Labor ruling could shake up franchise, temporary staffing industries

A ruling on Thursday from the National Labor Relations Board could hold parent companies liable for labor violations committed by franchisees and contractors. 

First Look

A landmark ruling from the US National Labor Relations Board on Thursday could make it easier for labor groups to negotiate directly with major fast food corporations on behalf of their employees.

The ruling could shake the foundation of multiple major industries built on franchising and contract labor by redefining the board’s standard for when parties can be identified as employers. According to the 3-2 decision, parent companies can be held liable for labor violations committed by franchisees and contractors even when they only have indirect control.

The ruling is expected to impact major US industries, including fast food, hospitality, security, and construction.

Fast food companies in particular could see an immediate impact. Unions have struggled to organize workers in the restaurants because they are often run by franchisees who are considered small business owners, despite paying fees and adhering to standards set by a parent company like Wendy’s or McDonald’s Corp.

The decision ruled that the existing standard, which says parent companies only qualify as “joint employers” of workers hired by another business if they had “direct and immediate control” over employment matters, was outdated. The board noted that there were over 2.8 million workers in the US employed through temporary agencies last summer, and that its former joint employer standard has “failed to keep pace with changes in the workplace and economic circumstances.”

The case involved a waste management company in California, Browning-Ferris Industries, which used the staffing agency Leadpoint Business Services to supply it with workers. The board ruled that Browning-Ferris is a joint employer of the workers.

Unions could now be able to negotiate directly with parent companies to win higher wages and better working conditions. In the past they’ve struggled to achieve industry-wide reforms because they have had to deal with a patchwork of hundreds of thousands of franchises.

The Service Employees International Union is leading separate cases before the board, which have not yet been heard, alleging labor violations at multiple McDonald’s locations around the country. McDonald’s is named as a joint employer in the cases.

The Teamsters Union said the board’s decision would help protect millions of workers employed as temporary or contracted employees.

The decision, the Teamsters said in a statement, “is another step to show that companies can no longer claim they are not employers when problems arise.”

The ruling also means that franchises and smaller companies will not be liable for labor violations resulting from parent company policies, according to Jeanne Mirer, a lawyer who authored a brief in the case on behalf of the Communication Workers of America.

Republic Services, the parent company of Browning-Ferris, said in a statement that the ruling is an “unnecessary change” that overturned “30 years of settled law.”

The ruling “is legally wrong and disappointing, and could have an unwarranted impact on existing business relationships across many industries,” the company added in the statement.

The two dissenting board members wrote that the board had exceeded its authority with the decision.

“No bargaining table is big enough to seat all entities that will be potential joint employers under the majority’s new standards,” wrote members Harry Johnson and Philip Miscimarra.

This report contains material from Reuters and the Associated Press.