Fecal Matter Meets Electrical Wind Machine: NLRB Scrambles to Re-Evaluate Joint Employment

NLRB rulemaking update browniong-ferris Hits the fanAccording to the British site, The Phrase Finder, the expression When the shit hits the fan “alludes to the unmissable effects of shit being thrown into an electric fan.” That’s lovely. The Cambridge Dictionary (also U.K.) describes the idiom a bit more delicately: “also, when the shit flies, [when] a situation suddenly causes a lot of trouble for someone.”

Thank you, British internet!

In any event, this expression seems to capture the predicament the NLRB suddenly finds itself in after the D.C. Court of Appeals issued its unexpected ruling a couple weeks ago in the ongoing Browning-Ferris case, which we wrote about here.

The ruling vastly complicated the NLRB’s efforts to adopt a more pro-business definition of “joint employment” that would require direct control over essential terms of employment before joint employment could be found. The D.C. Court of Appeals ruled that the meaning of “joint employment” under the National Labor Relations Act is determined by the common law Right to Control Test, and that the NLRB has no authority to change the definition in a way that is inconsistent with the common law meaning.

The common law Right to Control Test, to the current Board’s dismay, allows for a finding of joint employment when control is reserved, even if the right to control is not actually exercised. That ruling is contrary to the definition being proposed by the NLRB as part of its ongoing effort to enact a new regulation through the rulemaking process.

Since the D.C. Court of Appeals ruling, here’s what’s been happening:

First, two key Democratic lawmakers sent a letter to Board Chair John Ring, asking that the Board abandon its rulemaking effort in light of the court’s ruling. Nice effort, but that’s not likely to happen.

Second, “in light of the unique circumstance” posed by the court’s decision, the Board has again extended the period for the public to submit comments on the proposed rule. The new deadline is January 28, 2019, with reply comments due February 11, 2019. This is the third time the Board has extended the comment period. The second extension inspired one of my favorite posts, “Amazon Users (espec. Cindy, Amy & kris), Please Don’t Submit Comments On the NLRB’s Proposed Joint Employment Rule,” which if you missed, it’s not too late.

So what happens next?  The Board has a few options:

1. It can change the proposed rule to allow for a finding of joint employment when a company reserves the right to exercise control, even if the control is indirect and is never actually exercised, but only if the right to control covers “essential” terms and conditions of employment. That change would be consistent with the D.C. Court of Appeals ruling, but it’s not as sweeping a change as current pro-business Board majority would like.

2. It can plow forward with its current rulemaking plan and ignore the D.C. Court of Appeals. The NLRB typically ignores decisions by the U.S. Courts of Appeal on the basis that there are 12 regional federal Courts of Appeal and they don’t always agree, while on the other hand, the NLRB’s authority is national, not regional. This approach often results in circuit splits, in which Courts of Appeal issue contradictory rulings, a situation that generally results in the U.S. Supreme Court deciding the issue once and for all. If the NLRB takes this approach, a circuit split could develop, and the Supreme Court would be likely to get involved, but it would probably take years before that wound its way up to the Supreme Court.

3. It can ask the full slate of D.C. Court of Appeals judges to re-hear the case. This is called an en banc proceeding. Since the decision was 2-1, there could be some momentum toward the full slate of judges agreeing to reconsider the case, but even if that happens, there is no guarantee the ruling would be any different.

4. The D.C. Court of Appeals decision can be appealed to the Supreme Court. The Supreme Court could decide to hear the case, or it could decline and allow the law to further develop. The Supreme Court often waits to hear what other Courts of Appeal have to say before it issues a final decision. But even if the Supreme Court takes the case, there is no assurance that the NLRB will get the ruling it wants.

Here’s why. On one hand, the newly constituted Supreme Court is more conservative and is regarded as more pro-business, which would appear to suggest support for the outcome that the pro-business NLRB would want — authority to narrow the definition of joint employment to situations in which control is directly exercised, not merely reserved.

But on the other hand, the current Supreme Court seems less and less inclined to defer to agencies’ interpretations of statutes. While the current Supreme Court may be sympathetic to the outcome desired by the NLRB, it is unlikely to be sympathetic to the process by which the NLRB wants to achieve that outcome. The Supreme Court’s current members seem inclined to limit the authority of federal agencies to re-interpret the law.

