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National Labor Relations Board (NLRB) Updates?

Question: Have there been any updates from the National Labor Relations Board on franchising issues?

Answer: Yes.  As you know, the NLRB and its treatment of the franchise relationship has been in the news lately, particularly in relation to the franchisor-franchisee relationship being a joint employer relationship, meaning that the franchisor could be liable for the franchisee’s actions towards its employees.  Recently, the NLRB considered whether Freshii Development, LLC (“Freshii”), franchisor of a fast-casual restaurant chain, was a joint employer with its franchisee under the National Labor Relations Act (the “Act”). The NLRB concluded that Freshii was not a joint employer with its franchisee under both the NLRB’s current standard and the standard recently proposed by its General Counsel in the McDonald’s cases.

In arriving at its decision that no joint employer relationship existed, the NLRB found the following facts important to its conclusion:

  • Freshii had no involvement in hiring, screening applicants, firing, discipline, supervision, or setting wages or benefits and did not directly or indirectly control or restrict the franchisee’s employees’ core terms and conditions of employment.
  • Freshii had no involvement in the franchisee’s alleged unfair labor practice and remained silent when asked for advice so that potential collective bargaining could occur in Freshii’s absence.
  • The franchise agreement specified that System Standards did not include “any personnel policies and standards” and that the franchisee alone was responsible for determining whether any personnel policies and standards applied to its restaurant and also provided Freshii “neither dictates nor controls labor or employment matters for franchisee and their employees.”
  • Freshii did not require its franchisee to use its sample employee handbook and personnel policies (even though Freshii provided a sample for its franchisees to use).
  • After initial operational training of owners and managers, Freshii was not responsible for employee training and Freshii was not responsible for disciplining or discharging the franchisee’s employees.

The Advice Memorandum provides instruction to franchisors about avoiding a joint employer relationship with its franchisees. However, uncertainty remains due to the fact that unlike most franchise systems, Freshii did not actively enforce the non-food-related requirements of its franchise agreement.  The NLRB also advised that Freshii’s requirements regarding uniforms, initial training, store hours, food preparation, recipes, menu, and décor, without more, were not a basis for finding a joint employer relationship. This is good news for franchising!

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