On Thursday, Jan. 22, 2015, 10 plaintiffs — all former employees of McDonald’s franchised restaurants located in South Boston and Clarksville, Virginia — filed a lawsuit in federal court asserting Title VII and Section 1981 violations arising out of alleged incidents of racial and sexual harassment.
Importantly, the plaintiffs named not only the McDonald’s franchisee and its owner as defendants, but also the franchisor, McDonald’s USA, LLC, and its corporate parent, McDonald’s Corporation. This case follows close on the heels of a consolidated complaint filed last month before the National Labor Relations Board (NLRB) in which a number of charging parties sought to hold McDonald’s USA, LLC directly liable for the alleged unfair labor practices of its franchisees.
The outcomes of both of these proceedings have the potential to change the law with respect to the modern interpretation of the joint employer doctrine and, in doing so, place franchisors directly at risk of liability for the employment law violations of their franchisees. In its present state, a joint employer relationship exists where one employer, while contracting in good faith with another independent company, retains for itself sufficient control of the terms and conditions of employment of the other company’s employees. While the joint-employer doctrine is commonly litigated in the independent contractor context, it may also in the franchisor-franchisee context.
In a practical sense, the joint-employer doctrine stands to shield franchisors from liability for the employment law violations of their employees so long as the franchisor does not, for itself, retain sufficient control over the terms and conditions of the employees of the franchisee. Historically, franchisors are not found to be joint employers (and thus equally responsible for the statutory violations involving the franchisee’s employees) in those instances where the franchise agreement controlling the franchise relationship prevents the franchisor — as a matter of economic reality — from interfering with the day-to-day operations of the franchise, hiring and firing the franchisee’s employees or controlling labor relations.
This traditional approach stands to be unwound should courts (particularly, the federal court presiding over the McDonalds USA, LLC case filed on Thursday) find persuasive the recently trending view advanced by the NLRB’s general counsel concerning the broadening of the joint employer doctrine. Last summer, the NLRB’s general counsel filed an amicus brief before the NLRB urging the application of a totality of circumstances approach to conclude that a joint employer relationship exists in circumstances where the putative joint employer “wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.” Thus, an entity — like a franchisor — having “direct, indirect and potential control over working conditions” could be susceptible to a finding joint employer status in light of existing “industrial realities.” (In the same proceeding, the EEOC filed its own amicus brief supporting the general counsel’s position.)
Should courts adopt this broader approach, franchisors could be exposed to liability for the employment law violations of their franchisees where the franchise agreement preserves a modicum of direct, indirect or even potential control over the working conditions of the franchisee’s employees. Given the commonality of rigorous, but brand-saving reservations of rights and controls in many franchise agreements, it may be that if courts’ appreciation of this doctrine trends toward that advanced by the NLRB, franchisors would be well-served by re-evaluating the provisions of their franchise agreements. In doing so, franchisors could benefit by giving a meaningful eye to the scope of direct, indirect and potential control that they retained with respect to the working conditions of their franchisee’s employees.