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Getting The Deal Through

Joint Employer and General Labour and Employment Issues

Marlén Cortez Morris and William M McErlean

Barnes & Thornburg (Chicago)


Introduction

One area that has plagued the franchising business model in recent years is the threat of joint employer liability. Franchisors are increasingly targeted in litigation, regulatory actions and legislation as joint employers of the employees of their franchisees. This is disruptive to both franchisors and franchisees as it can dissuade entrepreneurs from franchising and increase the cost of doing business overall. The problem knows no borders. Expansion of joint employment liability has become a trend in countries such as the United States, Canada and Australia. Despite this, no consensus has emerged on when joint employment liability should be found. Instead, the franchise relationship is judged against a variety of tests that change from one jurisdiction to the next and depends on the facts of each case. The legal landscape also continues to evolve with technological, cultural and political shifts. With no final resolution in sight, franchisors and franchisees must not only remain vigilant for developments in this area in the jurisdictions in which they operate, but also take precautions to reduce their joint employer exposure.2

State of the joint employer law

Under a joint employer theory, two or more entities, such as a franchisor and franchisee, may be deemed jointly liable for labour and employment law claims asserted by employees who are formally employed by one employer (the franchisee) if the other putative employer (the franchisor) exercises sufficient control over the employment terms and conditions of the employees. However, the test for determining whether a joint employment relationship exists varies by jurisdiction, statutory scheme and the facts of each case.

United States

The National Labor Relations Act

The National Labor Relations Act (NLRA) is the federal labour law that governs the relationship between employers and employees by, among other things: (i) protecting employees’ rights to unionise;3 (ii) prohibiting employers from engaging in specified unfair labour practices;4 and (iii) imposing obligations on employers to collectively bargain with representatives of employees.5 The National Labor Relations Board (NLRB) is the agency charged with administering the NLRA.6 It is composed of five members who are appointed by the President to five-year terms, with Senate consent, and the term of one member expires each year.7

In late August 2015, the NLRB abandoned 30 years of precedent when it adopted a new, broad standard for determining whether two or more businesses are joint employers for labour law infractions under the NLRA in its controversial Browning-Ferris decision.8 For decades, the NLRB and courts had measured NLRA joint employer liability under the NLRA by focusing on whether the putative employers each exercised ‘direct and immediate’ control over the employees’ ‘essential terms and conditions of employment’.9 Browning-Ferris overruled that test and instead held that two or more entities could be joint employers if they merely reserved control or exercised indirect or limited control over the workers’ essential terms and conditions of employment.10 Essential terms include personnel matters such as hiring, firing, discipline, supervision, direction, training, wages, hours and benefits, staffing, scheduling, and work assignments.11 The use of technology, tools and resources to exert control may be examined.12

Although Browning-Ferris was not a franchise case, franchising and other outsourcing arrangements were certainly scrutinised at the time of the decision as attempts to (i) subvert meaningful collective bargaining about workers’ employment terms and conditions and (ii) escape liability for unfair labour practice charges. At the time, the General Counsel of the NLRB argued in favour of expanding joint employer liability to franchisors, noting that some can and do control employees of franchisees by, among other things:

  • tracking the sales, inventory and labour costs of franchisees;
  • calculating or imposing numbers for the labour needs of franchisees;
  • setting or overseeing employee work schedules;
  • tracking franchisee wage reviews;
  • tracking how long it takes for employees to fill customer orders;
  • requiring franchisees to use labour scheduling technology and point of sale systems that track any of the above; and
  • accepting employment applications for franchised locations through the franchisor’s system and screening applicants through that system.13

The NLRB, in fact, instituted numerous unfair labour practice charges against McDonald’s and its franchisees as joint employers after workers of McDonald’s franchised locations participated in nationwide fast food worker protests concerning their wages and other working conditions.14 At the time of writing, these proceedings are ongoing and awaiting a joint employer determination.15

As for Browning-Ferris, the case has been making its way through the appeals process ever since the decision was issued.16 In the meantime, the composition of the board has evolved into a Republican-majority board under the current administration.17 With its new composition, in December 2017, and while the appeal was pending, the NLRB attempted to overturn the Browning-Ferris joint employer test in Hy-Brand Industrial Contractors Ltd, but its ruling was later vacated because of ethical concerns.18 Then, on 28 December 2018, the federal appellate court presiding over the case issued a mixed ruling, affirming the NLRB’s articulation of the joint employer test as including reserved and indirect control, but finding that the NLRB failed to properly define ‘indirect control’ and remanding the case to the board for further proceedings.19

While neither the Browning-Ferris nor McDonald’s cases have been conclusively resolved, the NLRB’s General Counsel Office issued an advice memorandum addressing joint employment in another franchise system that offers some guidance to franchisors.20 The case arose out of a Freshii franchisee’s termination of two employees who were attempting to unionise its workforce.21 In analysing the Freshii franchise system, the General Counsel’s office concluded there was no joint employer relationship between the franchisor and franchisee, whether under the traditional or Browning-Ferris standard, because:

  • the franchise agreement explicitly stated that the franchisor’s system standards did not include ‘any personnel policies or procedures’ and the franchisor ‘neither dictates nor controls labor or employment matters for franchisees and their employees. . .’;
  • although the franchisor provided human resources guidance in its Operations Manual (even providing a sample employee handbook), the franchisee had the power to decide whether to adopt the franchisor’s guidance and the franchisee had, in fact, created its own employee handbook with its own personnel policies;
  • the franchisor had no involvement in hiring, firing, discipline, supervision, or setting wages, raises or benefits of the franchisee’s employees; 
  • the franchisor was not involved, directly or through point-of-sale systems or scheduling software, in the franchisee’s scheduling and setting work hours of its employees; 
  • the franchisor’s pre-opening training programmes focused mainly on restaurant operations;
  • the franchisor’s monthly field reviews were limited to inspecting the franchisee’s compliance with the franchisor’s mandatory system standards; and
  • the franchisor did not interfere with or instruct the franchisee on how to respond to the employees’ organising efforts, even though the franchisee requested the franchisor’s advice.22

Although the franchisor exercised controls over the franchisee’s operations – regarding food preparation, recipes, menu, uniforms, decor, store hours and pre-opening training – those controls were ‘limited to ensuring a standardized product and customer experience’ and tied to Freshii’s ‘legitimate interest in protecting the quality of its product and brand’.23 Such controls were insufficient to interfere with any meaningful collective bargaining between the franchisee and its employees.24

Most recently, on 14 September 2018, the NLRB released a proposed rule that would undo Browning-Ferris and reinstate its prior ‘direct and immediate control’ test for joint employer status:25

to be deemed a joint employer under the proposed regulation, an employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.26

It remains to be seen whether the proposed rule will be adopted.27

The Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, and record-keeping standards affecting employees in the private sector.28 The Wage and Hour Division of the US Department of Labor (DOL) administers and enforces the FLSA.29

The NLRB has not been alone in its efforts to expand joint employment liability to the franchising industry. The DOL too adopted, through administrative guidance, new and expansive standards for determining joint employment under the FLSA on 20 January 2016, but the guidance was rescinded effective 7 June 2017.30

Even so, the concept of employment is broadly defined in the FLSA31 and the applicable regulations expressly recognise that two or more employers may jointly employ an employee.32 ‘Employee’ is defined as ‘any individual employed by an employer’.33 ‘Employer’ is defined as ‘any person acting directly or indirectly in the interest of an employer in relation to an employee’. And ‘employ’ means simply ‘to suffer or permit to work’.35 In line with this broad coverage, the regulations set out three instances in which a joint employment relationship likely exists:

