House Passes Joint Employer Legislation

By Kent Franchise Law Group

On November 7, 2017, the House of Representatives passed H.R. 3441, the Save Local Business Act. The Save Local Business Act clarifies the standard for determining joint-employer status, an issue that has been unsettled since the National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., et al., Case 32–RC–109684, on August 27, 2015.

In Browning-Ferris, the NLRB adjusted its standard for assessing joint-employer status under the National Labor Relations Act. Prior to the decision, the NLRB’s standard for determining whether an entity was a joint-employer of another entity’s employees was whether the entity had “direct control” over matters related to the employment relationship. The Browning-Ferris decision modified that standard, and held that an entity may be considered a joint employer even if the entity has “indirect control” or even reserved or unexercised authority over the entity’s employees and employment relationship.

Despite the fact that the parties in Browning-Ferris case were not involved in the franchise industry, the Browning-Ferris decision left franchisors grappling with how the decision may be applied to franchising, and the age-old question of where to draw the line when exercising common controls to maintain brand uniformity and protection.

The decision was appealed to the US Court of Appeals for the DC Circuit. The appeal is pending.

Rather than await the results of the appeal, Congress took legislative action to reverse the ruling and clarify the joint employment standard with the Save Local Business Act. The Act states that an entity may only be considered a joint employer of another entity’s employees “only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.” This more limited definition will encourage those interested in franchising, or in partnering with compatible businesses to do so without being held responsible for the employment law violations of others.

The Act received some bipartisan support, with a small number of Democrats voting in support of the bill. The Act may face tougher scrutiny in the Senate, where it will need the backing of at least eight Democrats to pass.

We will continue to monitor the progress of the Save Local Business Act. If you have questions about how the Act may affect you or your business, please contact us.