WASHINGTON – On Thursday, the National Labor Relations Board (NLRB) adopted a more expansive definition of “joint employer” under the National Labor Relations Act. The new standard is expected to have significant impacts on the franchisor-franchisee relationship, potentially resulting in franchisors being held liable for the labor practices at its franchise locations.

In its case against Browning-Ferris Industries (BFI), the NLRB stated that BFI was a joint employer with a labor supply company with which BFI contracts. Although the labor supply company hired and supervised the employees, the NLRB found that BFI was a joint employer of those employees, relying on evidence of “indirect and direct control that BFI possessed over essential terms and conditions of employment of the employees” supplied by the contractor. While the BFI case involved a company and a contractor, the joint employer standard is likely to have a broader impact on all business models.

In articulating its new joint employer standard, the NLRB states that it “may find that two or more statutory employers are joint employers of the same statutory employees if they ‘share or codetermine those matters governing the essential terms and conditions of employmen.’” Further, the NLRB will no longer require that a joint employer possess and exercise the authority to control employees’ terms and conditions of employment. Under the new standard, simply possessing the authority to control terms and conditions of employment is sufficient to be held as a joint employer.

The NLRB may attempt to apply the expanded standard to the branded marketer model that is used by many in the retail motor fuel industry. Further, the franchisor-franchisee model may be particularly affected. In a separate case brought against the McDonald’s Corporation, the NLRB has charged that McDonald’s should be held as a joint employer with many of its franchise locations. Under its case against McDonald’s, the NLRB seeks to hold the parent corporation jointly responsible for labor violations at numerous franchise locations nationwide. The more expansive “joint employer” definition articulated in the BFI case will likely make it easier for the NLRB to prove its case against McDonald’s. Moving forward, the NLRB will likely continue bringing labor violations against the corporate entity, in conjunction with the franchise employer, using its expanded standard. In addition to labor violations, the new standard could result in employees directly bargaining with the parent corporation.

If franchisors are held responsible for actions at its franchise locations, or if they are responsible for bargaining with franchise employees, they may not see the benefit in continuing the franchisor-franchisee business model. Rather than franchising store locations, they may choose to own and operate the location itself. Such a move could jeopardize the business model used by many in the retail motor fuel industry.

The new standard articulated by the NLRB will likely result in numerous legal challenges as additional labor complaints are brought against companies. Additionally, the change in the joint employer definition is expected to be highly controversial in Congress. Several congressional committees have held legislative hearings on this topic in the past, and Republicans may seek to override the NLRB’s decision.