French fries, franchisees, and the FMLA: understanding the McDonald's decision and what it may mean for expanding franchisor joint liability.

• Author: Ebert, Maddisen
• Position: Family and Medical Leave Act of 1993

1. INTRODUCTION: EMPLOYER LIABILITY IN THE MODERN WORLD II. BACKGROUND: MCTROUBLE--JOINT LIABILITY SHOCKS THE FRANCHISE WORLD A. A Brief History of the FMLA and Franchisors B. The NLRB Takes on McDonald's C. OSHA Follows Suit: Liability Expansion by the Department of Labor III. ANALYSIS: NO MORE DOLLAR MENU--EXPANDING LIABILITY AND ITS SIGNIFICANT COSTS A. Why the NLRB Decision May Influence FMLA Franchisor Liability 1. A Simple Extension of the Logic of the Integration Test? 2. Similar Definitions 3. Power Hungry, Politicized Bureaucrats B. The Impact of Expanding FMLA Liability 1. The Good: Employer Benefits of Joint Liability Expansion 2. The Bad and Possibly Ugly: Costs of Joint Liability Expansion IV. RECOMMENDATION: PURSUING LEGISLATIVE AND COMPANY LEVEL SOLUTIONS A. If You Don't Like It, Fix It: Lobbying and Judicial Strategies for Addressing Franchise Liability 1. Lobbying the Legislature 2. The Judicial Route B. Managing Liability in the Post-McDonald's World V. CONCLUSION: JOINT LIABILITY GOING FORWARD I. Introduction: Employer Liability in the Modern World

   Every time we enter a restaurant, a number of things cross our minds. The food, the atmosphere, the prices, but almost never the individual employee behind the counter or the corporation that controls our local coffee shop or neighborhood grocery. In a litigious world, the "man behind the curtain" matters, especially when it comes to lawsuits brought by employees. Whether a worker may sue only a franchisee, or both franchisee and franchisor, for labor code violations is critical in terms of resources and recovery.

   This Note sets out to explore franchise joint liability as it existed prior to the recent 2014 changes in the law expanding franchisor liability and the consequences of those changes. It will begin with a brief history of franchise liability for employment violations and the employment acts themselves before discussing the McDonald's franchise decision that altered the interpretation of joint liability. The next Part will address whether this new interpretation will be utilized by federal agencies in defining liability under other employment laws and the consequences for franchisors should that occur. Finally, this Note will recommend a strategy for franchisors to reduce the risks of joint liability through lobbying the legislature and other day-to-day procedures.

2. BACKGROUND: MCTROUBLE--JOINT LIABILITY SHOCKS THE FRANCHISE WORLD

   The Family Medical Leave Act (1) (FMLA) is an incredibly significant piece of legislation that impacts a majority of Americans during their working lives. (2) It dictates the type and length of leave employees must receive and under what circumstances they must receive it. (3) However, there are still significant questions about the scope of the Act including the potential liability of franchisors for franchisee FMLA violations, issues with successor liability, and uncertainties about temporary and seasonal workers. (4) While all of these are important topics, this Note seeks to address potential franchisor joint liability because it is a timely and rapidly developing subject with the potential to dramatically expand notions of liability unlike any previous interpretation. (5)

   This Part will first conduct an analysis of the FMLA to understand the ambiguities surrounding liability by looking at the history, wording, and traditional application of the Act. Next, it will address the potential expansion of FMLA liability to franchisors. This involves exploring the Browning-Ferris (6) decision of the National Labor Relations Board (NLRB) and its recent application of joint liability to corporate franchisors under the Fair Labor Standards Act (FLSA). Finally, this Part will investigate the Department of Labor's push to utilize the NLRB test (7) in enforcing occupational Health and safety Administration (OSHA) rules.

