Sep 30, 2014 - 3:15pm

Common Sense from California


Senior Vice President, Employment Policy Division

9/30/2014

On September 29th, California Governor Jerry Brown vetoed SB 610, legislation backed by the Service Employees International Union (SEIU) that would have upended franchise operations in the Golden State.  Specifically, SB 610 would have made it far more difficult for companies to manage their franchise contracts, thus allowing stores that were not meeting established quality and performance standards to remain open.  This, in turn, would threaten the financial well-being of other stores operating under the same brand name.

In vetoing SB 610, Governor Brown stated:  “The bill’s changes would significantly impact California’s vast franchise industry that relies on the certainty of well-settled laws.”  By injecting uncertainty into the management of franchises, SB 610 would not only have interfered with job creation but also led to additional needless litigation.

Which brings us to the federal National Labor Relations Board (NLRB), which is bringing its own wave of uncertainty into franchise operations — this time on a national scale.  Specifically, the NLRB’s General Counsel, Richard Griffin, has approved the filing of unfair labor practice charges against a number of McDonald’s franchises and the McDonald’s corporation as “joint employers.”  This despite the fact that the McDonald’s corporation does not employ any of the workers at these franchises, does not determine their pay or benefits, does not hire or fire any of them, does not oversee their work, and does not discipline them.

McDonald’s franchise practices are in accordance with the NLRB’s existing joint-employer standard, which will only find joint-employer status if one business exercises “direct and immediate control” over the workers of another business.  In other words, if a franchisor, like McDonald’s, were to hire, fire, discipline, provide pay or benefits, or manage the day-to-day operations of employees at a franchise location, they might be considered a joint employer.  If instead, they simply ensured brand quality and uniformity, set standards for appearance and cleanliness, and exercised other measures of indirect control, they would not be a joint employer.  This standard has been in place for 30 years, and offers a very clear and understandable test for employers, workers, and regulators alike.  This certainty has allowed franchise operations to create thousands of new jobs and business opportunities for entrepreneurs around the country. 

Now the General Counsel is advocating an ill-defined and poorly understood “industrial realities” test, under which joint-employer status could be found for any number of reasons — even for ensuring that franchisees complied with well-established workplace safety practices.  Such a vague and unlimited standard, which would be difficult for regulators to enforce objectively, would raise costs, paralyze franchise businesses, and threaten new job creation.  It would also lead to endless litigation since businesses could be held liable for actions regarding workers they don’t employ and over whom they have no real authority.  And while McDonald’s is the General Counsel’s immediate target, the impacts would go well beyond fast food to any industry that uses the franchise model, such as hotels, rental car companies, tax preparation services, barbers, retailers, and the list goes on and on. 

The lead group pushing the General Counsel to make such a change?  None other than the SEIU, which sees disruption of settled franchise law as critical to its efforts to unionize fast food workers.  In the hopes of organizing a sliver of the overall workforce, the SEIU’s efforts threaten extensive collateral damage over a large swath of the economy.

California has often set the pace for the rest of the country.  In this case, General Counsel Griffin would be well advised to follow Governor Brown’s lead and abandon his scheme to upset the “certainty of well-settled laws.”

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About the Author

Glenn Spencer Headshot
Senior Vice President, Employment Policy Division

Glenn Spencer is senior vice president of the Employment Policy division at the U.S. Chamber of Commerce.