In an attempt to gain leverage in settlement negotiations, the NLRB Office of the General Counsel issued a directive that has rocked the franchise world.  Days ago, the NLRB Office of the General Counsel determined that McDonald’s USA, LLC, the franchisor, could potentially be held liable for the employment actions of its franchisees under a “joint employer” theory. The General Counsel’s decision has authorized numerous unfair labor practice complaints based on alleged violations of the National Labor Relations Act (NLRA) to proceed against both the franchisor and franchisee entities.  While this shift by the NLRB is in its early stages, it is startlingly significant and tees up years of legal battles over the issue.

This decision follows an earlier amicus brief filed approximately one month ago on behalf of the NLRB General Counsel in Browning-Ferris Industries of California, Inc. The amicus brief argued that the Board “should abandon its existing joint employer standard.” The existing standard only finds joint employer liability when an employer exercises direct or indirect control over significant terms and conditions of employment of another entity’s employees.  The amicus brief advocated for a new, more liberal standard “that takes account of the totality of the circumstances, including how the putative joint employers structured their commercial dealings with each other.”

The NLRB’s proclamation sent shockwaves through the franchise world.  If the NLRB General Counsel follows through on its threats and Court’s later ignore precedent and adopt this radical viewpoint, the essence of the franchise business model would be significantly affected.  Typically, franchisors do not exert the level of control over the franchisees’ terms and conditions of employment to be deemed a joint employer.  This has stuck the appropriate balance between franchisor and franchisee liability.  Under the existing standard, those franchisors that do exhibit control open themselves up to being held joint employers.  Those that don’t, don’t.  The proposed “totality of the circumstances” standard blurs the line that franchisors rely on in setting up their business model and managing their liability.

The new standard becomes a catch-22 for franchisors.  Franchisors would have to consider whether they need to exercise more control over the terms and conditions of the franchisees’ employees’ employment. Franchisors may then feel compelled to weigh in on wages, payroll organization, hiring decisions, terminations, and disciplinary issues typically solely left to franchisees.  When they do so, they will fall into the NLRB’s General Counsel’s trap and perpetuate the argument that they are joint employers.

We will have to wait and see whether the NLRB begins actively pursuing “joint employer” cases against other Franchisors or parent companies that would otherwise not have been included in the earlier definition of “employer” under the NLRA.  However, this change in course by the NLRB may also send a signal that other departments within the administration, i.e. the Department of Labor, Equal Employment Opportunity Commission.

The NLRB is still in its investigation phase with McDonald’s franchisees. McDonald’s has responded to the NRLB stating, “We believe there is no legal or factual basis for such a finding, and we will vigorously argue our case at the administrative trials and subsequent appeal processes which are likely to follow from the issuance of the complaints.”  If the complaints are issued against McDonald’s as a franchisor, the next step will be for McDonald’s to address any complaints filed against it before an administrative law judge.   Depending on the outcome, the issue could then go to the full Board or the Courts.  Depending on what type of administration we get in the coming years or changes at the NLRB, we may see this issue flip flop between standards for a while.  Certainly this issue is one that could eventually be decided by the U.S. Supreme Court.  McDonald’s deserves our support during this fight.  So super-size your order because this fight is going to cost a lot more than their dollar menu can support.

Summary of Program

The risks involved in misclassifying a worker as an independent contractor rather than an employee have always been serious. A number of federal and state agencies regulate the proper classification of workers and have the authority to impose significant monetary and non-monetary sanctions against employers who get the classification wrong.

Program Highlights

This informative webinar will cover the legal landscape of independent contractor status. Topics will include:

  • A summary of the various tests applied by federal and state agencies to determine independent contractor status;
  • A summary of the enforcement authority of various federal and state agencies and the sanctions they may impose on employers;
  • The due diligence employers must engage in before classifying a worker as an independent contractor;
  • The federal Department of Labor’s $25 million “Misclassification Initiative” designed to work closely with state agencies to investigate misclassifications and take enforcement action; and
  • California’s law imposing monetary and non-monetary sanctions against employers (and certain individuals) who willfully misclassify workers as independent contractors.

If you or your company is currently using independent contractors, this is a webinar you cannot afford to miss. Register today!

Date:    August 21,  2014

Time:  9:30 a.m. – 11:00 a.m.

To register for this webinar, please email Ramona Carrillo at rcarrillo@weintraub.com.  For additional information, visit our website at www.weintraub.com and click on the News and Events tab.

On June 12, 2014, U.S. Secretary of Labor Thomas E. Perez announced a proposed rule raising the minimum wage to $10.10 per hour starting on January 1, 2015, for workers on federal service and construction contracts. The proposed rule implements Executive Order 13658, “Establishing a Minimum Wage for Contractors,” which President Barack Obama signed on February 12.

