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Legal Update

NLRB Franchisor-Liability Decision Could Reach Professional Services Firms

5 August 2014
Mayer Brown Legal Update

A recent decision from the US National Labor Relations Board (NLRB) could open the door to new sources of liability for some professional services firms. The decision allows franchisors to be treated as “joint employers” along with their franchisees in labor complaints. In considering unfair labor practices allegations, Richard F. Griffin Jr., the NLRB’s general counsel, issued a ruling that McDonald’s, as franchisor, could be jointly liable for labor violations committed by its franchise operators, and he authorized the inclusion of McDonald’s as a “joint employer” in complaints brought by employees.

McDonald’s employees had filed nearly 200 such cases against McDonald’s and its franchisees in the wake of employee protests against the company. The employees argued that McDonald’s should be jointly liable for its franchisees’ labor decisions on the basis that McDonald’s expects its franchisees to follow its guidelines on matters such as food, facility use and employment practices, and that McDonald’s owns many of the restaurants its franchisees use. The existence of a joint employer relationship is crucial for determining whether a party, such as McDonald’s, can be liable for a related party’s unfair labor practices, such as violations of wage, overtime and union-organizing laws.

It remains to be seen whether this joint employer standard will be applied in other contexts. However, professional services firms that outsource functions or that operate as networks of independent firms should be mindful that the NLRB’s decision could raise new liability concerns for management practices used by affiliate firms. Professional services firms with international operations also should be aware that the “joint employer” issues is one that is being considered by foreign courts.

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