Like most courts to consider the issue, the California Supreme Court in a case involving Domino’s Pizza has held that a franchisor generally cannot be held liable for the independently made employment decisions of one of its franchisees. Who would disagree with that commonsense view? Well, the Obama National Labor Relations Board (NLRB), as well as three liberal dissenters on the seven-member California court, who would have left it up to case-by-case jury factual balancing, an arrangement likely to coax settlement offers from risk-averse franchisor defendants. [Daniel Fisher, Forbes, also; Shaw Valenza; Fox Rothschild; Gordon Rees; related, Epoch Times last week quoting me; earlier here, here, and here]
Aaron Schepler, Quarles & Brady;
In the supreme court’s view, the fact that Domino’s exercised extensive control over the manner in which the franchisee operates its business was merely a way to ensure the uniformity of the customer experience at its franchised outlets. As the court explained, this uniformity actually benefits both parties to the franchise relationship because “chain-wide variations … can affect product quality, customer service, trade name, business methods, public reputation, and commercial image” and, thus, the value of the brand. And because “comprehensive operating system[s]” are present in nearly every franchise relationship, those systems standing alone could not reasonably “constitute the ‘control’ needed to support vicarious liability claims like those raised here.”
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.
In not just one recent case, but two:
* “During a meeting about commissions, minimum wage, and employee breaks [at a Yuma, Ariz. car dealership], an employee lost his temper, angrily calling his supervisors words such as [obscenities omitted]. He also stood up, shoved his chair aside, and told them they would regret it if they fired him. Unsurprisingly, that tirade resulted in the employee’s termination. Astoundingly, in Plaza Auto Center (5/28/14), the NLRB concluded that the termination was an unlawful violation of the employee’s rights to engage in the protected concerted activity.” [Jon Hyman, Ohio Employer's Law Blog; Brennan Bolt, Labor Relations Today]
* “Starbucks cannot fire a union activist employee who cursed at a manager in front of customers, the National Labor Relations Board has ruled for the second time. Joseph Agins was active in trying to unionize four Manhattan Starbucks coffee shops between 2004 and 2007.” His repeated imprecations, sometimes in the presence of customers, included “this is [BS],” “do everything your damn self,” “about damn time” when the manager arrived to help, and “go … yourself”. A protected pattern of behavior under federal labor law, the NLRB ruled. “The board ordered Starbucks to offer Agins his old job or a substantially equivalent position, compensate him for any loss of earnings and other benefits, and remove from its files any references to the unlawful firing.” [Seattle Post-Intelligencer]
Compare the separately developed field of “hostile-environment” law, in which the employer may be held liable for years’ worth of back pay if it does not separate from the workplace an employee who repeatedly confronts a co-worker with belligerent and profane abuse (& Scott Greenfield).
In an April decision, the National Labor Relations Board found largely unlawful a hospital’s employee handbook policy as follows:
…11. We will not make negative comments about our fellow team members and we will take every opportunity to speak well of each other.
16. We will represent [the hospital] in the community in a positive and professional manner in every opportunity.
21. We will not engage in or listen to negativity or gossip. We will recognize that listening without acting to stop it is the same as participating.
The reason? Under NLRB doctrine, in both non-union and union workplaces, negative discussion of managers and other co-workers could count as “protected activities” linked to the potential for concerted labor action.
[Jon Hyman, Ohio Employer's Law Blog, on the April case of Hills & Dales General Hospital (PDF)]
Washington, D.C. intern hit with NLRB subpoena over blogging work for policy group critical of unions [Tucker Nelson, National Review]
Northwestern athletes’ “college football participation = paid work to be governed by labor laws” argument may boomerang with a whopping tax bill [TaxProf, Bleacher Report on NLRB giving nod to idea]