  • where the entities share the employee’s services or interchange employees;
  • where one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
  • where the employers are not completely disassociated regarding the employment of a particular employee and share control of the employee because one employer controls, is controlled by or is under common control with the other employer.36

Based on its expansive coverage, the test for analysing joint employer status under the FLSA varies widely by jurisdiction and is highly dependent on the facts of the case. Courts typically apply the ‘economic realities test’, which focuses on the economic realities of the employment relationship in light of the totality of the circumstances, while others focus on the narrower, common law agency theory of control, which is similar to the NLRB’s traditional control standard. Others use a hybrid test of the two.37

Factors normally considered in the economic realities analysis include whether the putative employer had the power to hire and fire the employees, supervised and controlled employee work schedules or conditions of employments, determined the rate and method of pay, maintained employment records, and whether the work is integral to the putative employer’s business.38 Because of the fact-intensive nature of the inquiry, courts hesitate to dismiss joint employment claims early on in litigation, without allowing plaintiffs the opportunity to take discovery relevant to their claims.39

With respect to the control test, courts in several jurisdictions have adopted a more refined test grounded in vicarious liability principles, which assigns joint employment liability only if the franchisor actually controls the specific issue of the franchisee’s business that caused the alleged harm to the employee of the franchisee.40

Notably, on 25 January 2017, the US Court of Appeals for the Fourth Circuit – which covers Maryland, North Carolina, South Carolina, Virginia and West Virginia – adopted a new FLSA joint employment test that is broader than any other joint employment test to date.41 According to the Fourth Circuit, the ‘fundamental question’ guiding the FLSA joint employment analysis is:

whether two or more persons or entities are ‘not completely disassociated’ with respect to a worker such that the persons or entities share, agree to allocate responsibility for, or otherwise codetermine – formally or informally, directly or indirectly – the essential terms and conditions of the worker’s employment.42

To answer this question the Fourth Circuit identified six non-exhaustive factors to consider:

  • whether, formally or as a matter of practice, the putative joint employers, directly or indirectly, jointly determine, share, or allocate the ability to direct, control, or supervise the worker;
  • whether, formally or as a matter of practice, the putative joint employers jointly determine, share or allocate the power to – directly or indirectly – hire or fire the worker or modify the terms or conditions of the worker’s employment;
  • the degree of permanency and duration of the relationship between the putative joint employers;
  • whether one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer, either through shared management or a direct or indirect ownership interest;
  • whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or related to one another; and
  • whether, formally or as a matter of practice, the putative joint employers jointly determine, share or allocate responsibility over functions ordinarily carried out by an employer, such as: (i) handling payroll; (ii) providing workers’ compensation insurance; (iii) paying payroll taxes; or (iv) providing the facilities, equipment, tools or materials necessary to complete the work.43

The presence of one factor or mere indirect control can be sufficient under this test.44 The US Supreme Court was asked to review the correctness of the Fourth Circuit’s test but declined to do so.45

The Fourth Circuit’s ‘completely disassociated’ test sets an extremely low bar for imposing joint employment liability in those states – and beyond as the test gains traction in other states.46 The very nature of franchising requires some degree of association between franchisor and franchisee.

According to the Fourth Circuit, however, no joint employment liability will result if the franchisor (i) disassociates itself from the franchisee regarding the workers’ key terms and conditions of employment or (ii) ensures that the franchisee covers its workers’ legal entitlements under the FLSA.47 But the second option would require the franchisor to monitor and ensure its franchisees’ compliance with the FLSA, which would expose the franchisor to joint employment liability under other laws, including the NLRA.48 And although the first option seems more feasible, it is unclear how courts will interpret and apply that prong. It is possible that courts may interpret controls that franchisors implement to protect their trademarks and ensure brand standardisation as associating with the franchisee on key working conditions.49 In fact, the Fourth Circuit reached a joint employer finding based on several controls aimed at trademarked brand quality controls.50

A finding that a franchisor and franchisee jointly employ the franchisee’s employees under the FLSA means that a franchisor will be liable when the franchisee fails to properly pay its employees the required minimum or overtime wage or to maintain appropriate time records. Not only can the franchisor be on the hook for the amount of unpaid wages, but the FLSA also provides for liquidated damages (ie, double damages) for wilful violations and attorneys’ fees.51 This is an expensive proposition for franchisors given how prevalent and costly wage and hour claims are.52

Like the NLRB, the DOL is considering rule-making to clarify the FLSA joint employer standard.53 However, the rule is not legislation and would only serve as interpretative guidance.54

Federal Anti-Discrimination Law

Joint employment liability can also apply to franchise relationships as a result of workplace discrimination, harassment and retaliation in a franchised location.

Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employers with 15 or more employees from discriminating against employees on the basis of race, colour, religion, sex (including gender and pregnancy) and national origin.55 The Age Discrimination in Employment Act (ADEA) prohibits discrimination on the basis of age (40 and over).56 It applies to employers with 20 or more employees.57 The Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability in employment.58 It also requires employers to reasonably accommodate qualified individuals with a disability if they can do so without suffering undue hardship.59 The ADA applies to employers with 15 or more employees.60 Each of these federal anti-discrimination laws further prohibit harassment and retaliation against individuals who complain, oppose, or testify or otherwise participate in any investigation or proceeding of discrimination.61

Under these statutes, an employee may have more than one employer. Each of the statutes broadly defines ‘employee’ as an individual employed by an employer and ‘employer’ as an individual or entity engaged in an industry affecting commerce.62 Accordingly, most private employers are covered as long as the numerical threshold of employees is satisfied.

Similar to the FLSA, there is not one test that is uniformly used to determine joint employer status under these anti-discrimination laws. Enforcement guidance by the Equal Employment Opportunity Commission (EEOC), which is the agency responsible for enforcement of the federal anti-discrimination laws, provides that two or more employers can be deemed joint employers if they exercise sufficient control over the employee.63 Factors that can indicate sufficient control to trigger liability include:

  • the putative employer controls when, where and how the employee performs the job;
  • the work does not require a high level of skill or expertise;
  • the putative employer supplies the tools, materials and equipment;
  • the work is performed on the premises of the putative employer;
  • there is a continuing relationship between the employee and putative employer;
  • the putative employer has the right to assign additional projects to the employee;
  • the putative employer sets the hours of work and the duration of the job;
  • the employee is paid by the hour, week or month, as opposed to on a project basis;
  • the employee has no role in hiring and paying assistants;
  • the work performed is part of the putative employer’s regular business and the employee is not engaged in his or her own business;
  • the putative employer provides benefits such as insurance, leave or workers’ compensation to the employee;
  • the employee is considered an employee of the putative employer for tax purposes;
  • the putative employer can discharge the employee; and
  • the employee and putative employer believe that they are creating an employer–employee relationship.64

Again, no single factor is determinative and an overall assessment of the parties’ relationship must be made.65 The test will therefore vary by jurisdiction, with some jurisdictions focusing on the common law agency test of control, the economic realities or another variation.66

Upon a finding of liability, a successful employee may generally recover the following remedies from the joint employers: (i) injunctive relief; (ii) back pay; (iii) compensatory damages (including for future loss and emotional distress); (iv) front pay (future income the employee would have earned); (v) attorneys’ fees and costs; and (vi) punitive damages for intentional violations.67

Legislative efforts to address the joint employment question

Agency rule-making is not a permanent solution to the joint employment conundrum. Legislative efforts are also under way to provide long-term clarity for businesses in franchising and other industries.

