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American franchises – who is really in charge?

The key issues facing employers in the EU revolve around the principles of engagement, flexibility and responsibility. Within each of those areas employers are having to re-address and remodel how they relate to the labour force.

American franchiseInterestingly, similar issues are under consideration in the US. In particular the principle of responsibility (and who is responsible for the workforce) is under scrutiny. The relationships with the franchisee paradigm have been common within the US for a considerable period and recent developments have potentially challenged pre-conceived thoughts.

Back in November 2012 US workers staged 5 one-day strikes against McDonald’s and other fast-food restaurants in respect of their wages – subsequently complaining to the National Labor Relations Board (NLRB) about their treatment following the protests. Was the workers ’employer’ (franchisee) or McDonald’s USA (franchisor) responsible for the treatement? When you look at these one-sided commercial franchise agreements, it is not surprising that the answer to the question of how much flexibility the franchisee is afforded in order to run its business tends to warrant the answer: not a lot. The workers have asserted that McDonald’s is a joint employer as it orders its franchise owners to strictly follow its rules on food, cleanliness and employment practices. However, McDonald’s say they do not set employee wages. Ultimately, it comes down to a question of responsibility in the context of economic reality – who is really responsible for the McDonald’s workers’ pay and conditions? Many would say both the franchisee and franchisor, including it would seem, the General Counsel of the NLRB…

 

The General Counsel has recently authorised the issuing of unfair labor practice complaints against McDonald’s USA alleging that McDonald’s and various individual franchisees jointly employ the franchisees’ employees and are therefore jointly liable for the franchisees’ purported unlawful responses to employee protests. Why does this matter?

This response was surprising, if the decision is upheld by the Board it would go against 30 years of practice. The Board has rarely held that a franchisor was a joint employer of a franchisee’s employees, unless there was unusual direct and immediate control of those employees’ terms and conditions. Another matter (Browning-Ferris Industries of California) currently being dealt with by the Board regarding whether it should follow or replace its current joint-employer standard, gives us an insight into the General Counsel’s rationale. The issue of who is really in control, and therefore who is really responsible, seems to be the starting point behind this ground breaking development.

In Browning-Ferris the General Counsel asserts that the current standard is inconsistent with modern realities in collective bargaining and is significantly narrower that the pre-1984 Board precedent – in order to currently show an entity is a joint employer, it has to affect meaningful employment relationship matters and have direct and immediate control over them (among other things). It is suggested that a party should be able to prove an entity is a joint employer if it shows that in all the circumstances (including the commercial relationship) it has sufficient influence over the working conditions of the employees that meaningful collective bargaining could not occur in its absence. Employees could then bargain over their working conditions with the entities that control those conditions based on economic reality (even if they don’t directly control working conditions).

The General Counsel’s decision in respect of McDonald’s is not a binding decision of the Board, however, the General Counsel is confident that the Board will likely adopt a broader standard in the future. If so, businesses will need to consider the risks and benefits of having a contractual partner (e.g. a franchisee) who provides products/services for or to them.

From whom does the average employee expect (or indeed have the right) to obtain a positive and reasonable resolution to his employment related issues? The question is yet to be decided – if the decision is made along broader lines, the effect this will have on unions and collective bargaining is likely to be great, with franchisors having to be more accountable. The effect this will have on how engaged workers feel with their ’employer’ will be interesting to see. Whether workers will obtain a satisfactory resolution to their concerns is also yet to be seen, but bridges may well be built. However one thing is clear – the distance from the worker that the franchisor seeks to create through a franchise agreement, may not be so far after all.

Questions? Contact David Gibson or Rebecca Harries

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further