Who’s the boss?
No, I’m not referring to the hit 1980s sitcom that launched Alyssa Milano’s career and took Tony Danza from a dimwitted, cab-driving boxer (in Taxi) to lovable hunky housekeeper. It’s a more important question than that.
Wh
o’s the boss at a local business? Especially if that business has close relationships with another, larger company?
That’s the question at the heart of the Save Local Business Act (H.R. 3441) that is currently waiting action in the U.S. Senate. And how that question is answered could have big implications for hundreds of thousands of small business owners. For starters, and perhaps most specifically, for every locally owned franchised business in the United States. But that’s not all.
The issue stems from a 2014 National Labor Relations Board (NLRB) ruling in which the Board voted 3-2 to find that McDonald’s Corp. was a “joint employer” with all of their franchisees. In that case, labor union activists filed a complaint against McDonald’s directly rather than having to work against multiple individual franchisees, claiming that because McDonald’s Corp provides training and recommends employment standards and work policies for the local business owners that use the McDonald’s brand, the franchisor is effectively a joint-employer. And therefore, any labor violations that can be levied against one joint-employer apply to the local business as a 
whole. The NLRB agreed.
Prior to this ruling, the NLRB treated local franchisee owners as the sole employer of the local business. That meant that any labor complaints had to be filed against each individual franchisee. By expanding its definition of joint-employer, the NLRB made it easier for labor groups to a) file complaints against and b) potentially unionize an entire franchise network.
The NLRB doubled down on its expanded definition of joint employer in its 2015 decision in Browning-Ferris Industries, 362 NLRB No. 186, where is defined “joint employer” as:
two or more entities are joint employers of a single workforce if (1) they are both employers within the meaning of the common law; and (2) they share or codetermine those matters governing the essential terms and conditions of employment.
This is not just an issue for franchises (indeed, Browing-Ferris was not about a franchise case). In fact, the above definition could be read to mean that any company that hires another company to provide services could be considered a joint employer of the contracted company’ employees, even if only on a temporary basis as part of their otherwise full-time job. That includes anything from temp agencies to security companies to housekeeping or maintenance contractors; even to agricultural producers.
For instance, many farmers raise chickens or hogs under contract with a meat processing company. Those companies may require the farmer and any farm employees to follow certain routines or practices to ensure the health and well-being of the animals being raised. Under Browning-Ferris, one could argue the processor is a joint-employer with the farmer, making the farmer subject to a host of employment laws that typically do not apply to small businesses.
Likewise with franchisees, whether owners of restaurants, hotels, tax preparation companies, cleaning companies, home healthcare companies, or retail outlets. Most franchisees are small, local business owners that pay the franchisor for the rights to use the franchisor’s brand name and business format, to gain access to training resources, and perhaps to access inventories and supplies. Because the franchisor provides training resources and may recommend things like staffing levels, training processes, etc., as part of their business plan (which is one of the reasons to buy the franchise in the first place), most franchisors could be deemed joint employers with their local business owner franchisees.
That creates new risks for franchisors (since they have no direct control over local store operations) and exposes small business owners to regulations that only apply to larger businesses. Moreover, it puts any franchisee at even greater risk for the behavior of other franchisees and their employees. And that is a powerful disincentive for franchising. Since franchised businesses have been the fastest growing sector of the economy, such regulations could have far-reaching implications.
Joint employer status creates new risks for franchisors (since they have no direct control over local store operations) and exposes small business owners to regulations that only apply to larger businesses. And that is a powerful disincentive for franchising.
Fortunately for now, a new presidential administration in 2017 led to a change in the composition of the National Labor Relations Board. The new NLRB board voted 3-2 to overturn Browning-Ferris and restore its previous definition of joint employer.
And therein lies part of the problem. Change presidents, change NLRB composition, change the rules. That is what the Save Local Business Act is intended to fix. The Act provides a legislative solution to the problem of agency (NLRB)) discretion in defining what constitutes a joint employer. Can laws change? Yes. But that requires more than a change of one person (as in the case of the NLRB) to change the law.
So who’s the boss? For now, it’s the local business owner. It’s up to Congress to remove the uncertainty about how that question will be answered in years to come.