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Franchises may be held jointly liable for labor practices

Minnesota businesses, such as restaurants, choose to enter agreements with national franchises to take advantage of business expertise and recognition that is normally unavailable to the franchisee. Franchise agreements govern business responsibilities except for the responsibilities delegated to independent business in the franchise arrangement -- such as hiring and firing of employees.

A recent decision by the National Labor Relations Board's General Counsel, however, may change this business model and how employment disputes are resolved. In July, the NLRB General Counsel announced that he intended to name the McDonald's Corporation, as a parent franchisor, as a respondent joint employer in an unfair labor practice cases against franchisees.

Under the current joint employment standard under the National Labor Relations Act, separate entities must exert a significant and direct degree over workers and their employment terms and conditions are joint employers. Businesses recently argued in a Congressional hearing that changing this standard would completely change this franchise model and make franchisors exert control over the business operations of franchisees.

In another NLRB case, the General Counsel argued in a brief that an economic dependence test indicating franchisor control should replace this standard. This test considers hiring, firing and supervising employees. Other formalized operational requirements implemented by the franchisor and which it controls, it was argued, should be reviewed. These requirements include tracking data on sales, inventory and labor costs. Other operational requirements would include scheduling work hours, accepting job applications on company-wide application systems and making recommendations during collective bargaining agreement processes.

This issue will not be resolved until administrative decisions are issued. It is also anticipated that there will be many lengthy appeals in federal court on this issue.

Minnesota businesses and franchisees should seek guidance on setting up their businesses and guiding their transactions until this issue is more resolved. Planning may greatly impact business litigation and commercial operations.

Source: Minnesota Department of Employment and Economic Development, Small Business Notes, "Major changes possible for franchisors in light of National Labor Relations Board General Counsel's position in McDonald's and Browning Ferris matters," accessed Nov. 24, 2014

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