Franchisees: Playing the Joint Employer Card

If you haven't been paying attention, the employment and labor law landscape has been rocked over the last several years by the renewed attention to the joint employer doctrine. Although the doctrine and its test differs based upon the labor or employment statute in question, it can be summed up as follows: in certain situations it is possible that the terms and conditions of a worker's employment are subject to not just the employer paying his or her paycheck, but a second entity which is so involved in setting work conditions that the second entity is also considered the worker's "employer" under the law.

The biggest focus of this doctrine of late has been how it applies to fast food and other franchise-based operations. As I pen this blog post, observers of the National Labor Relations Board ("NLRB") stew over whether the McDonald's corporation is the "joint employer" for collective bargaining purposes of employees around the country who are employed by small, mid-size and large franchises.

In the mean time, McDonald's just settled a wage and hour dispute for $3.7 million dollars, which is a lot of Big Macs. The settlement is notable because McDonald's corporate shelled out the cash to settle lawsuits from hundreds employees of certain franchisees in the San Francisco area, despite the fact that none of the plaintiff-employees have a formal relationship with McDonald's corporate. According to McDonald's spokesman, the settlement was not an admission of a joint employer relationship - just a "settlement to avoid the costs and disruption of continued litigation".

Notwithstanding McDonald's protestations to the contrary, the settlement reflects a trend that we see in our practice at Plosia Cohen - big corporations are willing to pitch in money to settle employment disputes filed by workers of its franchisees in order to avoid an adverse judgment on the issue of "joint employment". While the "joint employer" doctrine works its way through the courts and administrative agencies , we get the distinct impression that none of the big corporations operating on the franchise model want to be the guinea pig case where the "joint employer" doctrine is found to apply. Better to settle and move on.

For this reason, when small businesses operating as franchisees are sued by their employees, we recommend that the franchisee should take advantage of the present fear running amok in the universe of their corporate partners. Here is how: work with your defense counsel to find out whether your big corporate partner (with pockets infinitely deeper than yours) wouldn't be willing to help pitch in for legal costs, settlement fees and the like. It could be a win-win situation because the franchisee avoids trying a prolonged litigation or spending large amounts of money on lawyers and settlements, and the corporate franchisor avoids the risk of an adverse ruling on whether it is a joint employer.