   1. A Brief History of the FMLA and Franchisors

      Congress passed the FMLA in 1993, and since that time, the Act has had a major impact on the American workplace. it addresses a number of issues including mandatory time off for the birth or adoption of a child, the care of a sick family member, an employee's serious medical condition, or certain situations in which a family member in the military is injured. (8) If employers violate the Act, they can be held liable under federal law. (9) Congress constructed the FMLA to provide guidance for employers in the majority of foreseeable situations. However, there are some tricky nuances. (10) These include when successors in ownership of the business must provide leave under the FMLA to the former company's remaining employees, the intricacies of FMLA responsibility during the merger process, and when franchisors are liable for the violations of franchisees. (11)

      The law surrounding franchisors has spawned a number of distinct issues including joint liability questions. (12) The basic language of the FMLA handling joint liability seems straightforward: "[w]here two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA." (13) But in reality, this single sentence is highly complicated. Joint employers would hypothetically share liability for any violation. However, the FMLA also contains specific language regarding primary employers: "only the primary employer is responsible for giving required notices to its employees, providing FMLA leave, and [for] maintenance of health benefits." (14) A primary employer is the employer who has the most control over day-to-day activities including hiring, firing, and employee positions. (15) Employers and courts have traditionally interpreted this to mean that FMLA liability only applies to the primary employer--the one directly handling leave and medical matters. (16)

      The application of joint liability under the FMLA typically proceeds in a fairly routine manner. Courts have largely relied on the integration test set forth in 29 C.F.R. Section 825.104 (17) in extending the FMLA to small-scale franchisees with multiple restaurants in limited situations. (18) The test analyzes commonality of management, integration of operations, centralized control of labor relations, and degree of common ownership. (19) None of these factors are dispositive; instead, courts look to the totality of the circumstances when considering the factors. (20) No court has applied this test to a franchisor, and many believe that the primary employer language of 20 C.F.R. Section 825.106 would prevent such application. (21) They have held the primary employer language separates the responsibilities of the parties, making it difficult to claim direct joint control over family medical leave situations. (22) However, this conclusion is less certain in the face of a recent NLRB decision, Browning-Ferris. (23) In this case, the Board extended the definition of joint employer dramatically. The Department of Labor's purported attempts to use the decision when applying OSHA (24) furthers the case that liability may be extended under the FMLA.

   2. The NLRB Takes on McDonald's

      Following the 2012 wage protests, numerous employees filed complaints with the NLRB against individual McDonald's franchisees and the company as a franchisor. (25) Prior to the Board's recent decision, however, McDonald's Corporation was insulated from any liability as a "secondary" (i.e., non-primary) employer. (26) Various courts had determined that day-to-day company involvement and a formal right to control were distinct matters, and that only having day-to-day control gives an employer FLSA (27) liability. (28) A contractual franchise relationship alone was not enough to extend joint liability to franchisors. (29) A secondary employer under the FMLA and the FLSA is generally understood to be one who does not exercise direct control over day-to-day benefits, labor management, and health leave decisions. (30) In hearing various FMLA and FLSA cases, federal district courts had considered various "operational control factors" as demonstrated by the Orozco v. Plackis (31) and Irizarry v. Catsimatidis (32) cases. (33) To make the joint employer determination, they considered whether each possible employer: "1) had the power to hire and fire employees; 2) supervised and controlled employee work schedules or conditions of employment; 3) determined the rate and method of payment; [and] 4) maintained employment records." (34)

      In a groundbreaking decision in July 2014, the Board's general counsel changed this strict focus on day-to-day operational control when it announced that McDonald's could be liable to employees as a "joint employer" since they have control over labor negotiations through franchise agreements--the disputed issue in these cases. (35) The Board's general counsel requested the new analysis from the Board, asking that joint employer be construed broadly to involve all parties who are essential to meaningful bargaining. (36) This does not appear to be the end of the factors analysis since the control factors were utilized in justifying the expansion. (37) instead, the NLRB simply evaluated the factors in a more employee friendly manner. (38) The NLRB looked at control very loosely to require liability for what it perceived to be necessary parties (i.e., those with influence over labor relations and policies). (39) Therefore, McDonald's control over labor negotiations was enough for joint liability under the FLSA. (40) The NLRB had previously signaled its intent to broaden joint liability in an amicus curie brief filed in Browning-Ferris Industries of California, Inc. (41) Franchisors can now be subject to hundreds of employee FLSA violation claims along with the individual franchisees being sued. (42)

      Much to the dismay of the restaurant industry, the Board denied McDonald's appeal in August 20 1 5. (43) McDonald's challenged this decision in a trial before an administrative law...