In November 2017, the US House of Representatives (House) passed the Save Local Business Act, which seeks to amend both the NLRA and the FLSA’s definitions of ‘employer’ so that joint employment liability is imposed only when an entity ‘directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment’.68 Those ‘essential terms and conditions’ include hiring, discharging, determining wages and benefits, daily supervision, assigning work schedules, positions and tasks, and disciplining of employees.69 The bill passed the House with bipartisan support, but it has stalled in the US Senate.70 The opposition views the bill as eliminating accountability for employers who have moved away from direct employment through subcontracting, franchising, temporary staffing and other similar arrangements.71

On 31 August 2018, the House then introduced the Trademark Licensing Protection Act.72 If enacted, the bill would amend the federal trademark statute (the Lanham Act), so that a franchisor or licensor’s controls to preserve its trademarks through brand controls – which ensure uniformity to the consuming public – cannot be proof of joint employment (or principal-agent) liability.73

The proposed amendment would help bring clarity to franchisors who are being faulted as joint employers for imposing certain controls vital to their trademarks and franchised brands. At the root of the Lanham Act is the requirement that all licensors, including franchisors, control their licensees’ use of their trademark or else risk losing all rights in that mark.74 Franchisors, therefore, have long imposed on their franchisees uniform standards of appearance, operations, and products and services to control the nature and quality of goods and services bearing their marks.75 Failure to establish these quality control standards or enforce the standards with franchisees may indeed result in abandonment of the mark.76

The problem in the current legal landscape is that the Lanham Act fails to define what level of control is acceptable without resulting in joint employment liability. Recent cases are blurring the lines of control that typically exist in a franchising relationship to expand the reach of joint employment liability to franchisors.77 The proposed amendment would make it clear that:

any control . . . for the purpose of preserving the goodwill, reputation, uniformity, or expectation of the public of the nature and quality of goods or services associated with the mark, may not be construed as establishing an employment or principal-agent relationship between the owner of the mark and the related company.78

‘Employment or principal-agent relationship’ would include ‘any type of joint employer relationship, single employer relationship, alter ego relationship, successor relationship, or other employment-related or principal-agent liability status or relationship.’79

The bill is currently awaiting further action by a House committee and has bipartisan support.80 However, with recent changes in the current composition of both the House and the Senate, the future of these two bills is unclear.81

Beyond federal efforts, several states have enacted some form of ‘joint employer’ legislation to exempt franchise relationships from joint employment liability for purposes of various state employment claims, but their scope varies significantly and they do not apply to claims under federal law.82

Canada

Canadian law also recognises the concept of joint employment in both its common law and legislation. As in the United States, Canada has taken steps in recent years to broaden joint employment liability to franchises and other related companies. Liability can range from employment law obligations such as wages, overtime, benefits, severance pay and withholding of taxes, to wrongful dismissal and human rights complaints, as well as labour law obligations such as franchisor participation in the collective bargaining process.

Under the ‘common employer’ doctrine, Canadian courts examine whether two or more companies function as a ‘single, integrated unit’ such that they will be deemed common employers for purposes of labour and employment liability.83 Courts will look beyond complex corporate structures to protect employees, and ‘[a]s long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer, there is no reason in law or in equity why they ought not all to be regarded as one.’84 The key factor will be ‘the element of common control’, which will depend on the facts of the case.85

For example, existence of any of the following factors will generally trigger the common employer doctrine: (i) ‘an intention to create an employer/employee relationship’ between the employee and the group of companies; (ii) the entity exerts ‘effective control over the employee’; (iii) the employee served all entities within the group, irrespective of an employment contract; (iv) the employee is paid by one entity while working for another; and (v) the companies act as ‘a highly integrated or seamless group’.86 Bare allegations that the two potential employers exercise significant control and share responsibilities over the employee, without explanation of the control or of the interrelationship and commonality of operations, will not do.87

Although the doctrine is most frequently used in cases concerning dismissed employees who sue their direct employer and other closely related companies – not necessarily franchisors – the doctrine can apply in the franchise context as well.

In addition to the common law, there are statutes that have expanded joint employment liability to franchisors in Ontario. The Employment Standards Act 2000 (ESA) covers employment standards such as wages, hours and leave, and the Labour Relations Act 1995 (LRA) governs labour relations in Ontario.88 In 2017, the Ontario government considered – but did not adopt owing to the strong objections of the franchising legal and business community – proposed changes to both statutes that sought to automatically deem a franchisor the joint employer of its franchisees’ employees for certain purposes.89

Even though no automatic joint employment liability rule was adopted, the Ontario legislature did amend the ESA to make it easier to find that franchisors are joint employers under the act.90 Effective 1 January 2018, separate legal entities may be treated as one employer if they carry on ‘associated or related’ business activities.91 Before the amendment, separate entities were only treated as one employer if they had also acted with ‘the intent or effect’ of ‘directly or indirectly defeat[ing] the intent and purpose’ of the act.92 The ESA imposes joint and several liability for any violation and for any wages owed to an employee of any of the entities.93

By relaxing the standard, employees of franchisees may more freely bring claims under the ESA against the franchisor, the franchisee or both. However, it remains to be seen how courts will apply the new standard since there are no published decisions applying it.94

Similarly, the LRA permits the Ontario Labour Relations Board (OLRB – the Ontario equivalent of the NLRB), to declare that companies are ‘related employers’ – joint employers – if they are engaged in ‘associated or related activities or businesses’ and fall ‘under common control or direction’.95 In exercising its discretion to treat two or more entities as one employer, the OLRB must weigh the legislation’s objectives: ‘preservation of bargaining rights, viable collective bargaining structures, and direct dealings between bargaining agent and the entity with real economic power over employees’.96

Importantly, ‘[t]he applicability of section 1(4) to franchise arrangements must be determined on a case by case basis. There is no general presumption that a section 1(4) declaration is appropriate, nor the reverse. Each case must be considered on its own facts.’97 In the few cases where the OLRB has been tasked with deciding whether franchisors and franchisees are related employers, the OLRB has not uniformly ruled one way or another, focusing instead on the franchise relationship, the extent of the controls over the franchisee’s employees and whether the franchise arrangement contravenes the LRA’s intent.98

Franchisors may also be considered an employer of franchisees’ employees for purposes of harassment and discrimination claims if they exercise a ‘sufficient degree of control’ or ‘substantial control over the day-to-day operations’ of the franchised location and its employees.99 Traditional controls imposed by the franchise agreement to protect the franchisor’s trademarks that do not involve substantial and significant control over day-to-day employment-related matters will generally not be enough to find the franchisor to be liable as an employer.100 Problematic controls for franchisors include controls over franchisees’ advertising for, interviewing, hiring, supervising, setting wages, work hours and discipline of the employees.101

Although no bright line rule exists in Canada, the more control a franchisor has or actually exerts over the employment practices of its franchisees’ employees, the more likely it will be found a joint employer. Franchisors can mitigate this risk by instituting steps to sever controls over franchisees’ advertising for, recruiting, interviewing, hiring, supervising, setting wages, work hours, training and discipline of their employees.102

Australia

Australia enacted the Fair Work Amendment (Protecting Vulnerable Workers) Act of 2017 after widespread media coverage exposed rampant wage fraud of workers employed by franchisees in certain large franchise systems.103

