A major ruling handed down on Thursday by the U.S. National Labor Relations Board could give unions greater bargaining power by enabling them to negotiate directly with large parent companies like McDonald's that rely heavily on franchisees and contractors.
The board in a 3-2 decision ruled that an existing standard that said companies only qualify as "joint employers" of workers hired by another business if they had "direct and immediate" control over employment matters was outdated and did not reflect the realities of the 21st century workforce.
The ruling said parent companies can be held liable for labor violations committed by franchisees and contractors even when they have only indirect control. It is expected to impact a broad range of U.S. industries built on franchising and contract labor, from fast food and hospitality to security and construction.
Business groups and lawyers strongly criticized the ruling, saying it would force companies to the bargaining table even when they have little say over working conditions.
"The NLRB's actions today will subject employers to increased uncertainty, liability for workplaces that they don't actually control, and ramped up pressure tactics to ease union organizing," said Glenn Spencer, a vice president at the U.S. Chamber of Commerce.
The decision could also make it easier for unions and workers to win higher wages and better working conditions since they would be negotiating directly with parent companies.
Business groups have said such a ruling, which came in the case of waste management company Browning-Ferris Industries Inc, would endanger companies that rely on franchising, contracting and supply chains, and kill jobs.
Michael Lotito, a lawyer at Littler Mendelson in San Francisco who works with industry groups, said companies will have two main options moving forward: take more control over workers, which would upend existing business models, or back away and risk losing control over brand identity.
"The NLRB has totally upset the apple cart with respect to an understanding over accepted business risk," he said.
Browning-Ferris, which the board said is a joint employer of workers at a California recycling plant who were hired by a staffing agency, can appeal the ruling. But a court could overturn this particular decision while leaving the standard adopted by the board on Thursday intact, said John Raudabaugh, a professor at Ave Maria Law School in Florida and former NLRB member.
If it stands, the ruling is likely to have a direct impact on a series of pending NLRB cases against McDonald's Corp (MCD.N) and dozens of its franchisees around the country. The fast food giant has argued that it is not a joint employer because it does not hire and fire franchise workers, and Thursday's decision may complicate the company's argument.
Unions and others who support the change say the decision is necessary to bring companies that indirectly control working conditions to the bargaining table, and to curb the use of "permanent temps" who are paid less and do not get the same benefits as ordinary employees.
The ruling also means franchises and smaller companies that provide workers will be insulated from liability when labor violations are triggered by corporate policies, said Jeanne Mirer, a lawyer who authored a brief in the case on behalf of the Communication Workers of America and workers' rights groups.
"Now the arrangement can be put back into balance in a way that gives fuller protections to workers and the leased company," she said.
Dissenting NLRB members on Thursday said the board had exceeded its authority by redefining employment, adding that the ruling would create uncertainty for businesses nationwide.
"No bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority's new standards," members Harry Johnson and Philip Miscimarra wrote.
The case is Browning-Ferris Industries Co, U.S. National Labor Relations Board, No. 32-RC-109684.
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