There are lots of ways the joint employment saga might play out. But for now, it’s fair to say that the D.C. Court of Appeals decision was unexpected and messy, in a way that alludes to the unmissable effects of excrement being thrown into an electric fan (as the Brits might say).

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Orlando on Jan. 24, Philadelphia on Feb. 26, or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Backfired? New Ruling May Threaten NLRB’s Proposed Rule on Joint Employment

Joint employment bagpipe

The word “backfire” derives from the grooming practices of 15th century Scottish noblemen, who grew beautiful long fiery-red flowing back hair, which they brushed and braided into elaborate patterns, including the “Haggis Flow” and the “Scotch Tape.” Ok, not really. Efforts to rewrite history and change definitions can sometimes fall short of the mark.

The NLRB’s grand strategy for rewriting the definition of joint employment may have just backfired. A Court of Appeals decision issued late last week may jeopardize the Board’s rulemaking authority, even though that was not the issue before the Court.

Before we dive into the December 28, 2018 ruling, here is a quick refresher on how we got here:

  • In 2015, the Democratic-majority Board adopted a vastly expanded definition of joint employment, allowing a business to be deemed a joint employer (1) even if it did not control working conditions but merely retained the right to do so, or did so indirectly, such as through third party subcontracting, and (2) even if the working conditions that could be controlled were non-essential working conditions, not just the key terms and conditions like hiring, firing, and disciplining. This was the Browning-Ferris decision.
  • In early 2018, the newly constituted Republican Board tried to reverse its 2015 Browning-Ferris decision in a case called Hy-Brand, in which the Board enacted a much narrower, pro-business definition of joint employment, requiring direct and immediate control over essential terms and conditions of employment before a company could be deemed a joint employer.
  • Several weeks later, however, the Board reversed itself and rescinded the Hy-Brand decision after conflict of interest questions arose relating to one of the board members (Member Emanuel) who decided Hy-Brand. When the Board rescinded its Hy-Brand decision, the effect was to re-establish the expansive 2015 Browning-Ferris test as the operative definition of joint employer.
  • In light of its failed effort in Hy-Brand, the Board then chose to pursue a two-step Plan B for overruling Browning-Ferris and for narrowing the definition of joint employment.
  • Step 1 would be to enact a new regulation, creating a narrower definition of joint employment that would, in effect, overrule Browning-Ferris prospectively. That process is ongoing. Step 2 was to ask the D.C. Court of Appeals to reopen the otherwise mothballed appeal of the Board’s 2015 decision in Browning-Ferris, which adopted the current broad definition of joint employment.
  • In Step 2, the Board expected the Court of Appeals to find that the 2015 Browning-Ferris decision was an overreach and that the vastly expanded definition of joint employment could not survive. That ruling would have nicely positioned the Board to roll out its new regulation, which would substantially narrow the definition of joint employment, as it tried to do in the Hy-Brand case.

That brings us to this past Friday’s decision by the D.C. Circuit Court of Appeals (Dec. 28, 2018) and the real meaning of the word “backfire.” Step 2 did not go the way the NLRB had planned.

The Court of Appeals’ Ruling and Its Effect on Joint Employment

According to the 2-1 majority opinion, the question of whether there is a joint employment relationship under the National Labor Relations Act (NLRA) must be answered by applying the common law test for whether there exists an “agency” relationship.  The Board has no special expertise relevant to defining the common law of agency. Therefore, according to the Court of Appeals, the Board is awarded no deference in this area. In other words, the Board does not have the right to define or redefine joint employment in a way that would be inconsistent with the common law meaning of “agency.”

The Court of Appeals said that the Board’s 2015 ruling in Browning-Ferris — that indirect or reserved control can be considered when determining whether a joint employment relationship exists — was appropriate because it is consistent with the common law of agency.  Under the common law, it is the right to control that matters, even if that control is not exercised. In fact, the Court of Appeals concluded that Board has no authority to prohibit the consideration of indirect or reserved control when evaluating whether there is joint employment. (That’s what the Board is currently trying to do through rulemaking.)  The reason the Board cannot prohibit consideration of indirect or reserved control is that the common law definition of agency examines whether an entity has the right to control how work is performed, regardless of whether that control is exercised. This last point is important for reasons that the D.C. Court of Appeals was not directly addressing. That point — if it hold true — would cast doubt on the Board’s ability to implement its proposed new regulation. The regulation would require a showing of direct and immediate control (not merely indirect or reserved control) before joint employment can be found.