The new law amended the Fair Work Act of 2009 (FWA), which governs the employment relationship in Australia, to strengthen protections for vulnerable workers and bolster enforcement mechanisms and penalties against non-compliant employers.104, 105 Beginning on 27 October 2017, the amendment also expanded liability for employment law violations to certain franchisors and holding companies.106 Specifically, the law now requires ‘responsible franchisor entities’ to take ‘reasonable steps’ to ensure that their franchisees comply with employment laws, or else they could be found liable for their franchisees’ employment law violations.107

As amended, the FWA broadly defines a ‘responsible franchisor entity’ to include any person who (i) is a franchisor (or sub-franchisor) of a franchise and (ii) ‘has a significant degree of influence or control over the franchisee entity’s affairs’.108 The breadth of potential joint employment liability becomes clear when the two prongs are examined. The term ‘franchise’ has the same meaning as under the Corporations Act 2001.109 It includes any:

arrangement under which a person earns profits or income by exploiting a right, conferred by the owner of the right, to use a trade mark or design or other intellectual property or the goodwill attached to it in connection with the supply of goods or services.110

Moreover, either ‘influence or control’ can be enough, and the influence or control need not be limited to the franchisee’s employment matters. In effect, the new law reaches nearly all franchisors, as well as licensors and distributors, in Australia.111

To impose liability, the ‘responsible franchisor entity’ must have known or could reasonably be expected to have known that the violation by the franchisee would occur or that a violation of the same or similar character was likely to occur.112 The franchisor will not be liable if it can show it took ‘reasonable steps’ to prevent the franchisee’s violation.113 In determining whether ‘reasonable steps’ were taken by the franchisor, a court may consider ‘all relevant matters’, including, but not limited to:

  • the size and resources of the franchise;
  • the extent to which the franchisor had the ability to influence or control the franchisee’s conduct;
  • any action the franchisor took to ensure that the franchisee had a reasonable knowledge and understanding of the law’s requirements;
  • the franchisor’s arrangements (if any) for assessing the franchisee’s compliance with the law;
  • the franchisor’s arrangements (if any) for receiving and addressing possible complaints about alleged underpayments or other alleged violations; and
  • the extent to which the franchisor’s arrangements (whether legal or otherwise) with the franchisee encourage or require the franchisee to comply with this law or any other workplace law.114

In the event a breach is found, the court may order the franchisor to pay any underpayments owed to the employees of the franchisee and penalties for each violation of up to A$12,600 for individuals and A$63,000 for corporations.115 The franchisor may then initiate court proceedings to recover the paid amounts from the franchisee.116

The Fair Work Ombudsman has issued a comprehensive guide to help franchisors in promoting compliance with workplace laws in their franchise systems.117 The guidance indicates that the agency expects franchisors to take proactive steps to ensure their franchisees’ compliance, including educating and training franchisees on workplace laws and responsibilities, monitoring compliance through audits of franchised locations, and taking further action as needed to address uncovered violations.118 The guidance even suggests that franchisors can:

  • incorporate the agency’s ‘Fair Work Handbook’ into the franchisor’s operations manual, or provide it as a standalone resource for franchisees;
  • ‘keep franchisees regularly updated about their obligations under workplace laws and where they can get help’;
  • provide franchisees templates that show them what to do, including the agency’s free templates;
  • ‘implement human resource management systems or software to help . . . franchisees with consistent and compliant workplace practices’;
  • ‘engage qualified human resources or industrial relations staff to train, update and assist franchisees’;
  • recommend the agency’s record-keeping application and direct franchisees to the agency’s online pay tools and online learning centre; and
  • assist franchisees to resolve workplace disputes with their employees.119

Practical considerations

Although recent moves indicate a favourable shift in the joint employment legal landscape, this area is still far from resolved. Courts and agencies apply different tests in examining joint employer status, and irrespective of the test used, the analysis will be driven by the specific facts of each case.

What is clear is that the joint employment question hinges on control. Given the current state of the law, any control – even if only tangential – concerning employment matters at the franchisee level, including hiring, firing, discipline, supervision, training, record-keeping, work hours and schedules, job duties and assignments, compensation and benefits, can be viewed as evidence of possible joint employment liability.120 Franchisors should therefore be cognizant of the applicable law in their jurisdiction and be mindful of the controls they impose on franchisees to ensure those controls are properly focused on protecting the franchisor’s trademarks and brand, not franchisees’ employment practices.

Because it is possible that some of the alleged ‘controls’ may be beneficial to the franchise system, a cost-benefit analysis of the cost of potential liability and benefit of exercising control should also be performed. For example, tracking data points such as labour costs and the amount of time it takes franchisees’ employees to fill customer orders may be beneficial to a franchisor and franchisee as it could help optimise franchise operations. However, the risk of tracking such labour figures is that some of that information would later establish wage and hour violations. Or an emerging franchisor may deem it useful to provide its new franchisees with template employment forms or policies to reduce their costs of compliance. However, the franchisor may be risking assuming full responsibility for updating those forms or policies to comply with all labour and employment laws and defending joint employment claims based on those forms or policies.

Although at first glance it might appear that only two options exist – either assume full control over franchisees’ operations, including employment practices, or pull back operational controls – franchised businesses can find a middle ground and take precautions to mitigate a finding of joint employer status. In any key documents governing the franchise relationship, the parties will want to ensure that control over and liability for the employment relationship is allocated to the franchisee as the direct and sole employer. At a minimum, the following should be carefully reviewed to assess whether any imposed or reserved controls by the franchisor extend beyond protecting the trademarks and ensuring brand uniformity and delve into franchisees’ employment matters:

  • franchise agreements;
  • franchise disclosure documents;
  • operations manuals;
  • training materials and training of field and operations personnel;
  • any sample employment materials provided to franchisees (including employee handbooks and policies, job descriptions and applications)
  • contracts with third-party vendors who assist franchisees with human resources matters; and
  • technology systems requirements or applications that involve labour components.121

 

If the answer to any of the above is yes, then those controls can be eliminated or at least limited.

For example, the following steps can be taken or measured:

  • Making the intent not to be joint employers clear. Franchise agreements largely include an independent contractor provision. Language can be added explicitly stating that the parties are not and do not intend to be joint employers; the franchisee is the sole employer and as such retains the sole discretion and right over any employment matters at its independently owned and operated franchised location, including listing the essential terms and conditions of employment, and is therefore responsible for compliance with all applicable laws with respect to its employees, including all labour and employment laws.
  • Indemnification and insurance. An indemnification provision in the franchise agreement that requires the franchisee to indemnify the franchisor for any claims or damages arising out of or resulting from the franchisee’s employment actions or omissions, including any costs incurred in opposing a joint employer claim, can help further clarify the parties’ intent that they are not joint employers. As an additional step, franchisors may consider requiring franchisees purchase applicable insurance to cover employment claims asserted by franchisees’ employees under which the franchisor qualifies as an additional insured.
  • Operations manuals that are focused on trademark and brand standards. Franchise agreements typically require compliance with the franchisor’s operations manual. For that reason, the operations manual should focus on imposing requirements related to the standards exemplified by the franchisor’s trademark and franchise system, such as ensuring a standardised product and customer experience, but nothing employment-related. Additional material, including any suggestions related to employment the franchisor may want to provide, should be clearly framed as permissive language.
  • Maintain template employment materials as optional. To the extent template employment materials (including employee handbooks and policies, job descriptions and job applications) are provided to franchisees, the use of those materials should be optional and language to that effect included in the templates. As an additional safeguard, franchisors may want to remove their name, trademarks and logos from any templates.
  • Be careful about requiring workforce management technology or tools. Another area of scrutiny in the joint employer field is how franchisors direct the use by franchisees of specific technology and tools (including systems, software, applications and vendors) and may use those to track, set, or oversee employment terms and conditions. For example, a franchisor might have previously required franchisees to use certain labour scheduling software, a specific online hiring platform (or encouraged hiring through the franchisor’s website), or a designated vendor for payroll functions. There are ways franchisors can assist their franchisees without imposing unnecessary requirements. For example, the technology or tools can be made optional and a franchisor may even present several options for franchisees to explore and use at their own choosing.
  • Train field and operations personnel to enforce only brand standards. The franchise relationship in practice must be consistent with the franchise agreement and other related documents that no joint employer relationship exists. Field and operations personnel should therefore be trained to enforce only the brand standards and avoid involvement in franchisees’ employment matters. Pre-opening training programmes and ongoing inspections should focus on franchisees’ compliance with required brand standards. The training of franchisees’ employees should be left to the control of the franchisees.
  • Clear communication to third parties about franchisees’ independent business status. Language in the franchise agreement typically requires a franchisee to conspicuously identify its franchise as an independently owned and operated location to third parties. As part of this obligation, franchisees should take steps to communicate to their employees that even though the franchisee is part of a franchise system, it is an independent business and the employer is the franchisee, not the franchisor. For example, franchisees can include employer disclaimer language in all employment materials they provide to their employees and label all such materials with the franchisee’s name to avoid any misunderstanding that the franchisor is an employer.122

