Legal Matters

last updated 25/09/2018

Joint employment status – latest

last updated 25/09/2018

20 September 2018 - A proposed ruling from the USA on responsibility of franchisors for staff employed by franchisees could help influence international thinking on the issue

The international franchise community has been keeping a wary eye on developments in the USA regarding the status of franchisors and franchisees as employers. In 2015, the National Labor Relations Board (NLRB) announced a decision to treat the McDonald’s Corporation as a joint employer of its workers (along with its franchisees) with regard to a charge of unfair labour practices filed by unions. This decision blurred the long-established boundary between franchisor and franchisees as independent businesses, and was strongly opposed by the World Franchise Council.

Now the NLRB has issued a proposed rule on the joint employer standard which could be a major step toward resolving the top policy issue for franchise businesses.

How much control do franchisors have?

Under the proposed rule, an employer may be found to be a joint employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control. The proposed rule would effectively reverse the much broader and vague definition set by the NLRB in 2015, when it changed the joint employer standard to include indirect or potential, unexercised control.

‘This is a significant action and a very important achievement stemming from our advocacy efforts to address the top concern of the franchise community for the past several years, but the work is not yet done,’ Robert Cresanti, President and CEO of the USA’s International Franchise Association, wrote to members.

‘The NLRB has announced a 60-day public comment period, allowing the public to support the rule and push for its enactment. I am asking our entire membership to engage in support of this rulemaking …  We are hopeful the final rule will provide clear lines for the determination of joint-employer status and a recognition that brand controls and other support provided as part of the franchise business model do not constitute factors that can be used to find joint employment between franchisors and franchisees.’

NZ franchisors mustn’t be complacent

Legislation which made franchisors responsible for employment breaches by franchisees came into effect in Australia last year. This led to a suggestion that US franchises were encouraged to avoid expanding into Australia, although this was denied by the IFA.

Auckland franchise lawyer Stewart Germann comments, ‘In New Zealand at present, we do not have the equivalent of Australia’s Fair Work Act which can legally make franchisors liable for the employees of franchisees who are underpaid and who break the law.

‘It makes no sense to me that the Australian legal position can make scrupulous and law‑abiding franchisors liable for a franchisee’s employees without a severe limitation.  Therefore, Australian franchisors have to put in strict compliance systems and it will only be a matter of time before the ACCC undertakes a test case there, in my opinion.

‘In New Zealand we have no such pressure at present and franchisors appear to be diligent in taking action where employment breaches occur (see Franchisors Take Action On Cheating Franchisees). However, we must not be complacent and need to be aware of the risks of international trends in legislation. The proposed rule in the USA is sensible and its limitation could be that an employer would only be liable if it possesses and exercises substantial, direct and immediate control.  Such should never be the case in franchising.’

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