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Subway Labor Agreement Could Lead to Problematic "Joint Employer" Status

It has been just about one year since the National Labor Relations Board (NLRB) issued a decision that rocked the franchise business world, which dramatically altered when one company becomes a joint employer of another company and liable for its labor violations.

The vague and extremely broad nature of the new precedent on joint employer relationships has become a frequent complaint in the business community.

In the past year, however, the NLRB has made no effort to alleviate the uncertainty caused by the decision in a case known as Browning-Ferris, despite the fact that the decision overturned 30 years of precedent of when businesses are considered a joint employer.

Previously, it was pretty easy to determine joint employer liability. All one needed to know was whether an employer exerts direct control over another company’s workers. For example, does one company directly control hiring and firing, supervising, or set wages of another employer’s employees? Now the NLRB joint employer liability may be established if one company exhibits indirect or unexercised potential control of another company’s workforce. If you are not sure what that entails, you are not alone.

However, yesterday, Subway signed a compliance agreement with the Department of Labor that may shed some light on the far-reaching limits of the NLRB’s new joint employer standard.

In short, the agreement takes several steps to ensure compliance of Subway franchisees including “providing compliance assistance and training materials,” “Developing compliance support for franchisees through data-sharing and technology,” “Committing to regular meetings to share information, evaluate compliance trends, and solve problems,” “Communicating about responsibilities to comply with the investigative process” and “Emphasizing consequences for FLSA noncompliance.”  

The section in the compliance agreement, which has caught the eye of the business industry is the “Developing compliance support for franchisees through data-sharing and technology.” In part, the provisions state:

Both parties also agree to explore ways to use technology to support franchisee compliance, such as building alerts into the payroll and scheduling platform that SUBWAY offers as a service to its franchisees.

But it may be unwise to follow through on this provision. This kind of interaction between a franchisor and franchisee is one way that the NLRB is trying to pin the joint employer label on McDonald’s. The International Business Times reports:

In his opening statement representing the general counsel for the NLRB, Jamie Rucker aimed to demonstrate the extent to which McDonald’s controls the employment practices of its franchisees. Rucker painted a picture of constant and deep monitoring, from manuals issued to franchise owners that cover workers’ job classifications and duties to computer software that makes recommendations about wages, hours, hiring and firing [emphasis added].

Furthermore, as Ben Penn of Bloomberg BNA tweeted after the signing of the compliance agreement, franchiser officials asked DOL Wage and Hour administrator David Weil for an “assurance [that the] deal wouldn’t expose it as joint employer by NLRB, he [Weil] said no, so no deal, execs tell me.”

In another tweet, Penn wrote, “Big food franchiser: we want to help franchisee wage & hour compliance but not w/out assurance of no NLRB joint employment liability.”

Unfortunately for those in the business community, what establishes a joint employer relationship is still highly speculative. Until the NLRB supplies some form of guidance or issues another decision, employers must deal with the uncertainty.  

In the meantime, the NLRB’s vague joint employer standard will continue to discourage business formation and job creation as the business community awaits greater clarity on the liability they absorb when engaging in business-to-business relationships.