Ironically, the Australian approach to minimising joint employment liability for franchisors is in stark contrast to the US approach. The hands-on compliance training and monitoring called for in Australia would likely result in the imposition of joint employment liability on a franchisor in the United States.123

Beyond compliance training and monitoring, franchisors in Australia should include in both franchise agreements and operations manuals a strict requirement that franchisees must comply with all workplace laws.124 The franchise agreement should also detail the franchisor’s potential monitoring activities, specify consequences for non-compliant franchisees and require indemnification by the franchisee.125 This is particularly appropriate because the Franchising Code of Conduct does not permit a franchisor to immediately terminate a franchise agreement where a franchisee has violated workplace laws.126

Conclusion

The joint employment legal landscape is ever-changing. And joint employment enforcement actions and litigation are expensive, time-consuming, and counterproductive to the franchisor–franchisee relationship. Franchisors and franchisees with national and international operations must therefore continue to monitor developments in this area and take appropriate steps to conform their operations as needed. Given the risk and expense of joint employer liability, it cannot be understated that ‘[a]n ounce prevention is worth a pound of cure’.127

Footnotes

[1]     Marlén Cortez Morris and William M McErlean are partners at Barnes & Thornburg LLP.

[2]     This article focuses on joint employment and does not address independent contractor or employee classification issues.

[3]     29 USC section 157 (2018).

[4]     29 USC section 158(a).

[5]     29 USC section 158(d).

[6]     29 USC section 153.

[7]     Nat’l Labor Relations Bd, The Board, www.nlrb.gov/about-nlrb/who-we-are/board (last visited 7 January 2019).

[8]     Browning-Ferris Indus of Cal Inc, 362 NLRB No. 186 (2015) [hereinafter Browning-Ferris].

[9]     See TLI Inc, 271 NLRB 798 (1984), enforced 772 F.2d 894 (3d Cir. 1985); Laerco Transp, 269 NLRB 324 (1984).

[10]     Browning-Ferris, 362 NLRB No. 186 at 2, 15–16.

[11]     id. at 15.

[12]     See Amicus Brief of the General Counsel at 14–15, Browning-Ferris Indus of Cal Inc, No. 32-RC-109684 (NLRB 26 June 2014), available at www.nlrb.gov/case/32-RC-109684.

[13]     id. at 14–15.

[14]     Nat’l Labor Relations Bd, NLRB Office of the General Counsel Issues Consolidated Complaints Against McDonald’s Franchisees and their Franchisor McDonald’s, USA, LLC as Joint Employer (19 December 2014), www.nlrb.gov/news-outreach/news-story/nlrb-office-general-counsel-issues-consolidated-complaints-against.

[15]     McDonald’s and the NLRB reached a settlement in March 2018, after 150 days of hearing, but the administrative law judge declined to approve it citing ‘many conflicting statements’ that cast ‘significant doubt’ about whether an agreement was actually reached. Order Denying Motions to Approve Settlement Agreements at 2 & 28–29, McDonald’s USA, LLC, Nos. 02-CA-093893 et al (NLRB 17 July 2018), available at www.nlrb.gov/case/02-CA-093893 (07/17/2018 Administrative Law Judges Order).

[16]     See Petition for Review, Browning-Ferris Indus of Cal Inc v NLRB, No. 16-1028 et al (DC. Cir. 20 January 2016).

[17]     See David J Pryzbylski, What Were The 3 Biggest Developments At The NLRB In 2018, Barnes & Thornburg LLP (27 December 2018), www.btlaw.com/insights/blogs/what-were-the-3-biggest-developments-at-the-nlrb-in-2018 (discussing NLRB organisational changes).

[18]     Hy-Brand Indus Contractors Ltd, 365 NLRB No. 156 (NLRB 14 December 2017), overruled by 366 NLRB No. 26 (NLRB 26 February 2018). One new board member who participated in the Hy-Brand decision ‘is, and should have been, disqualified from participating’ because he was formerly with the law firm that represented the staffing agency in Browning-Ferris. Hy-Brand, 366 NLRB No. 26; NLRB Office of Inspector General, OIG Report Regarding Hy-Brand Deliberations (9 February 2018), available at www.nlrb.gov/who-we-are/inspector-general/oig-reports/other-reports.

[19]     Browning-Ferris Indus of Cal Inc v NLRB, No. 16-1028, slip. op. at 4, 23, 50–51 (D.C. Cir. 28 December 2018).

[20]     NLRB Office of the General Counsel Advice Memorandum, Nutrionality Inc d/b/a Freshii, Nos. 13-CA-134294 et al (28 April 2015), available at www.nlrb.gov/case/13-CA-134294 (Advice Response Memo).

[21]     id. at 1.

[22]     id. at 1, 6–10.

[23]     id. at 8.

[24]     id. at 9–10.

[25]     The Standard for Determining Joint-Employer Status, 83 Fed. Reg. 46,681 (14 September 2018).

[26]     83 Fed. Reg. at 46,681, 46,686.

[27]     The proposed rule is subject to a comment period – initially 60 days – but the NLRB has already twice extended that period until late January 2019. 83 Fed. Reg. at 46,681; NLRB, NLRB Extends Time for Submitting Comments on Proposed Joint-Employer Rulemaking (30 October 2018),
www.nlrb.gov/news-outreach/news-story/nlrb-extends-time-submitting-comments-proposed-joint-employer-rulemaking; NLRB, NLRB Further Extends Time for Submitting Comments on Proposed Joint-Employer Rulemaking (10 December 2018), www.nlrb.gov/news-outreach/news-story/nlrb-further-extends-time-submitting-comments-proposed-joint-employer.

[28]     Fair Labor Standards Act of 1938, 29 USC sections 206(a), 207(a) (2018). The current federal minimum wage is $7.25 per hour. 29 USC section 206(a)(1)(C). However, states impose their own – often higher – minimum wage, in which case the higher minimum wage applies. US Dep’t of Labor, Wage & Hour Div., Compliance Assistance – Wages and the Fair Labor Standards Act (FLSA) – Overview, www.dol.gov/whd/flsa/ (last visited 29 December 2018). Overtime pay is required for non-exempt employees who work more than 40 hours in one work week at the rate of one-and-a-half times the regular rate of pay. id. For more information on state labour laws, visit State Labor Laws, www.dol.gov/whd/state/state.htm.

