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Are you a Joint Employer of your Franchisees?

A few weeks ago, I discussed the importance of franchisees evaluating and revising their employee handbooks and employee policies when necessary (in case you missed it, check it out here: Why Franchisees Should Review their Employee Handbooks).  From a franchisor’s perspective, making the franchisee responsible for their own employee handbooks and employee policies provides many benefits.  One benefit in particular that has become increasingly relevant is allowing the franchisee control over its own hiring, firing and other employee policies.  Allowing the franchisee to have this control is one of the ways to try and set up the franchisor-franchisee relationship in such a way so that they are not considered joint employers for liability purposes.

By now, you have likely heard about the decision of the National Labor Relations Board (“NLRB”) issued last July that held the McDonald’s franchisor was a joint employer of its franchisees because the franchisor exerted sufficient control over its franchisees’ operations beyond merely protecting the brand.  If the decision stands, McDonald’s will share in the liability for any labor law violations of its franchisees as a joint employer.  The NLRB Office of the General Counsel provided more guidance on the current standard used to determine whether a franchisor and franchisee are joint employers in a recent advice memorandum.

The advice memo was on the subject of whether a Freshii franchisee was a joint employer with the franchisor and, under the current standard, the NLRB Office of the General Counsel determined that the Freshii franchisee and franchisor were not joint employers for liability purposes.  According to the memo, the NLRB will determine that joint employer status exists if franchisors and franchisees “share or codetermine those matters governing the essential terms and conditions of employment…such as hiring, firing, discipline, supervision, and direction.”  Other factors that may be considered in making a joint employer determination include the franchisor’s involvement in decisions relating to wages and compensation, the number of job vacancies to be filled, work hours, the assignment of work and equipment, and employment tenure.

The factors used by the NLRB to determine joint employer status should be kept in mind when setting up a franchise or reevaluating your franchise system.  Whether franchisors and franchisees should be considered joint employers has been a topic of much debate and with hearings continuing in the McDonald’s matter, the topic will be one for both franchisees and franchisors to keep an eye on as the discussions progress.