The D.C. Circuit Court of Appeals did not, however, give the Board’s 2015 Browning-Ferris ruling its full backing. Where the Browning-Ferris ruling went wrong, according to the Court of Appeals, was in allowing the consideration of indirect or reserved control over non-essential terms and conditions of employment.  The common law agency test requires control (or indirect or reserved control) over essential terms and conditions of employment (e.g., hiring, firing, disciplining).  The Court therefore ruled that the Board lacks authority to change that definition in a way that make a business a joint employer merely by entering into a standard subcontracting or staffing agency agreement. All such relationships involve some level of control over non-essential working terms, such as defining the type of work to be done by the subcontractor or staffing agency workers and dictating the desired result.

The 2015 Browning-Ferris case is now being remanded back to the Board to take another shot at it. That would be fine and dandy with the now-Republican-majority Board, except for the fact that the Board may now be impotent to make a meaningful pro-business change in this case, since Member Emanuel might be precluded from participating in the decision due to Littler’s representation of Leadpoint, the staffing agency in the Browning-Ferris dispute (or maybe he is not precluded now, since the one-year conflicts period has now lapsed). Member Emanuel was a shareholder in the Littler firm before his appointment to the Board in September 2017. Further complicating the possible recusal issue is the fact that Trump required his appointees to sign an Ethics Pledge that provided a two-year conflict of interest period, rather than the standard one-year period.

The most lasting effect of this Court of Appeals decision is likely to be that it calls into question whether the Board can, through rulemaking, redefine joint employment in a way that eliminates consideration of indirect or reserved control by a putative joint employer.  If the definition of joint employment under the NLRA is determined by the common law of agency, and the Board — according to this Court of Appeals — lacks the expertise to interpret the common law of agency, then the Board would lack authority to change the definition in the way it proposes.

On the other hand…

On the other hand, it may be that this decision has no lasting impact at all on the definition of joint employment under the NLRA. This was a 2-1 decision by U.S. Court of Appeals, not by the U.S. Supreme Court. The two judges in the majority were Obama appointees. The full D.C. Circuit could be asked to reconsider the issue in an en banc proceeding.  Or the matter could go to the Supreme Court (which seems unlikely).

Or, if past practice is any indicator of future behavior, the Board might just ignore the D.C. Circuit Court of Appeals, on the basis that there are 12 Circuit Courts and they often disagree. The Board is required to follow rulings by the U.S. Supreme Court, but it often ignores legal opinions issued by the individual Courts of Appeal. The Board must, of course, follow the D.C. Court of Appeals’ ruling as it relates to this particular dispute, but it will not necessarily take the Court of Appeals’ broader rulings as controlling authority on what the Board can or cannot do.

So where are we?

We’ll see. But two things are certain.  First, the definition of joint employment will continue to evolve; and second, the definition of backfire has nothing to do with Scottish nobleman or their back hair.

And at the end of the day, joint employment continues to be a messy, messy situation.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What It Means to “Suffer” in California, Independent Contractor Version

suffer or permit to work California

This article describes how gestures that are common in the U.S. can have very different meanings abroad. For example, the “ok” finger gesture is a vulgar bodily reference in Brazil, Germany, and Russia. (Not ok!) The thumbs up gesture in Greece or the Middle East can mean “up yours!” The University of Texas’s “hook ‘em horns” gesture in Italy means you’ve been cuckolded — your wife is cheating on you.

Same thing, different meaning.

To employers, California often feels like a foreign country. It has some of the most employee-friendly laws in the nation, creating migraines for multi-state employers. When it comes to interpreting legal phrases, California lives up to its reputation, especially in the Employee vs. Independent Contractor context.

Today we look at California’s definition of “employ” as it relates to determining whether someone is an employee or an independent contractor.

California’s wage and hour laws are set forth in the state’s Industrial Wage Orders, a bulky set of directives that set the rules for minimum wage, overtime, meal and rest breaks, and various record keeping requirements for California employers. These rules apply only to employees, not independent contractors, but the test for determining Who Is My Employee? in California is different than under any federal law.

California’s Industrial Wage Orders use the same language to define “employ” as used in the federal Fair Labor Standards Act (FLSA). But fittingly, the Republic of California applies a different meaning to the same phrase.

California’s wage and hour laws provide three alternative definitions for “employ”: (1) to exercise control over the wages, hours, or working conditions, (2) to suffer or permit to work, or (3) to engage, thereby creating a common law employment relationship.

