NLRB claims franchisors are joint employers

by Walter Olson on August 8, 2014

In this Cato podcast (7:01), I talk with Caleb Brown about the National Labor Relations Board’s groundbreaking attempt last week to tag McDonald’s with liability for labor violations found at its independently owned local operators. (Reportage: Steven Greenhouse, NYT; Jon Hyman; Diana Furchtgott-Roth/RCP) It’s a drastic departure from current law that would carry implications for outsourcing more generally: a food company that contracts with independent farmers to grow a particular crop, for example, might wind up being liable for the farmers’ treatment of farm workers, a company that outsources its cafeteria, vehicle maintenance, or janitorial services to outside vendors might become legally responsible for ensuring the labor-law compliance of those contractors, and so forth.

The McDonald’s case is the first of what is expected to be multiple cases filed by the NLRB’s general counsel (akin to a prosecutor), and the full Board has not ruled on the resulting complaints, although given the union-friendly role of the Obama NLRB that is likely to be little more than a formality. The initiative will inevitably land in the courts, which have not always been friendly toward Obama regulatory adventurism, and perhaps eventually the Supreme Court.

One consequence, successful or otherwise, if this ploy works: by treating legally distinct entities that contract with each other as if they were parts of a single vertically integrated enterprise, progressive labor law thinkers will create an incentive for giantism to become more real, by giving fast-food franchisers, for example, legal reason to move toward company-owned rather than independently-owned store arrangements. Not for the first time, the law would mow down the ranks of mid-sized businesses in favor of large or nothing. Commentary from others: Megan McArdle; Stephen Bainbridge; Catherine Fisk, On Labor (supporting the idea); Steve Caldeira, The Hill; Alex Bolt. And a relevant House hearing.

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Labor roundup - Overlawyered
08.28.14 at 12:30 am

{ 5 comments }

1 Dave Anthony 08.08.14 at 1:42 pm

No doubt progressives will lack any cognitive dissonance as they tell themselves that franchise owners are abused by big corporations any ways.

2 Marc B. 08.08.14 at 4:41 pm

There is a two front offensive by progressives. This week, the Washington Supreme Court found Fred Meyers grocery stores is a joint employer with an independent sub-contractor. See Becerra Becerra v. Expert Janitorial, LLC.

3 ras 08.08.14 at 9:20 pm

Since we are contributing, as commenters, to this site, and since Walter provides direction in the form of commenting guidelines, are we now employees of overlawyered?

Dibs on the corner office!

4 rso 08.09.14 at 7:18 am

There are a ton of rules regarding how franchise businesses work and many franchisees are large enough to be considered large employers in their own right – covered by ADA Title I, FMLA, PPACA (Obama Care), etc. If this ruling were to stand you’d have different classes of franchise employers – some would be considered part of the franchise company, some not. I don’t see how that can even be administered. This board is so desperate to be relevant they will do anything to find for a union. It’s so sad – nobody respects the law in DC anymore – including the judiciary.

5 Chris Hoey 08.10.14 at 12:18 am

It is not an NLRB decision per se but an allegation in an unfair labor practice Compaint. It is subject to proof as it alleges a legal conclusion that must be proven by facts, not opinions. It is subject to a hearing before a Administrative Law Judge, his decision is reviewable by the Board, and its decision is reviewable by a US Ct of Appeal.
McDonalds has its hands full as an allegation as controversial as this is usually almost pre approved by a invisible inner sanctum that passes on such matters. (This has been going on for over 50 years to my personal knowledge, and will continue under the structure of the Board as a political arm of the sitting president. The Courts of Appeal can reel it in if necessary, but this regime has also packed the benches of the courts with sycophants.)
The General Counsel authorizing this allegation come from the union ranks, and was approved on the Senate under Reid’s nuclear option, so we may expect many more such off the wall allegations.

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