Bloomberg Law
Sept. 13, 2018, 2:13 PMUpdated: Sept. 14, 2018, 3:04 PM

Trump Administration Moves to Limit Franchiser Labor Liability (1) (Corrected)

Hassan A. Kanu
Hassan A. Kanu
Legal Reporter

The federal labor board wants to limit companies’ responsibility for workplace law violations by franchisees, staffing businesses, and other affiliates.

The National Labor Relations Board Sept. 13 proposed a new regulation to resolve the hotly contested issue of when one business is considered a “joint employer” of another’s employees. Joint employers can be forced to collectively bargain with affiliated workers and be made liable for unfair labor practices against those employees.

The board’s proposal—requiring direct control of workers—likely would mean that fewer businesses could be tagged as a joint employer. It would largely revert to a looser standard in place before the Obama board in 2015 said a business can be a joint employer if it exerts indirect control over workers, including by imposing brand management and other standards.

The rule impacts a huge swath of businesses, including those in the gig economy, and many companies that rely on contracting or subcontracting out some of their work. McDonald’s USA LLC is currently defending a case alleging that it’s a joint employer of workers at franchisee restaurants, which the company’s attorneys said could threaten the fast food business model itself. Microsoft has also faced bargaining demands from workers hired by a staffing firm.

“The Chamber has been calling for a reversal of the unworkable, sweeping joint-employer standard issued under the previous administration,” said U.S. Chamber of Commerce senior vice president Glenn Spencer said in a written statement. “We applaud the NLRB for taking this critical step.”

The board’s proposal, which will be published in the Federal Register Sep. 14, would require companies to exercise substantial, “direct and immediate” control over the most important terms of a workers’ job, like discipline or the power to hire and fire, to be considered a joint employer.

That’s a reversal from the current standard, under which a business can be a joint employer even if its control over the essential working conditions of another business’s employees is indirect and limited. The board tried to reverse the existing rule in a previous case decision, but had to withdraw the opinion because of conflict-of-interest questions surrounding Member William Emanuel’s (R) work as a management attorney before joining the board.

“After getting caught violating ethics rules the first time, Republicans on the Board are now ignoring these rules and barreling towards reaching the same anti-worker outcome another way,” Sen. Elizabeth Warren (D-Mass) told Bloomberg Law via e-mail, shortly after the NLRB’s filing. “This is what it looks like when President Trump’s corrupt Washington works for corporations instead of working families.”

The NLRB declined Bloomberg Law’s request for comment.

Issue Implicates Many Businesses

The five-member board was controlled by a majority of former President Barack Obama‘s nominees when it shifted its approach to joint employment in 2015. The Obama-era board said it expanded the test to includes indirect control because of the changing nature of employment and rise of complicated staffing and other contractual work arrangements.

The board, which hears unfair labor practice complaints and reviews unions election disputes, often swing back and forth on labor policy questions depending on which party holds the majority. President Donald Trump‘s picks to the board, including Chairman John Ring (R), have set about reversing a series of major policies from the previous 8 years.

“Under the proposed regulation, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction,” the NLRB said in the notice. “More specifically, to be deemed a joint employer under the proposed regulation, an employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.”

The importance of the question is illustrated in the McDonald’s and Microsoft cases. The complaint against McDonald’s was filed by workers at individual store locations, who are directly employed by a McDonald’s franchisee. Unions seeking to organize fast food workers argue that the corporate parent has enough control over those workers to force it to the bargaining table, or hold McDonald’s LLC liable for interfering in union organizing efforts. That case is still ongoing

Microsoft faced a complaint from bug testers hired by a staffing firm who made similar allegations. The staffing firm eventually settled that dispute.

Microsoft requires contractors to offer workers paid leave benefits. It’s not clear whether that creates a joint employment relationship under the NLRB’s current or proposed test.

Business Support, But Worker Advocates Skeptical

Business advocates and mostly Republican lawmakers welcomed the proposal.

The proposed rule “is intended to protect companies that use other companies’ labor, and also to protect franchisers, who can more confidently protect their brand without fear they’ll be named joint employers,” Todd Lebowitz, a partner and employment law specialist at Baker Hostetler, said. “The practical effect will be much more certainty for businesses that outsource labor, and businesses in the franchise space.”

Worker advocates remain skeptical of the Republican leadership’s changes.

“The NLRB’s proposal is much narrower than previous tests the board has used for joint employment,” said Catherine Ruckelshaus, general counsel for the National Employment Law Project, a worker advocacy group. A threshold for joint employment that requires substantial, direct and immediate control of employment conditions would be “incredibly” restrictive in terms of union organizing efforts and employees getting a remedy for violations of labor law, she said.

Ogletree Deakins attorney Mark Kisicki, who represented the employer in the case that produced the 2015 rule, said the board’s introduction of “the word ‘substantial’ is a modification,” but that it isn’t necessarily more restrictive or narrow.

“The problem is I wouldn’t take that as being very meaningful until we see the rule, which I expect to provide more details and define the terms,” he said.

Timing Iffy

The proposal starts the notice-and-comment rulemaking process, in which the public is invited to weigh in. The NLRB will have to review those comments and address them before issuing a final rule.

Wilma Liebman, a former Democrat chairman and board member under multiple presidents, said it’s very early in the process.

“They still have to give time for comments to come in, they’ll have to schedule public hearings, and in order to have a rule that withstands court challenge, they’ll have to address all of the maybe tens of thousands of comments,” Liebman said.

Liebman added that Emanuel’s conflict-of-interest, which led to the withdrawal of the earlier case, could arise here too. She cautioned that she isn’t an ethics expert.

Emanuel’s former law firm, Littler Mendelson, represented a staffing firm in the case the Obama board in 2015 used to revise joint employer liability. That case is currently on appeal.

“I don’t know whether it will be successful because there’s a question of whether rulemaking should be any different than a case,” Liebman said. “I feel very certain the conflict of interest question will be raised.”

—Robert Iafolla contributed to this story

(This story has been corrected to state that a Microsoft contractor settled the unfair labor practice complaint against Microsoft and the contractor. It also has been corrected to state that Microsoft requires contractors to offer their workers paid leave.)

To contact the reporter on this story: Hassan A. Kanu in Washington at

To contact the editor responsible for this story: Chris Opfer at