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Risk in Context

Labor Board’s Joint Employer Label Could Remake Employment Practices Liability Landscape

Posted by Mac Nadel May 20, 2015

Complaints brought before the National Labor Relations Board (NLRB) over whether a large fast food company exhibited broader control than it should have over its franchisees could bring drastic changes to the franchisor business model as we know it. If the NLRB changes the more than 30-year standard for determining joint employment based on those complaints, franchisors could see significantly expanded wage and hour and other employment liabilities.

The NLRB held hearings in March 2015 over whether the fast food company exerted control that was “beyond protection of the brand,” making it a “joint employer” with its franchisees. With that label, it would be jointly liable for alleged discriminatory labor practices that were cited in December 2014 against the firm and its franchisees, and date back further to 2012. This case, along with similar charges against other companies, has motivated the NLRB to reconsider its definition of “joint employer.”  

Expanding Liability

Currently, a “joint employer” is defined as two separate employer entities having direct and immediate control over the essential terms and conditions of employment. Under this definition, a franchisor is not jointly responsible for the liability of franchisees’ labor relations policies.  The general counsel of the NLRB is urging a broader, more relaxed definition that replaces “direct and immediate” control with having a “direct, indirect, or potential” control over employment practices.  If the NLRB adopts the general counsel’s proposed definition, joint employers could be liable for each other’s unfair labor practices.

This development could affect wage and hour and other employment insurance liability in the following ways:

  • Franchisors could be held responsible for the unlawful practices of their franchisees.
  • Employees of franchisees may bring considerably more employment practices liability (EPL) and wage and hour claims against franchisors.
  • EPL and wage and hour underwriting could become more rigorous in assessing how much control franchisors exercise over franchisees’ operations.
  • EPL and wage and hour pricing may rise if losses increase in both frequency and severity.

If the NLRB adopts the proposed broader definition of “joint employer,” it could have implications far beyond the retail and restaurant industries – to all companies that subcontract or outsource.

For more information about significant NLRB cases, access http://www.nlrb.gov/resources/fact-sheets.

*Marsh is not qualified to practice law and does not dispense legal advice.

Mac Nadel

Mac Nadel is the Retail/Wholesale, Food & Beverage Industry Practice Leader (IPL) for the United States. Mac has been in various leadership roles within the Retail/Wholesale, Food & Beverage Industry Practice of Marsh for the past twelve years, and has been the National IPL since October 2009.