The FLSA also defines “employ” as “to suffer or permit to work.”

On Monday, we described how the FLSA’s “suffer or permit” standard is applied when determining whether someone is an employee or an independent contractor.

Today’s post describes California’s test for the same phrase. It’s different. Hook ‘em horns.

Historically, California courts have rejected the federal interpretation of “suffer or permit” as not being broad enough. California courts interpret the phrase more literally. If you permit someone to work, that person is likely your employee.

In April 2018, California’s Supreme Court set up a test that cemented that expansive interpretation into law.

In Dynamex Operations West v. Superior Court, the California Supreme Court ruled that, to determine whether someone is an employee or an independent contract, an ABC Test must be used.

An ABC Test sets a higher bar than a Right to Control Test or an Economic Realities Test. It also sets a higher bar than California’s S.G. Borello test, which is the hybrid Right to Control/Economic Realities Test that California had been using since 1989 to answer the Employee vs. Independent Contractor question.

California’s ABC Test starts with the presumption that, for claims covered under California wage orders, every worker is an employee. Then, to prove otherwise, the business retaining that worker must prove (all 3):

(A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, and

(B) the worker performs work that is outside the usual course of the hiring entity’s business, and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

Fail just one part, and the worker is an employee under California wage and hour law. This new test is even stricter than most other states’ ABC Tests, which usually include two ways that Part B can be satisfied.

As of now, the Dynamex test applies only to claims brought under California wage orders, we think.  These claims generally include minimum wage, overtime, and meal and rest break claims. So far, this test does not appear to apply to claims such as failure to reimburse expenses or failure to provide employee benefits.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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G-L-O-R-I-A! California Court says to use different tests for different IC misclassification claims

California independent contractor misclassification tests

If someone were to ask whether you like the song, “Gloria,” you’d be right to ask, “Which version?”

There’s the version written by Van Morrison and recorded by his band Them, later covered by Patti Smith, The Doors, and a gaggle of others. That’s the version that goes, “G-L-O-R-I-A, Gloooooria!” (I’m gonna shout it out every day.)

Then there’s the version recorded by Laura Branigan in 1982, originally written in Italian by Umberto Tozzi. (Fun fact!) You know that one — “You’re always on the run now. Running after somebody, you gotta get him somehow.”

Of course the right answer is that you prefer the first version, but my point is that there are multiple versions of “Gloria.” Same name, different song.

This is the same approach California courts seem to be taking with the state’s test for Independent Contractor vs. Employee. Same question, different tests. Many of you will recall the April 2018 Dynamex decision, in which the California Supreme Court adopted a strict ABC Test for determining whether a worker is an employee under California’s Industrial Wage Orders.

But the Dynamex decision did not address whether the new ABC Test would be used to determine whether someone is a contractor or an employee under California’s other state labor laws. Now we know.

The answer, according to a California Court of Appeal decision last week, is that there’s room for both “G-L-O-R-I-A” and “You’re always on the run now.” (You’re welcome, Laura Branigan.)

In last week’s case, called Garcia v. Border Transportation Group, the court considered an eight-count complaint brought by a taxicab driver who had been treated as an independent contractor. The driver claimed he should have been treated as an employee and that various state laws, which apply only to employees, were not followed. The court ruled that different tests apply to different claims.

The Court ruled that the claims brought under California’s Industrial Wage Orders had to be evaluated under the Dynamex ABC Test and, for these claims, the driver had to be considered an employee. The claims subject to the Dynamex test were the claims alleging unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and the unfair competition (UCL) claims arising out of the wage order violations.

On the other hand, the driver’s claims for wrongful termination in violation of public policy, waiting time penalties, and the UCL claims stemming from these allegations had to be evaluated under the more traditional S.G. Borello balancing test, which includes elements of a Right to Control Test but incorporates other factors too, making it a hybrid test. Under the S.G. Borello standard, the Court ruled that the driver was properly classified as an independent contractor.  (The plaintiff alleged failure to pay overtime too. Typically, overtime claims are governed by the Industrial Wage Orders, but the overtime rules do not apply to taxicab drivers.)

