Government agencies increasingly are prosecuting enforcement actions against franchisors under federal labor and employment laws, claiming that they are employers of their franchisees’ employees.1 For example, in July 2014 the National Labor Relations Board (NLRB) announced that it had authorized 43 cases against franchisor McDonald’s USA, LLC for alleged labor violations by its franchisees, including alleged failure to pay overtime, failure to provide required breaks and layoffs related to union organizing activity.2 In a press release, the NLRB stated that if it cannot reach a settlement with McDonald’s, it will issue complaints and name McDonald’s as a so-called “joint-employer” of employees of its franchisees. A “joint-employer” relationship may exist where two companies are in a contractual relationship, and one company (e.g., the franchisor) has retained control over the terms and conditions of employment for employees of the other company (e.g., the franchisee).3
Separately, in an amicus brief filed with the NLRB, the NLRB’s general counsel recently has advocated a return to the board’s pre-1984 interpretation of the National Labor Relations Act (NLRA).4 Under the pre-1984 interpretation of the NLRA, a franchisor qualifies as an employer even if it exercised only “indirect control” over working conditions. Under the “indirect-control” standard, the NLRB found relatively minimal control, such as making recommendations to a supplier firm during the collective bargaining process or retaining the contractual right to engage in “general supervision” of employees, to be indicative of joint employer status.5
