Earlier this week, Lauren McFerran was confirmed by the Senate Committee on Health, Employment, Labor, and Pensions to the National Labor Relations Board in a party-line vote. The Board, which is expected to decide the Browning-Ferris Industries of California, Inc., et al case before the end of the year, is in the position to reinterpret labor law in a way that could undermine the franchise model. Despite nearly 40 years of legal precedent has established franchisors and franchisees as independent businesses, McFerran’s response to several Questions for the Record reveal a more activist slant in her views on the Board’s ability to establish joint employment.
The central questions of the Browning-Ferris case is whether the Board should adopt a new joint employer standard. Though the previous standard for joint employment has been control over another business’ hiring, firing, and scheduling practices, NLRB General Counsel Richard Griffin recently recommended that franchisors be considered joint employers of franchisees even if they had no control over these areas.
If applied on a broader scale, this policy could fundamentally alter the franchise relationship as franchisors would be forced to either limit franchisee autonomy to reduce legal liability or provide less support franchisees in order to avoid falling under the new standard. The franchise relationship is so effective because it leverages the strengths of two independent businesses. Franchisees provide on-the-ground management of a location and franchisors protect and enhance brand standards through research and marketing, making neither outcome desirable.
Although Congress is responsible for writing legislation, McFerran’s answers to questions submitted to her following her confirmation hearing indicate that she believes the NLRB has broad authority to reinterpret the law, effectively changing it. When asked if she was concerned by the potential uncertainty created by upending long-standing precedent, McFerran responded “I believe that reversal of precedent does not necessarily create uncertainty, if such reversal is explicit and carefully considered and the Board’s interpretation of the law going forward is clearly articulated.”
Michael Lotito, Co-Chair of Littler Mendelson’s Workforce Policy Institute, argued that such an attitude could have a disastrous effect on American businesses:
“Franchisors and franchisees have contracts that last for decades in some instances. They are based on the fact that both are independent businesses. As such, their employees are separate. For many years, the NLRB has so held. If the Board changes the law, the Board is inserting itself into the very structure of the franchise industry. The Board is essentially amending the franchise agreement to say: SURPRISE the employees of the franchisee and franchisor are one and the same, so forget the fact you are independent businesses. No governmental agency should have that kind of power to arbitrarily disrupt established business relationships that account for 8.2 million jobs. Therefore, Ms. McFerran’s answer is at best, incomplete, and at worse just plain wrong.”
The Board’s aggressive actions have attracted a great deal of Congressional scrutiny. In September of 2013, Senate Majority Leader Mitch McConnell (R-KY) and Senator Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor, and Pensions, introduced the NLRB Reform Act. The bill would transform the Board from a politicized advocate for union interests to an impartial arbiter of labor disputes, adding an additional seat to the 5-person Board and ensuring a permanent even split of Republican and Democratic Members. The legislation would also reduce the ability of the General Counsel to reinterpret established law, as well as set firm standards for timely decision making and responses to inquiries.