the NLRB is considering expanding joint employer status to include contract and temporary workers.)
What the NLRB is proposing in the McDonald's case is a test of "indirect control," Lotito says.
"You [would] look at the overall relationship between the parties," Lotito says. "The theory seems to be in the franchise context that the franchisor exerts such operational control through computer systems and the like, advising on proper staffing levels and perhaps other employee relations matters, that the franchisor is, in essence, the employer."
That could make corporations like McDonald's and other large franchisors liable in worker lawsuits, and potentially responsible in any collective bargaining activity. Still, pro-worker rights groups such as the National Employment Law Project (NELP) say franchisees and their workers could benefit.
"The allegations in the lawsuits filed for wages and hours is that the franchisees were squeezed so much by their franchise agreements, that they had little wiggle room and little autonomy" to fix the problems, says Cathy Ruckelshaus, general counsel for NELP.
By assigning joint employer status to McDonald's, NLRB is hoping to bring in a responsible party to do just that, Ruckelshaus says.