According to the general counsel of the National Labor Relations Board (the “Board”), franchisors may now be held jointly liable for the unfair labor practices of its franchisees. This decision, which was issued on Tuesday of last week, flies in the face of decades of established law and creates a considerable liability risk for restaurant franchisors that may not have much control over the employment practices of its franchisees.
Over the past two years there has been a concerted effort on behalf of some fast food workers, spearheaded by the Service Employees International Union, to take collective action to push for a $15 minimum wage. As part of that effort, fast food workers, including those at McDonald’s franchisees, have engaged in one day strikes, picketing, and other related activities. Similar one-day strikes took place in Atlanta, Georgia in August 2013 and May 2014. As an outgrowth of these activities, 181 unfair labor practice charges were filed against McDonald’s and its franchisees alleging violations of the National Labor Relations Act (the “Act”) for illegally terminating, threatening, penalizing or otherwise coercing employees and unlawfully restraining their ability to engage in protected concerted activity.
The Board’s general counsel, Richard Griffin, found merit to 43 of these claims and specifically stated that he would include McDonald’s, the franchisor, liable as a joint employer. In doing so, the Board is indicating its intent to make it significantly easier to find joint employer liability. The upshot of this ruling is that the franchisor may be responsible, and held liable, for its franchisees employment decisions, even though the franchisor did not have any role in the personnel decisions at issue.
Unfair Labor Practices in the Southeast
The general counsel’s ruling is particularly concerning for restaurant franchisors in the southeast for at least two reasons. First, it comes on the heels of a significant and noticeable uptick in unfair labor practice charges filed against local restaurant groups. Over the past eight months, at least 54 unfair labor practice charges have been filed about restaurant chains in the southeast, including many in Georgia. Typically in these cases, the restaurant chain did not have employees represented by a union. Instead, these cases generally involve non-union employees who file a charge (often with the assistance of a union) against their employer for allegedly restraining their right to engage in protected concerted activity.
Under Section 7 of the Act, employees have the right to engage in collective action to improve their wages, hours or working conditions. Some examples of protected concerted activity include one day strikes; group meetings with a supervisor to complain about wages, hours, or working conditions; groups complaints to the media; Facebook or Twitter posts about working conditions that are collective in nature, etc. Except in very limited circumstances, an employer may not discipline, discharge or threaten employees with discipline for engaging in such activities. Employers who violate the Act may have to pay employees back pay, reinstate the employee, expunge any discipline from the employee’s record, post a notice about the company’s unlawful actions in a visible location, and spend the time and expense of defending against these cases. In addition, the Board may determine that the company’s policy is unlawful and require the company to rescind or rewrite it.
Unions are using these unfair labor practices as a means to attract support for their organizing efforts. If, as expected, the Board modifies its union election rules in the coming months, it will be significantly easier for unions to organize employees and it will create an added incentive for unions to tap into new markets that have traditionally remained union-free, like the southeast.
Setting a Precedent for Franchisor Liability
The second issue that is concerning for restaurant franchisors about this decision is the precedent it may set for other government agencies. If the Board is willing to hold franchisors liable for its franchisees actions, it is certainly possible, that other government agencies, such as the Equal Employment Opportunity Commission, Department of Labor, and other organizations will follow suit. This could create a firestorm of potential liability for franchisors because it would require franchisors to defend against individual and collective claims brought against its franchisees for harassment, discrimination, retaliation, wage-hour violations and other similar allegations. Even if the franchisor ultimately prevails, the time and expense of defending against these actions will impact profitability and serve as a nuisance.
What to Do Now
As a consequence of this ruling, Georgia restaurant franchisors should:
- Consult with experienced employment counsel to assess the possible risks this decision has on the franchisor’s operations;
- Review and revise company policies to ensure compliance with Section 7 of the Act and other applicable employment laws;
- Consider whether it is appropriate to increase management training on compliance of employment laws and on effective labor relations not just for corporate staff, but also for owners/managers of franchisees;
- Review their franchise agreements; and
- Audit the level of control the franchisor has over its franchisees and determine whether more or less control is warranted.
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