For those who like score cards, here is a list showing (a) the claims that were filed, and (b) which test must be used to determine Independent Contractor vs. Employee under each claim, according to the Garcia case. I have color-coded the claims because it looks pretty:

1. Wrongful termination in violation of public policy. (Lab. Code, §§ 923 [employees may organize], 6310 [retaliation for an OSHA complaint], 6400 [duty to provide a safe work environment], 1102.5 [whistleblower protection].)  S.G. Borello balancing test

2. Unpaid wages under the wage order. (Cal. Code Regs, tit. 8, § 11090.)  Dynamex ABC Test

3. Failure to pay minimum wage. (Lab. Code, §§ 1182.12 [minimum wage], 1194 [right of action], 1194.2 [liquidated damages], 1197 [duty to pay minimum wage].)  Dynamex ABC Test

4. Failure to pay overtime. (Lab. Code, §§ 510 [overtime], 1194 [right of action].) – Not applicable

5. Failure to provide meal and rest breaks. (Lab. Code, §§ 226.7 [rest periods], 512 [meal breaks].) Dynamex ABC Test

6. Failure to furnish accurate wage statements. (Lab. Code, §§ 226 [wage statements], 226.3 [civil penalties], 2699 [PAGA penalties].) Dynamex ABC Test

7. Waiting time penalties. (Lab. Code, §§ 201−202 [wages and leave due upon departure], 203 [penalties].) S.G. Borello balancing test

8. Unfair competition (UCL), based on the foregoing violations. (Bus. & Prof. Code, § 17200 et seq.; Lab. Code, § 2699 [PAGA penalties].) Dynamex ABC Test for the alleged violations of the wage order; S.G. Borello balancing test for the other claims

 

That’s the state of the law at this moment, but of course the California Supreme Court could weigh in again later as to whether S.G. Borello should still be used at all.

The explanation given in the Garcia case, though, for why the different tests should be used for different claims makes perfect sense. The definition of employee in Dynamex is broader than in the other statutes, as the California Supreme Court explained in the Dynamex decision.

So there you have it. Different definition of employee, different tests.

Shout it out all night!

Shout it out every day!

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What does the NLRB’s Proposed New ‘Joint Employment’ Rule Mean for Businesses?

360 degrees joint employment NLRB new rule

True story. Late 1980s. Early days of fantasy baseball. One of my high school buddies — we’ll call him The Beast — finishes last but decides he’s ready to turn things around. The Beast stands up at the next year’s draft and announces his new team name, intending to show us that he’s about to reverse last year’s standings: 360 degrees.

No one had the guts to say it. Only later did someone tell him he probably meant 180 degrees. He finishes last again. The Beast no longer plays fantasy baseball but lives a comfortable life as a tax lawyer in Florida.

A complete turnaround may now be in the works when it comes to defining “joint employment.” Recent actions by the National Labor Relations Board signal an upcoming 180-degree shift.

Click here to read the rest of the story, recently published in Westlaw’s Journal Employment and Practitioner Insights.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Definition of Joint Employment Still Appears Likely, Despite Efforts to Smack NLRB Chair in Face with an Octopus

octopus kayaker seal joint employment NLRB nature-3262715_1920

When this kayaker was slapped in the face by an octopus wielded by a seal, he just laughed it off. It didn’t seem to hurt, and I guess that’s just a thing that seals sometimes do.

Q. Now, Lebowitz, how are you going to work that intro back into something related to joint employment?

A. Watch this!

Similarly, it didn’t take long after the NLRB proposed a new regulation that would redefine joint employment (see this post) for two prominent Democrats to try to octo-seal-slap the NLRB’s Chair into backing off. Not gonna happen. The Board will not abandon its kayak.

Last week, Senator Patty Murray and Representative Bobby Scott sent a letter to Board Chair John Ring, arguing that there is “scant research or analysis” to support the Board’s call for a new joint employment standard. Um, so everything in the joint employment world has been peaches and cream? Heck, there’s so much uncertainty in the joint employment world right now that someone could devote a whole blog just to that topic!

In an effort to stall the rulemaking process, Murray and Scott asked the Board to extend the comment period on the proposed new rule by another 60 days (because no one saw this coming?) and demanded that the Board produce of all sorts of records relating to joint employment cases filed over the past several years. They also tried to re-raise concerns that there might be a conflict of interest affecting two of the three Republican Board members. The letter demanded the production of 21 categories of documents within 12 days, including asking for the name and case number of every joint employment case during the past six years fitting into various categories.

Let’s be realistic. This letter is basically outreach by Sen. Murray and Rep. Scott to labor unions, showing that they’ve got their back on the joint employment issue (to the detriment of businesses). I expect the letter will have no real effect on the process for rulemaking or on the timetable for adoption.

