It Is Time for Something New: A 21 St Century Joint-Employer Doctrine for 21 St Century Franchising

By Carvell, Steven A.; Sherwyn, David | American University Business Law Review, January 1, 2016 | Go to article overview

It Is Time for Something New: A 21 St Century Joint-Employer Doctrine for 21 St Century Franchising


Carvell, Steven A., Sherwyn, David, American University Business Law Review


Introduction...6

I. Franchising History and Structure...7

II. The Joint-Employer Doctrine...12

A. The Joint-Employer Standard under Title VII of the Civil Rights Act of 1964 As It Applies to Franchising...13

B. The Joint-Employer Standard under the Fair Labor Standards Act...15

C. Browning-Ferris and the Future of the Definition of "Joint Employer" under the NLRA and the Other Labor and Employment Laws...18

D. Employment and Labor Laws Differ...22

III. Browning-Ferris...23

A. The Standard Is Unclear...24

B. The New Test Expands the Reach of the Joint-Employer Doctrine...26

IV. The New and Old Test Result in Huge Costs or Perverse Incentives...26

A. The Benefits of BFI: Union Organizing...26

B. The Cost of BFI Applying to Franchising...29

C. The Socio-Economic Impact of BFI...31

Conclusion...35

Introduction

The joint-employer doctrine is perhaps the hottest issue in labor and employment law for 2015 and the foreseeable future. In the September 2015 Browning-Ferris ("BFF') decision,1 the National Labor Relations Board (the "NLRB" or the "Board"), the administrative agency that enforces the National Labor Relations Act (the "NLRA" or the "Act"), issued what is expected to be the first of two decisions, expanding the jointemployer doctrine. In the BFI decision, the so-called putative employer (e.g., the lessor of employees or a franchisor) is now considered the employer of individuals who had in the past been considered employees of the supplier employer. Like in Browning-Ferris, a number of McDonald's employees and the Service Employees International Union ("SEIU") are arguing that the world's largest franchisor is the joint employer of all its franchisees' employees.2 At first blush, one might believe that this is another esoteric labor and employment law issue that only lawyers and scholars care about. However, depending on how the Board and courts rule on this issue, the joint-employer doctrine could fundamentally change business in the United States by destroying the franchise model.

The purpose of this Article is to fully explore the joint-employer doctrine in the franchise industry. It provides a quick overview of the history and breadth of the franchise industry. Included in this Section is an analysis of why employers/people become franchisors and franchisees. Section II analyses the joint-employer doctrine with regard to franchisees and franchisors. This section not only explores the current state of the law, but it also discusses the arguments presented by the Board, the EEOC, and other employee advocates to expand the doctrine. Section III discusses the latest administrative decision on the joint-employer doctrine. Section IV notes that expanding the joint-employer doctrine will be counterproductive to employees unless all, or at least substantially all, franchisees' employees are joint employees of their franchisors. Section V explains that, because there is now too much focus on legal concerns, our country is ignoring the realities of the modem workplace and the realities of the modem consumer and that governmental entities should look for a "third way" to protect employees while also protecting the franchise model.

I. Franchising History and Structure

At its most basic level, franchising is a business model where the brands/franchisors contract with franchisees to own/operate outlets of the franchisors' business. The franchisees own the business, generally use their own capital to build/build out/lease the property, employ the employees, are liable for any employment or tort lawsuits, and keep all the profits. The franchisors, among other things, charge the franchisee an initial franchise fee and take a royalty fee through a percentage of the gross revenue from on-going operations. In addition, the franchisor charges the franchisee additional fees for marketing and advertising. The sum of these fees can be substantial, often exceeding ten percent of total revenue. …

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