[29]     US Dep’t of Labor, Wage & Hour Div, Handy Reference Guide to the Fair Labor Standards Act (September 2016), www.dol.gov/whd/regs/compliance/hrg.htm.

[30]     US Dep’t of Labor, Wage & Hour Div, Administrator Interpretations Letter – Fair Labor Standards Act, www.dol.gov/WHD/opinion/adminIntrprtnFLSA.htm (last visited 28 December 2018) (FLSA 2016-1 note); US Dep’t of Labor, US Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance (7 June 2017), www.dol.gov/newsroom/releases/opa/opa20170607. The guidance has been removed from the DOL’s website, but a copy may be viewed here: Administrator’s Interpretation No. 2016-1, http://static.politico.com/1a/52/c37768cc42d99d6193310a5fc203/wage-and-hour-division-guidance-on-joint-employer.PDF. In the guidance, the DOL sets out two scenarios with corresponding tests under which joint employment may exist under the FLSA: (i) horizontal joint employment, where the employee has two or more technically separate but related or associated employers; and (ii) vertical joint employment, where one employer provides labour to another employer and the employee is economically dependent on both employers. See id.

[31]     29 USC sections 203(d), (e)(1), (g).

[32]     29 CFR section 791.2 (2018).

[33]     29 USC section 203(e)(1).

[34]     29 USC section 203(d). ‘Person’ includes ‘an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons’. 29 USC section 203(a).

[35]     29 USC section 203(g).

[36]     29 CFR section 791.2(b)(1)–(3).

[37]     For a detailed discussion of the tests applied in states across the various federal circuits, see Joint Employment: Overview, Prac L Lab & Emp, 2018, available at Practical Law Note 9-523-4928.

[38]     See id. (discussing the FLSA joint employment tests used in several jurisdictions).

[39]     See, eg, Ocampo v 455 Hosp LLC, No. 14-CV-9614 (KMK), 2016 WL 4926204, at *6-9 (SDNY 15 September 2016) (denying hotel franchisor’s motion to dismiss FLSA action brought by a franchisee’s employees on behalf of a class against both the franchisee and franchisor where the complaint alleged the franchisor exerted sufficient ‘functional control’ over the employees by, among other things: (i) imposing mandatory training programmes for hotel employees; (ii) imposing record-keeping requirements; (iii) establishing ‘standards, specifications[,] and policies for construction, furnishing, operation, appearance, and service’; (iv) requiring franchisees to use a particular business software system to track their revenue and operations; (v) regularly inspecting the franchise for compliance; (vi) maintaining the right to terminate the franchise (and thus, the employees); and (vii) being aware of the unlawful wage practice but failing to stop it) (discussing other cases); Rodriguez v Am’s Favorite Chicken Co Inc, No. 2:15-CV-1775-KOB, 2017 WL 1684543, at *3 (N.D. Ala. 3 May 2017) (granting franchisor’s motion to dismiss FLSA joint employment claim where the franchisee’s employee premised her claim on the franchisor’s management training programme, which she did not undergo because she was not in a management role, but allowing the employee to amend her complaint for the third time). But see Orozco v Plackis, 757 F.3d 445, 449-52 (5th Cir. 2014) (finding that franchisor was not a joint employer under the FLSA, reversing jury verdict against franchisor, because there was inadequate evidence to show that the franchisor actually controlled the hiring, firing, supervision, hours and method of pay of its franchisee; although the franchise agreement required the franchisee to follow the franchisor’s policies and procedures for ‘selection, supervision, or training of personnel’, there was no evidence of actual control by the franchisor and the franchise agreement vested the franchisee with ‘ultimate authority and responsibility’ over ‘the management and operation of Franchisee’s shop’).

[40]     Patterson v Domino’s Pizza LLC, 333 P.3d 723, 739 (Cal. 2014) (‘A franchisor . . . becomes potentially liable for actions of the franchisee’s employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees. Any other guiding principle would disrupt the franchise relationship.’). See also Christopher J Wallace et al, Walking the Line: Best Practices for Advising Franchise Clients on Avoiding Employment Risks, American Bar Association 38th Annual Forum on Franchising 1, 17–26 (2015) (discussing vicarious liability cases in joint employment context).

[41]     Salinas v J I Gen Contractors, 848 F.3d 125 (4th Cir. 2017); Hall v DirecTV LLC, 846 F.3d 757 (4th Cir. 2017).

[42]     Salinas, 848 F.3d at 141; Hall, 846 F.3d at 769.

[43]     Salinas, 848 F.3d at 141–42; Hall, 846 F.3d at 769–70.

[44]     Salinas, 848 F.3d at 142, 148.

[45]     Hall v DirecTV LLC, 846 F.3d 757 (4th Cir. 2017), cert. denied, 138 S. Ct. 635 (2018).

[46]     See Merrill v Pathway Leasing LLC, No. 16-cv-02242-KLM, 2018 WL 2214471, at *3-6 (D. Colo. 14 May  2018) (adopting Fourth Circuit’s joint employer test).

[47]     Salinas, 848 F.3d at 149.

[48]     Marlén Cortez Morris, Associated but Completely Disassociated? What the Latest Joint Employment Test Means for Franchising, 20:4 Franchise Law. 3, 4 (Fall 2017) [hereinafter Cortez Morris, Associated but Completely Disassociated?].

[49]     id. at 4–5.

[50]     Hall, 846 F.3d at 772 (citing the following controls as indicia of joint employment: requiring workers to (i) obtain schedules and job assignments through contractor’s centralised system; (ii) follow ‘particularized methods and standards of [equipment] installation’; (iii) wear specific uniforms; and (iv) display the contractor’s logo). Controls (ii) through (iv) are typical in franchising. For additional analysis of Hall, see Cortez Morris, Associated but Completely Disassociated?, supra note 48, at 4–5.

[51]     29 USC section 216(b).

[52]     Lisa Nagele-Piazza, Wage and Hour Class Actions Can Cost Employers Millions, Soc’y for Human Res Mgmt, 5 February 2018, www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/wage-and-hour-class-actionss.aspx (‘The growth in wage and hour settlements – which rose the past two years to a combined value of $1.2 billion—is the No. 1 exposure for corporations[.]’).

[53]     Labor Department to Clarify Franchise Rule, Acosta Says (1), Bloomberg Law (12 September 2018), www.bna.com/labor-department-clarify-n73014482496/.

[54]     Pending ‘Joint Employer’ Rule Raises Questions of DOL Authority, Bloomberg Law (18 October 2018), www.bna.com/pending-joint-employer-n73014483467/.

[55]     Title VII of the Civil Rights Act of 1964, 42 USC sections 2000e(b) (defining ‘employer’), 2000e(k), 2000e-2(a) (specifying unlawful employment practices) (2018). Pregnancy discrimination was not included until the enactment of the Pregnancy Discrimination Act of 1978, Pub. L. 95-555, 92 Stat. 2076 (1978) (codified as amended at 42 USC section 2000e(k) (defining ‘on the basis of sex’ to mean ‘on the basis of pregnancy, childbirth, or related medical conditions’)).

[56]     Age Discrimination in Employment Act of 1967, 29 USC sections 623(a), 631.

[57]     29 USC section 630(b).

[58]     American with Disabilities Act of 1990, 42 USC section 12112(a)–(b). The act broadly defines ‘disability’. 42 USC section 12102.

