Opinion // L.M. Sixel

Who's the boss? Regulators are sorting out the issue

McDonald's received all the attention this past week when the general counsel of the National Labor Relations Board put it on notice that it's responsible for the employment actions of its franchisees. But the fast-food chain is not the only company facing the question of who's the boss.

Browning-Ferris Industries of California is enmeshed in another case pending before the labor board that is also focused on who's in charge. Is it the staffing company that supplies 240 workers at the recycling plant or the host company that uses the workers to sort the trash? Or both?

The Teamsters Union, which is seeking to represent the staffing company workers, is arguing that BFI Newby Island Recyclery is a joint employer because of its control over the work, according to the union's appeal to the labor board. The Teamsters are hoping to overturn a decision by one of the board's regional directors who determined the employer is the staffing firm.

While the dispute may sound esoteric, the decision will have far-reaching implications for millions in the United States who work for staffing firms, temporary agencies, contracting groups, franchise operations, leasing companies, day-labor centers and other third-party arrangements.

If those workers are determined to be joint employees, unions would likely have an easier time organizing them on a broad scale. And the labor board would join the ranks of other federal agencies that are increasingly pointing regulatory fingers at the host companies at the top of the organizational charts when they're assessing responsibility.

If the challenge survives in the courts and franchise employees are determined to be joint employees of franchisors, that could have a chilling effect on anyone using the franchise model, said Derek Flynn, a lawyer with Munsch Hardt Kopf & Harr in Houston who represents both franchisees and franchisors.

Transferring costs

Franchise agreements are written to transfer a lot of the operating costs, and liabilities for workers, to the franchisee, he said. For example, many franchise agreements specifically state that the workers are not joint employees of the franchisor.

A different standard, however, could change the understanding of the employment relationship, he said, and not only would open the door to the labor board but also make it easier for other federal agencies such as the U.S. Department of Labor and the Equal Employment Opportunity Commission to treat franchisors as the co-employer for violations of minimum wage, overtime, health and safety, and discrimination.

Most people don't realize how big franchising has become, Flynn said. It's not just fast-food restaurants, but hotels, hair salons and oil change services.

If the franchisors are determined to be joint employers, Flynn speculated that hospitality and other franchisors might well revert back to corporate-owned locations.

"It's so fresh and new right now, so it's hard to say what will happen," he said.

He's sure a lot of people are paying close attention.

In its brief in the BFI recycling case, the Teamsters argue that adopting "a joint employment standard" is necessary to maintain the vitality of the National Labor Relations Act, the 1935 legislation that gave workers the right to bargain over wages, benefits and working conditions.

To date the board hasn't done so, "leaving a large swath of American workers without an effective resort to the processes and procedures guaranteed by the Act," the Teamsters said in the appeal to the labor board.

"We believe the acting regional director fully considered all the facts and correctly applied the law in determining that we were not a joint employer … at Newby," Browning-Ferris spokesman Russ Knocke said in a written statement.

First time in fast food

The concept of joint employment has been part of the labor board standard for decades. But this is the first time the federal agency has used it to apply to fast-food franchise workers, said Catherine Ruckelshaus, general counsel and program director for the National Employment Law Project in New York.

The question is how broadly the labor board will apply the joint employment standard, said Ruckelshaus, who is also carefully watching the Browning-Ferris case. The group, which advocates for low-wage and unemployed workers, filed a brief in support of the Teamsters' argument of co-employment.

The question of joint employment isn't confined to unionization issues.

It's become a hot topic in wage and hour cases, especially as the Labor Department's wage and hour division is increasingly willing to point the finger of responsibility at the well-known and visible companies that it believes are ultimately responsible for the overtime and minimum-wage violations of subcontractors, temporary and other third-party workers hired to do the work.

EEOC's view

The EEOC has also weighed in, recommending that the board adopt its definition of co-employment that weighs several factors, including who hires and fires, assigns work, furnishes equipment, controls daily activities, and pays wages and benefits.

Staffing firms and their clients are typically considered joint employers by the EEOC because of the control they each have over the work relationship, according to the agency's brief to the labor board.