Who's the boss?

Edd Cote Franchise owner and attorney Robert Branca says the possibility of employee unionization that's opened up by the NLRB ruling creates a dilemma in determining how the parent company and its franchises might interact in negotiating a union contract.

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By Livia Gershon Special To The Worcester Business Journal

Companies using temporary workers and franchises will face a multitude of new legal and labor issues, now that the National Labor Relations Board has called into question who actually employs those people.

In a 3-2 ruling in late August, the NLRB found California waste management company Browning-Ferris Industries is now considered to be a “joint employer” of workers it hired through a staffing firm, because it has the authority to control aspects of their employment.

“Clearly the regulation is going to be challenged in court, but if it, in fact, survives, I think you would see a lot of companies rethinking using third parties, using contractors,” said Christopher P. Geehern, executive vice president of the Associated Industries of Massachusetts, which represents many manufacturers and other employers.

Geehern said the ruling creates two big concerns for companies using staffing agencies. First, the agencies’ workers might decide to unionize, which could drag companies into negotiations with workers they don’t directly employ. If that happened, a company could also be legally prohibited from cancelling the contract with its agency and switching to a different firm.

Second, a company could be forced to answer for labor violations committed by its contractor.

“So, in essence the employer could be held liable in the eyes of the law for employees that they supervise only indirectly,” Geehern said.

The logic of the NLRB decision could also apply to franchises, with franchisors like Dunkin’ Donuts and McDonald’s sharing responsibility for the treatment of employees with the franchisees that own individual locations.

“This may set a precedent for the definition of joint employers,” said Demitrios M. Moschos, a partner at Worcester law firm Mirick O’Connell law firm. The ruling “will make it difficult for franchise businesses in the country to facilitate local franchise ownership.”

That worries Robert Branca, who, together with several business partners, owns dozens of Dunkin’ Donut shops across several states.

Branca, who’s also a lawyer, said it seems clear the NLRB ruling would also apply to franchises since big companies like Dunkin’ Donuts and McDonald’s set the conditions of workers’ employment – from how many cashiers are on duty at any given time to how fry cooks put together a Big Mac.

The business model is part of what companies like his buy when they sign a franchise agreement, Branca said. but he added it’s not right to say his company isn’t a real employer.

“We’re not a shell for our franchiser,” he said. “My employees have an employer. They know who we are.”

To unions, the ruling gives more leverage to employees who have been held at arm’s length by the companies that benefit from their labor.

“Many employers are creating intermediaries that put workers in a more precarious situation,” said Marcy Goldstein-Gelb, executive director of the union-affiliated Massachusetts Coalition for Occupational Safety and Health.

Goldstein-Gelb said situations where it’s not clear who the real employer is can make it hard for employees to speak up about mistreatment or dangerous conditions.

“Workers need to be able to collectively take action,” she said. “They need to be protected from retaliation.”

Goldstein-Gelb said some employers use staffing agencies to avoid their responsibilities under labor law. For example, a company might have an agency pay workers for 40 hours per week and then have them work additional hours, technically for a different employer, to avoid paying overtime.

She said the NLRB recognition of the contracting company as a joint employer could help curb such abuses.

Stephen Dwyer, general counsel of the American Staffing Association, said the ruling isn’t going to lead to a rush to increased labor organization, as previous NLRB rulings that made unionization easier did not actually result in more employees joining unions.

Ed Shanahan – executive director of franchisees association Dunkin’ Donuts Independent Franchise Owners Inc., said he doesn’t see workers at the fast food places clamoring to unionize.

“Some people see forming the union is not what it’s cracked up to be,” he said.

Shanahan said unionization isn’t his only worry when it comes to the Browning-Ferris decision, as workers might be more likely to take legal action against their employers if they knew the case would involve a big, deep-pocketed company rather than just a local owner.

He cited a case where a woman sued after falling and burning herself with coffee she was carrying.

“If that were an employee who slipped and fell, if you’ve got joint employers, both will be liable,” Shanahan said. “When you’re talking about the negative aspects of a joint employer type ruling then, in this litigious society, that’s where the rubber meets the road.”

Branca said he would buy more liability insurance to protect his business from that kind of threat because of an indemnification clause in his franchise agreement that makes him responsible if his shops end up costing Dunkin’ Donuts money.

Branca worries about the legal confusion the ruling could create. If Dunkin’ Donuts employees were to unionize, he said it’s not clear how the various franchise owners and the larger corporation could work together to bargain contracts.

Branca traveled to Washington, D.C. with the International Franchise Association to lobby for a bill that would partly roll back the NLRB decision, saying two companies can be joint employers only if they both exercise actual, direct control over workers.

The NLRB is poised to issue a ruling concerning McDonald’s that would clarify how its definition of joint employers applies to franchises.

On the state level, Massachusetts lawmakers have filed a bill that would echo the NLRB decision, enshrining an expanded definition of “employer” into law that would include anyone “acting directly or indirectly in the interest of an employer in relation to an employee.”

Christina P. O’Neill contributed to this story.