In the aftermath of a significant change in the joint employer standard this year, several states are attempting to address how franchisors are affected.
In August, the National Labor Relations Board (NLRB) released a decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), drastically expanding the standard for determining whether an entity was a joint employer. (See our blog post about it here). In doing so, the NLRB veered away from precedent that required a showing that a company exerted actual control over the employees of another company in order for the first company to be considered a joint employer.
The American Bar Association’s annual Forum on Franchising took place recently, and Greensfelder, Hemker & Gale attorneys David Harris, Dawn Johnson, Beata Krakus, Kim Myers, Abby Risner and Leonard Vines, as well as franchise paralegal Tom Ligouri, attended the two-day program in New Orleans.
NLRB’s Richard Griffin and DOL’s David Weil address joint employer issues at the ABA Forum on Franchising
Joint employer issues have preoccupied many in the franchise field for some time now. So it is no surprise that a session with Richard F. Griffin, Jr., the general counsel of the National Labor Relations Board (NLRB), and David Weil, the administrator of the Wage and Hour Division of the U.S. Department of Labor (DOL) and author of “The Fissured Workplace,” drew large crowds at the 38th annual meeting of the American Bar Association Forum on Franchising.
We previously reported on the proposed amendments to the California Franchise Relations Act (CFRA) in a Sept. 28 blog post. The proposed bill was signed into law by the governor on Sunday, Oct. 11, and will take effect Jan. 1, 2016.
The bill revises the previous provisions of the CFRA regarding termination, introduces a restriction on a franchisor’s ability to prevent transfers by a franchisee and broadens the franchisor’s obligation to repurchase inventory. Critics of the bill are concerned that it will turn franchisors away from California, while the bill’s proponents laud it as strengthening franchisee rights.
Over the past several years, California has severely restricted the permissible scope of non-competition covenants, and many California courts have been liberal towards franchisees. Yet, franchisors continue to sell franchises in the state. Whether the amendments to the CFRA are the drop that spills the glass remains to be seen. Only time will tell about the real impact of the amendment.
Many states have seen attempts over the past several years to enact new franchise relationship legislation. California’s bills have made it further in the legislative process than those of other states, and by Sept. 30, we should know whether the latest attempt, bill AB 525, will make it all the way.
The smart money is betting that California Gov. Jerry Brown will sign the new bill that modifies certain provisions of the California Franchise Relations Act. The purpose of the bill is to give more protections to franchisees. Last year, the governor vetoed a similar but more franchisee-friendly bill (SB 610).
Fourth Circuit serves franchisors a double helping of arbitration and litigation
Many franchisors spend considerable time and resources analyzing whether to include a mandatory arbitration provision in their franchise agreements in hopes of warding off franchisees’ class action lawsuits and avoiding costly and drawn-out litigation. Such efforts are now even more complicated, at least in the Fourth Circuit.
Over the past few years, the health care industry has really taken a hit. There have been changes in the delivery of health care, reductions in payments for services and increasing regulatory burdens. These developments have forced health care entrepreneurs, investors and providers to think outside of the box and explore opportunities to open and grow franchises in a number of ambulatory care and ancillary service areas. These include home health, medical spas, physical therapy, vaccine and travel medicine centers, vision centers, direct-to-consumer laboratory testing and urgent care centers, to name a few.
Today the Office of the General Counsel of the National Labor Relations Board (“NLRB”) took its next step in the investigation of labor practices within the McDonald’s franchise system and issued consolidated complaints against McDonald’s franchisees and the franchisor – McDonald’s USA, LLC on the theory that the franchisor is a joint employer with its franchisees. Consistent with General Counsel’s amicus brief in the Browning-Ferris matter that was filed this summer, the focus of the complaints appear to be on the use of technology and tools that allows franchisors insight and potential control over franchisee operations.
In a closely watched case with far-reaching implications, the California Supreme Court determined that Domino’s Pizza, the franchisor, should not be held liable for the alleged sexual harassment by an employee of one of its franchisees. The lengthy, well-reasoned decision gave great weight to the contemporary realities of the franchise business model and the unique nature of franchising. Noting how franchising has become such an important and thriving part of our economy, the Court followed the modern, enlightened view and rejected the reasoning of the old line of cases that found a franchisor vicariously liable for acts of its franchisees based on the degree of control they exercised over their franchisees.
John Baer and his co-authors, Anders Fernlund - NOVA, Susan Grueneberg - Snell & Wilmer, LLP, and Jane LaFranchi - Marriott International, Inc., discuss the challenges a non-U.S. franchisor will face in entering the U.S. Market in the article, "Taking the Leap: Bringing a Foreign Brand to the United States," published by the International Journal of Franchising Law. Read the article.