A recent California Court of Appeal upheld the trial court’s order granting defendant’s pre-certification motion for summary judgment against off-the-clock class claims made by the named plaintiff in a putative class action.  The case is named Jong v. Kaiser Foundation Health Plan, Inc., Case No. A138725, ___ Cal. App. 4th __,  (Cal. App. 1st Dist. 5/20/2014) (Jong).  Jong is welcome news for California employers.

In 2012, the named plaintiff brought a class action with two other former employees, claiming they regularly worked off-the-clock.  This is a fairly prevalent claim here in California.    The trial court granted summary judgment prior to class certification and dismissed the claims.  Plaintiff appealed.

The appellate court, as they should, placed great weight on the plaintiff’s own admissions during his deposition.  There, he admitted that (1) he was aware of the employer’s policy to pay for all hours worked; (2) he knew how to use the employer’s timekeeping system; (3) he was aware that the employer paid for all overtime hours recorded, even if not approved by supervisors; (4) he kept no record of the alleged off-the-clock hours worked; (5) he did not know whether any manager was aware of his alleged off-the-clock work; and (6) he never made a request to work or be paid for the alleged off-the-clock work.

Faced with these admissions, the Plaintiff went to the common argument that his employment position was such that he was pressured to stay within labor budget.  He said this caused the “unenviable dilemma” of choosing to “maintain his accountability and avoid the imposition of discipline” or report all his hours worked.  Despite his admissions, he said he chose the later.

The Jong court applied the off-the-clock standard set forth in Forrester v. Roth’s I.G.A. Foodliner, Inc., 646 F.2d 413 (9th Cir. 1981) (Forrester).  The Court specifically noted that the Forrester standard applied to state law claims.   White v. Starbucks Corp., 497 F. Supp. 2d 1080, 1083 (N.D.Cal. 2007) (White).  Forrester is “where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation [of the FLSA].”  Forrester, 646 F.2d at 414.  Thus, “where the acts of an employee prevent an employer from acquiring knowledge, here of alleged uncompensated overtime hours, the employer cannot be said to have suffered or permitted the employee to work in violation of [the FLSA].”  Id. at 414-15.  Insert California Labor Code wherever you see “FLSA” and you can see the Court’s rationale.

The Court applied the above standard to the Plaintiff’s admissions and reasoned that the Plaintiff had no disputed facts that could demonstrate liability of the employer for the alleged off-the-clock work.  The Court rejected 18 of the plaintiff’s fellow employees, finding they were largely irrelevant because they did not show that the employer was on notice that he was performing off-the-clock work, contrary to the employer’s policy, practice and expectation.

This decision is extremely helpful in clarifying that, in order to obtain summary judgment against an off-the-clock claim, employers need not affirmatively prove that no off-the-clock work was performed.   Jong leads the way in showing that in order to be successful in defeating off-the-clock claims the employer should be able to show that it has a policy authorizing all hours worked to be reported, did not have a practice that was different from the stated policy, the employer paid for all hours recorded, and supervisors were not aware of off-the-clock work.  In those instances, Jong gives employers a strong framework for summary judgment motions being granted in their favor against off-the-clock claims.

The case is Jong v. Kaiser Foundation Health Plan, Inc., Case No. A138725, ___ Cal. App. 4th __,  (Cal. App. 1st Dist. 5/20/2014).  Read it here.  http://www.courts.ca.gov/opinions/documents/A138725.PDF.

In a recent 3-1 decision in Macy’s Inc., the NLRB used its controversial Specialty Healthcare decision in upholding as appropriate a micro bargaining unit of only 41 employees in the cosmetics and fragrances department of a Boston-area Macy’s store.  The Micro-Unit excludes all other sales employees at the store, despite there being almost 80 other salespersons employed there.  This case is the first NLRB matter that applied the Specialty Healthcare standard to a retail employer.   Applying the standards established in Specialty Healthcare, the NLRB found that the petitioned-for unit was appropriate because the 41 cosmetics and fragrances employees are a “readily identifiable group who share a community of interest.”  The NLRB further held that Macy’s had not met its burden of showing an “overwhelming” community of interest between those employees and the other sales employees in the store’s 10 other departments.

This is terrible news for all employers, especially those in the retail industry.  The Specialty Healthcare and Macy’s Inc. decisions help unions’ efforts to organize small groups of employees into “micro-units”, in order to gain a foothold within a targeting company.

Employers must therefore be mindful of this issue in preparing for and responding to union organizing campaigns, as unions are increasingly seeking to organize the smallest subset of employees which they believe they can secure a majority of supporters.

Read the decision here. http://mynlrb.nlrb.gov/link/document.aspx/09031d45817f7387.