While few people may read that letter, the Go-Pro video of the seal smacking the kayaker in the face with an octopus has received a boatload of hits. I highly recommend watching. It is far more entertaining than this blog.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Extra Pepperoni! Domino’s Fends Off Joint Employment Claims

Pizza Food Slice Cheese Mushroom Veggies V

Domino’s Pizza in Russia recently had to cancel a promotion offering free pizza for life to anyone who got a tattoo of the Domino’s logo after too many people tatted up. The Russian franchisee that offered the promotion was overwhelmed by the response. It canceled the scheduled two-month promotion after just four days.

Franchise owners have to adhere to brand standards, but they have flexibility on other things, such as how vigorously to encourage their customers to ink. It can be confusing to the public, however, which decisions are made by franchisors and which decisions are made by franchisees. Not surprisingly, this confusion extends to employment situations, where claims of joint employment are frequently asserted against franchisors, even though individual employment decisions are made by franchisees.

In a delicious decision for franchisors, a New York federal court has ruled that Domino’s Pizza’s corporate entities are not joint employers of the employees who work at individually owned Domino’s franchises – at least under federal and New York State wage and hour law. (Click here for Five Things You Should Know About Joint Employment.)

Joint employment claims are a constant threat in the franchise space. Major restaurant and fast food franchisors are frequently alleged to be joint employers when plaintiffs bring employment lawsuits against individual franchisees. The franchisors (like Domino’s) are viewed as the deep pockets and, by targeting the franchisor’s corporate office, plaintiffs can try to build class actions that include groups of employees across multiple franchises. Or, by tagging a franchisee as a joint employer, plaintiffs can feel more confident that enough dollars will be available to pay any judgment.

The court’s ruling, which granted summary judgment to Domino’s corporate entities, evaluated the plaintiffs’ joint employment claims under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) using a two-part Economic Realities Test.

Following guidance from the Second Circuit Court of Appeals, the court looked at two sets of factors: one set to assess formal control exercised by the franchisor, and the second set to assess functional control by the franchisor. (That’s not the test used everywhere.)

As is typical in franchisor-franchisee relationships, the franchisee (store owner) signed a franchise agreement, agreeing that it – not the franchisor – “shall be solely responsible for recruiting, hiring, training, scheduling for work, supervising and paying the persons who work in the Store and those persons shall be [franchisee’s] employees, and not [franchisor’s] agents or employees.”  The agreement required the franchisee to adhere to brand standards to ensure consistency in product, but individual employment decisions were to be made at the store level, not by the franchisor.

Based on this framework, the court analyzed the facts using the formal control factors and the functional control factors.

The formal control factors included whether the franchisor:

  1. had the power to hire and fire the employees,
  2. supervised and controlled employee work schedules or conditions of employment,
  3. determined the rate and method of payment, and
  4. maintained employment records.

The functional control factors for determining joint employment, some of which do not even make sense in the context of a franchise relationship, are:

  1. whether the alleged employers’ premises and equipment were used for the plaintiffs’ work;
  2. whether the subcontractors had a business that could or did shift as a unit from one putative joint employer to another;
  3. the extent to which [the] plaintiffs performed a discrete line job that was integral to the alleged employers’ process of production;
  4. whether responsibility under the contracts could pass from one subcontractor to another without material changes;
  5. the degree to which the alleged employers or their agents supervised [the] plaintiffs’ work; and
  6. whether [the] plaintiffs worked exclusively or predominantly for the alleged employers.

After evaluating the facts using these factors, the court ruled that the Domino’s corporate franchisor entities were not joint employers. The franchisor entities were therefore dismissed from the lawsuit, but the court allowed the case to continue against the individual franchise owners.

The decision is refreshing for franchisors, but not too refreshing.  As noted here, other Courts of Appeal – mainly the Fourth Circuit – apply different tests for determining whether a company is a joint employer under the FLSA, even though the FLSA is a federal law that you would think would be interpreted the same way all across the country.

The test for joint employment under the National Labor Relations Act is different too – and is likely to change again.  It is possible for a company to be a joint employer under one law or test but not under other laws or tests. There is no uniformity or consistency.

For now, franchisors should rejoice in this small victory, but the fight to protect franchisors against joint employment claims is far from over — unlike the Russian tattoo promotion, which is entirely kaput.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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