[59]     42 USC section 12112(b)(5)(A); see also id. sections 12111(8) (defining ‘qualified individual’), (9) (defining ‘reasonable accommodation’), & (10) (defining ‘undue hardship’).

[60]     42 USC section 12111(5).

[61]     For Title VII, see: 42 USC section 2000e-3; 29 CFR section 1604.11; Meritor Sav Bank v Vinson, 477 US 57, 65–67 (1986) (harassment is a recognised form of discrimination under Title VII); for ADEA, see: 29 USC section 623(a), (d); for ADA, see: 42 USC sections 12112(b), 12203(a)–(b).

[62]     See 42 USC sections 2000e(a), (b), (f)-(h); 29 USC sections 630(a), (b), (f)–(h); 42 USC sections 12111(4), (5)(A), (7).

[63]     Equal Emp’t Opportunity Comm’n, About EEOC, www.eeoc.gov/eeoc/index.cfm (last visited 2 January 2019).

[64]     Equal Emp’t Opportunity Comm’n, Enforcement Guidance: Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms (3 December 1997), available at www.eeoc.gov/policy/docs/conting.html (Questions 1–2).

[65]     id.

[66]     See Joint Employment: Overview, Prac L Lab & Emp, 2018, available at Practical Law Note 9-523-4928 (Joint Employers Under Title VII) (discussing various tests).

[67]     42 USC section 1981a; 42 USC sections 2000e-5(g)(1) (back pay), 2000e-5(k) (attorneys’ fee).

[68]     Save Local Business Act, H.R. 3441, 115th Cong. (2017).

[69]     id.

[70]     See Library of Congress, H.R. 3441 - Save Local Business Act, www.congress.gov/bill/115th-congress/house-bill/3441 (select ‘Actions’ tab, then ‘All Actions’ filter) (last visited 29 December 2018).

[71]     See 163 Cong. Rec. H8566-67 (daily ed. 7 November 2017) (statement of Rep. Scott (noting loophole for entities that either indirectly control essential terms or actually control less than all enumerated essential terms)).

[72]     Trademark Licensing Protection Act of 2018, H.R. 6695, 115th Cong. (2018).

[73]     H.R. 6695.

[74]     15 USC sections 1055, 1064, 1127 (defining ‘related company’) (2018).

[75]     1 W. Michael Garner, Franchise and Distribution Law and Practice sections 7:3, 7.5 (2018–2019 ed.).

[76]     FreecycleSunnyvale v Freecycle Network, 626 F.3d 509, 515-16 (9th Cir. 2010) (‘[W]here the licensor fails to exercise adequate quality control over the licensee, a court may find that the trademark owner has abandoned the trademark, in which case the owner would be estopped from asserting rights to the trademark.’) (quoting Barcamerica Int’l USA Trust v Tyfield Imps Inc, 289 F.3d 589, 596 (9th Cir. 2002) (internal quotation marks and citation omitted))).

[77]     eg, Williams v Jani-King of Phila Inc, 837 F.3d 314, 324 (3d Cir. 2016) (Pennsylvania law ‘does not distinguish between controls put in place to protect a franchise’s goodwill and intellectual property and controls for other purposes.’).

[78]     H.R. 6695 section 2 (proposed amended section 5A(a)).

[79]     id. (proposed amended section 5A(b)).

[80]     See Library of Congress, H.R. 6695 – Trademark Licensing Protection Act of 2018, www.congress.gov/bill/115th-congress/house-bill/6695 (select ‘Actions,’ ‘Cosponsors,’ and ‘Committees’ tabs) (last visited 7 January 2018).

[81]     See, eg, Dana Wilkie, Workplace May Be New Battleground for 2019-20 Congress, Soc’y for Human Res Mgmt, 7 November 2018, www.shrm.org/hr-today/news/hr-news/pages/2018-mid-term-election-
workplace-legislation.aspx
(‘In a politically split Congress, the House will have more pull against the Senate’ on workplace laws and ‘more worker-friendly legislation’ can be expected, but it will be hard to pass because of the current President).

[82]     Eighteen states passed laws providing that a franchisor will not be considered an employer of a franchisee or a franchisee’s employees: Alabama, Arizona, Arkansas, Georgia, Indiana, Kentucky, Louisiana, Michigan, New Hampshire, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, Wisconsin and Wyoming. See Jeff Hanscom, States Continue Joint Employer Push with Federal Relief on Horizon, Int’l Franchise Ass’n, www.franchise.org/states-continue-joint-
employer-push-with-federal-relief-on-horizon (last visited 29 December 2018); Christine Pulfrey, More States Lock Down Joint-Employer Relationship, Bloomberg Law (2 June 2017), www.bna.com/states-lock-down-b73014451854/.

[83]     Downtown Eatery (1993) Ltd v Ontario, [2001] 54 O.R. 3d 161, para 40 (Can. Ont. C.A.).

[84]     id. at paras 30–32 & 36.

[85]     id. at para 30.

[86]     id. at paras 31–34, 37–40; see also Wood v CFN Precision Inc., 2008 CarswellOnt 10010, paras 27–28 (Can. Ont. Sup. Ct. J.) (WL).

[87]     Currie v Gledhill, 2018 CarswellOnt 2379, paras 21, 23, 25–26, 28 (Can. Ont. Sup. Ct. J.) (WL) (dismissing common employer claim).

[88]     See generally Employment Standards Act, 2000, S.O. 2000, c. 41 (Can.); Labour Relations Act, 1995, S.O. 1995, c. 1 (Can.).

[89]     See Ontario Ministry of Labour, Changing Workplaces Review – Special Advisors’ Interim Report 64–70, 148–55 (July 2016), available at www.labour.gov.on.ca/english/about/pdf/cwr_interim.pdf;
Ontario Ministry of Labour, Changing Workplaces Review – Final Report: An Agenda for Workplace Rights 256-61, 358, 373-75 (May 2017), available at www.ontario.ca/document/changing-workplaces-
review-final-report
; Bill 148, Fair Workplaces, Better Jobs Act, 2017,www.ola.org/en/legislative-
business/bills/parliament-41/session-2/bill-148
.

[90]     Employment Standards Act, 2000, S.O. 2000, c. 41, s. 4 (Can.).

[91]     id.at s. 4(1) (Can.) (historical version at www.ontario.ca/laws/statute/00e41/v45#BK7). The business activities need not be carried on at the same time. id. at s. 4(3).

[92]     id. at s. 4(1) (historical version at www.ontario.ca/laws/statute/00e41/v45#BK7).

[93]     id. at s. 4(5) (Can.)

[94]     In one recent board decision analysing the pre-amendment standard, the board noted that even under the amended standard the two companies would be deemed ‘related’ employers because both were under common management, financial control and ownership. UFCW, Local 175 v Silverstein’s Bakery Ltd, 2018 CarswellOnt 4003, para 70 (Can. OLRB) (WL). One company ‘existed primarily as a vehicle’ for the other company that operated the business; thus, ‘it was an integral part of the same business.’id. at para 85. The board expressly rebuked the notion that finding both companies to be employers was merely ‘finding a related entity with a deeper pocket. There is, in the present circumstance, just one pocket.’ id. at para 85.

[95]     Labour Relations Act, 1995, S.O. 1995, c. 1(4) (Can.).

[96]     Penmarkay Foods Ltd v RWDSU, Local 414, 1984 CarswellOnt 1085, para 41 (Can. OLRB) (WL).

[97]     UFCW Local 175 v Sobeys Ont Div, 2001 CarswellOnt 3875, para. 117 (Can. OLRB) (WL).

