NLRB contends franchisors are joint employers

On July 29, 2014 Richard Griffin, the General Counsel of the National Labor Relations Board (“NLRB”) determined that McDonald’s Corporation could be deemed a “joint employer” of its franchisees’ employees asserting claims of alleged violations of the National Labor Relations Act (NLRA). As a consequence, Mr. Griffin announced on December 29, 2014 that the NLRB filed charges against McDonald’s Corporation as a joint employer in 86 allegedly meritorious unfair labor practice complaints filed against McDonald’s and its franchisees by those franchisees’ employees over the past 24 months.

Mr. Griffin’s charge that McDonald’s Corporation is a “joint employer” of its franchisees’ employees noxiously and entirely disregards 50 years of law and business principles. The very essence of the franchise model involves an arms-length, independent contractual relationship between a franchisor and its franchisees. It is the franchisor which develops the concept in question; the names, marks and logos by which its network will be identified; and, the various operational systems, procedures and protocols which franchisees must observe when operating under their franchisor’s names, marks and logos. In this respect, a franchise is like any other license of intellectual property – – to be valid, that license must contain standards which licensees must adhere to when operating under the subject name/mark/logo or else, as a matter of law, intellectual property rights therein will be deemed abandoned (since a trademark and service mark, by law, stand for the elements and standards of quality and product/service attributes associated therewith).

In the franchise relationship, it is the franchisee (again, a licensee) which most typically alone is responsible for building the subject franchised unit; operating that unit; and, most critically, earning and retaining all of the profits therefrom. Typically, a franchisee only pays an initial franchisee fee to its franchisor (averaging $10 – $50,000 and, thereafter, a royalty on gross sales (averaging 5%.)

The NLRB’s “joint employer” ruling, if it survives inevitable judicial review, will have a devastating impact on the vital franchising segment of the American economy.

Fortunately, the courts continue to respect the economic realities of franchising and legal precedent reflecting same. That legal precedent may be simply stated: if a franchisor does not control the day-to-day operation of its franchisees’ businesses, does not set the pay of its franchisees’ employees, has no power to hire or fire its franchisees’ employees and does not maintain employment records for them, then that franchisor will not be deemed the joint employer or co-employer of its franchisees’ employees.

For a more complete discussion of this issue, see the following linked articles: (LINK to NYLJ article dated 2/25/15 and FLJ article dated Spring 2015. ).

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