Protecting Yourself from Potential "Joint Employer" Liability

Recently, the National Labor Relations Board's General Counsel issued a memorandum authorizing 43 unfair labor practices complaints by McDonald's employees to proceed against McDonald's Corp. on a theory that it is a “joint employer” of employees at franchised restaurants. By this action, the NLRB General Counsel has rejected thirty years of legal precedent which, until now, has insulated franchisors like McDonald's from unfair labor practice complaints filed by workers in franchisees' restaurants under the premise it did not control the working conditions of employees at those locations. While the full Board has not yet adopted the General Counsel's position and McDonald's has made clear that it will aggressively challenge it, the determination, if upheld, may have a wide-ranging impact not only on franchised businesses, but on any company with outsourced services. Plaintiffs' lawyers may also be encouraged by the decision to the test the “joint employer” paradigm beyond the NLRB to civil courts nationwide.

Historically, the determination of whether one is a “joint employer” has turned on the amount of control one company exercises over the employees of another. While unlikely this analysis will be completely eviscerated, there may be increased scrutiny of employment relationships from both the NLRB and federal and state courts going forward in light of these recent developments. To avoid “joint employer” liability, at least under the current state of the law, it is essential for companies to review their agreements and relationships with franchisees and independent contractors to confirm their independence from the management of the workforce both on paper and in practice.

A good place to start is to review contracts for explicit statements about who retains the authority to control and supervise the terms and conditions of employment for the workforce. Companies will want to ensure they are protected from joint employer liability by including in their contracts indemnification provisions for employment-related liabilities. Therefore, even if one is found to be a “joint employer,” the franchisee/contractor remains liable for any financial penalty or award.

Next, ensure that the contract provisions are properly implemented and that the company has truly divested control of the workforce to the franchisee/contractor. The more influence and control one has over the day-to-day operations and activities of workers, the more likely one will be found a “joint employer.”