[98]     See generally Penmarkay Foods Ltd, 1984 CarswellOnt 1085 (granting related employer declaration); RPKC Holdings Corp, 1986 OLRB Rep. June 828 (Can. OLRB) (granting related employer declaration); UFCW Local 175 v Sobeys Ont Div, 2001 CarswellOnt 3875 (denying related employer declaration). For a detailed discussion of these factors and their application to the related employer declaration, see UFCW Local 175 v. Sobeys Ont Div, 2001 CarswellOnt 3875, paras 116–40 (observing that while Penmarkay Foods and RPKC Holdings both involved ‘a franchise program tainted by anti-union motivation[,]’ ‘[t]here is no evidence of . . . of any ulterior labour relations motive’ here).

[99]     See, eg, Maycock v Canadian Tire Corp Ltd, 2004 BCHRT 33 (CanLII), paras 45–46 (Can. BC HRT), http://canlii.ca/t/h09h8; Elgin v 2112412 Ontario Inc o/a Bagel World Thornhill, 2016 HRTO 791 (CanLII), para 14 (Can. OHRT), http://canlii.ca/t/gs1sw (same); Human Rights Code, RSBC 1996, c 210 (Can. B.C.), http://canlii.ca/t/52slj; Human Rights Code, RSO 1990, c. H.19 (Can. Ont.),
http://canlii.ca/t/53gg5.

[100]     See, eg, Maycock, 2004 BCHRT 33 (CanLII), paras 45–57, http://canlii.ca/t/h09h8 (dismissing claim against franchisor); Elgin, 2016 HRTO 791 (CanLII), paras 14–29, http://canlii.ca/t/gs1sw (same).

[101]     Maycock, 2004 BCHRT 33 (CanLII), paras 45, 48; see United Steelworkers v Tim Hortons (No. 2), 2015 BCHRT 168 (CanLII), paras 75–78 (Can. BC HRT), http://canlii.ca/t/gm112 (denying franchisor’s application to dismiss because the franchisor carried out extensive audits of franchised location regarding employment standards, mandated a corporate-wide harassment policy and failed to produce operations manual suggesting it may impose a sufficient degree of control).

[102]     See discussion in the section on ‘Practical considerations’ below for steps to mitigate risks.

[103]     Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Austl.), www.legislation.gov.au/Details/C2017A00101 [hereinafter FW Amendment]; Rupert M. Barkoff, Joint Employer Liability in the United States and Australia, NYLJ (17 November 2017), www.law.com/newyorklawjournal/sites/newyorklawjournal/2017/11/17/joint-employer-liability-in-the-united-states-and-australia/.

[104]     Compare Fair Work Act 2009 (Austl.), www.legislation.gov.au/Series/C2009A00028 (2009 version) with id., www.legislation.gov.au/Details/C2018C00504 (current version) [hereinafter FWA] and FW Amendment.

[105]     For example, the amendment: (i) increases penalties for ‘serious contraventions’ of workplace laws; (ii) clarifies that employers cannot ask for ‘cashback’ from current or prospective employees; (iii) increased penalties for record-keeping and payslip violations; (iv) provides that employers who do not meet their record-keeping and payslip obligations and cannot give a reasonable excuse will need to disprove wage claims made in court; (v) strengthens the powers of the Fair Work Ombudsman – the office tasked with ensuring compliance with Australian workplace laws – to collect evidence in investigations; and (vi) introduces new penalties for employers who provide the Ombudsman false or misleading information, or otherwise hinder or obstruct investigations. Fair Work Ombudsman, Protecting vulnerable workers reform (2017), www.fairwork.gov.au/about-us/legislation/the-fair-
work-system/protecting-vulnerable-workers-reform
.

[106]     FW Amendment pt. 2; FWA ch 4 pt 4-1 div 4A; see also Protecting vulnerable workers reform, supra note 105 (‘These changes took effect from 27 October 2017.’).

[107]     FWA ch 4 pt 4-1 div 4A.

[108]     FWA ch 4 pt 4-1 div 4A s 558A(2).

[109]     FWA ch 1 pt 1-2 div 2 (defining ‘franchise’).

[110]     Corporations Act 2001 ch 1 pt 1.2 div 1 s 9 (Austl.), www.legislation.gov.au/Details/C2018C00424.

[111]     Before excluding a person or entity from the act’s reach, ‘the Minister must be satisfied that the provision should not apply . . . because there is not a sufficient connection between the person or entity and Australia.’ FWA ch 1 pt 1-3 div 3 s 31(2).

[112]     FWA ch 4 pt 4-1 div 4A s 558B(1).

[113]     FWA ch 4 pt 4-1 div 4A s 558B(3).

[114]     FWA ch 4 pt 4-1 div 4A s 558B(4)(a)–(f).

[115]     FWA ch 4 pt 4-1 div 2 s 539 & s 558B(7); see also Fair Work Ombudsman, Guide to promoting workplace compliance in your franchise network 4, available at www.fairwork.gov.au/find-help-for/
franchises/franchisors
(last visited 18 December 2018) [hereinafter Guide to promoting workplace compliance in your franchise network].

[116]     FWA ch 4 pt 4-A div 2 s 558C.

[117]     Guide to promoting workplace compliance in your franchise network, supra note 115.

[118]     See generally Guide to promoting workplace compliance in your franchise network, supra note 115.

[119]     Fair Work Ombudsman, Franchisors, www.fairwork.gov.au/find-help-for/franchises/franchisors (last visited 18 December 2018).

[120]     Marlén Cortez Morris et al, Alert – Joint Employment Moves: What’s Next for Franchising and Why It’s Not Over, Barnes & Thornburg LLP (September 2018), www.btlaw.com/insights/alerts/2018/joint-employment-moves-whats-next-for-franchising-and-why-its-not-over.

[121]     id.

[122]     See Cortez Morris, Associated but Completely Disassociated?, supra note 48, at 5; Matthew B Gruenberg and Matthew B O’Hanlon, Franchisors: Don’t Forget About Insurance for Joint Employer Liability Claims, Barnes & Thornburg LLP (27 January 2017), www.btlaw.com/insights/blogs/franchisors-dont-forget-about-insurance-for-joint-employer-liability-claims; Susan A Grueneberg et al, Drafting Franchise Agreements After Patterson v. Domino’s: Avoiding the Minefield of Vicarious Liability and Joint Employment, 36:2 Franchise L.J. 189 (Fall 2016) (discussing sample drafting provisions in franchise-related documents); Christopher J Wallace et al, Walking the Line: Best Practices for Advising Franchise Clients on Avoiding Employment Risks, American Bar Association 38th Annual Forum on Franchising 1, 43–50 (2015).

[123]     See subsections on ‘United States’ and ‘Australia’ above.

[124]     Guide to promoting workplace compliance in your franchise network, supra note 115, at 6. The guide encourages franchisors to obtain yearly acknowledgments from franchisees that they will comply with applicable workplace laws. id.

[125]     See id.

[126]     Australian Competition & Consumer Comm’n, The franchisor compliance manual ch 5 (8 December 2014), www.accc.gov.au/publications/franchisor-compliance-manual/the-franchisor-compliance-manual/end-of-a-franchise-agreement/termination (termination). Instead, the franchisor is generally required to provide the franchisee with notice of intent to terminate and an opportunity to cure the breach. id.

[127]     The Electric Ben Franklin, USHISTORY.ORG, www.ushistory.org/franklin/quotable (last visited 30 December 2018).


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