Georgia Protects Small Businesses From Joint Employer Liability

Georgia Protects Small Businesses From Joint Employer Liability

On May 3, 2016 the Governor of Georgia signed Senate Bill (SB) 277 to amend Chapter 1 of Title 34 of the Official Code of Georgia Annotated.  SB 277 is a very brief and succinct bill that adds the following Section 34-1-9 to Title 34:

Notwithstanding any order issued by the federal government or any agreement entered into with the federal government by a franchisor or a franchisee, neither a franchisee nor a franchisee’s employee shall be deemed to be an employee of the franchisor for any purpose.”

SB 277 becomes effective on January 1, 2017.

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Why Was SB 277 Necessary?

Because various federal agencies and federal courts have applied the “joint employer” doctrine to attach liability to a company that is not otherwise the direct employer of an employee. For example, the “joint employer” doctrine is recognized under the Fair Labor Standards Act (FLSA); the Migrant and Seasonal Agricultural Worker Protection Act (MSPA); the Family Medical Leave Act (FMLA); Title VII of the Civil Rights Act of 1964 (Title VII); the Americans with Disabilities Act (ADA); the Age Discrimination in Employment Act (ADEA); the National Labor Relations Act (NLRA); the Patient Protection and Affordable Care Act (ACA); and the Occupational Safety and Health Act of 1970 (OSHA). Additionally, many state statutes also recognize the doctrine.

In brief, the “joint employer” doctrine works like this: an employee who is formally or directly employed by one employer (often referred to as the “primary” or “general” employer) is considered to also be constructively employed by another employer (often referred to as the “secondary” or “special” employer) if the secondary or special employer exercises sufficient control over the employee’s terms and conditions of employment. If a primary/general employer and secondary/special employer are held to be “joint employers” of an employee, they both can be held liable for labor and employment law violations caused by either the primary/general or secondary/special employer. Agencies and the courts apply various tests to determine if joint-employment exists.  Some of the factors considered are: 1) which entity or entities have the power to hire and fire the employee; 2) which entity is in involved in the day-to-day supervision and control of the employee; 3) where and how the work takes place; 4) the duration of the relationship between the parties; and 5) the methods of compensation and the responsibility for payroll.

The NLRB’s Evolving Position on the “Joint Employer” Doctrine.

In a number of decisions in recent years, the National Labor Relations Board (NLRB) has been very active in analyzing and applying the “joint employer” doctrine under the NLRA. In its CNN America Inc. and Team Video Services LLC decision in September 2014, the NLRB found that CNN was a “joint employer” with Team Video Services (TVS).  It held that CNN violated the NLRA when it replaced its unionized subcontractor TVS (who provided audio and video technicians to various CNN bureaus), with an in-house nonunion work force at its Washington, DC, and New York City bureaus. The NLRB said that the Board will find that two separate entities are joint employers of a single work force if the evidence shows that they “share or codetermine those matters governing the essential terms and conditions of employment.”  In this case, the NLRB found that CNN did in fact share or codetermine the essential terms and conditions of employment for TVS employees.

In August, 2015 the NLRB then issued its decision in Browning-Ferris Industries of California, Inc., holding that Browning-Ferris was the joint employer of the employees directly hired by one of its recycling contractors because it too shared or codetermined matters governing the essential terms and conditions of employment for the contractor’s employees. The NLRB’s General Counsel, Richard F. Griffin, Jr., submitted an amicus curia brief in the Browning-Ferris case.  (A copy of the brief can be found at http://apps.nlrb.gov/link/document.aspx/09031d45817b1e83.)  While the case did not involve a franchisor/franchisee relationship, Mr. Griffin brought up the issue of “joint employer” status in the franchisor/franchisee relationship. He argued that because franchisors often exert significant control over the day-to-day operations of their franchisees, including dictating the number of employees to be employed at the franchised location and the number of hours each employee works, franchisors may be the joint employers of the franchisee’s employees under the NLRA.  According to Mr. Griffin even though franchisors may have no direct control over the wages the franchisee pays its employees, they have a sort of indirect control over the wages because they often have the right to control other variables in the franchised business including employment practices like work schedules, customer service, collection of employment applications, and human resources programs. The brief advocated for a broadening of the “joint employer” standard to cover any entity that exercises indirect, as well as direct control over the employees’ working conditions, or has the potential to control the working conditions of the employees even if the entity doesn’t exercise such control.

Around the same time as the BrowningFerris case was being decided, the NLRB’s Office of the General Counsel issued an Advice Memorandum (the Freshii Memo) that analyzed whether a Freshii franchisee, Nutritionality, Inc. (who operates a single Freshii store in Chicago), was a joint employer with Freshii Development, LLC.  (A copy of the Freshii Memo can be found at http://www.millernash.com/files/Uploads/Documents/Advice%20Memo%2008.28.15.pdf.)

In the summer of 2014, Nutritionality terminated one employee and disciplined and terminated another employee for attempting to unionize the workforce. The Regional Office of the NLRB found merit to unfair labor practice allegations regarding the terminations and discipline but requested advice from the Office of the General Counsel as to whether Nutritionality is a joint employer with Freshii and/or with the Chicagoland development agent.  There was no evidence that Freshii or its development agents were involved in Nutritionality’s labor relations or provided guidance about how to deal with a possible union organizing campaign.

The NLRB’s General Counsel Office concluded that Nutritionality and Freshii were not joint employers under the NLRB’s current standard because there was no evidence that Nutritionality shared or codetermined with Freshii matters governing the essential terms and conditions of employment of Nutritionality’s employees. The Freshii Memo reiterated that the NLRB will find that two separate entities are joint employers of a single workforce if they “share or codetermine those matters governing the essential terms and conditions of employment.” It went on to explain that “[t]o establish such status, a business entity must meaningfully affect matters relating to the employment relationship ‘such as hiring, firing, discipline, supervision, and direction.’” The Freshii Memo pointed out, however, that the NLRB and courts have also considered other factors in making a joint employer determination, including “…an employer’s involvement in decisions relating to wages and compensation, the number of job vacancies to be filled, work hours, the assignment of work and equipment, employment tenure, and an employer’s involvement in the collective bargaining process.”  The Office of the General Counsel found that at most, Freshii’s control over Nutritionality’s operations were limited to ensuring a standardized product and customer experience, factors that clearly did not evidence sharing or codetermining matters governing essential terms and conditions of employment.

The Office of the General Counsel also found that under the joint employer standard being urged by the General Counsel in the Browning-Ferris amicus brief, Freshii and Nutritionality were not joint employers. The Freshii Memo explained that under that standard, the NLRB would find joint employer status “…where, under the totality of the circumstances, including the way the separate entities have structured their commercial relationship, the putative joint employer wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence. This approach makes no distinction between direct, indirect and potential control over working conditions and results in a joint employer finding where ‘industrial realities’ make an entity essential for meaningful bargaining.

The Freshii Memo contains a detailed analysis of the NLRB’s standard for “joint employer” status and can be useful for employers (particularly franchisors and franchisees) in evaluating whether the structure of their relationship with another entity could result in a joint-employer determination for purposes of the NLRA.

Efforts by Other States to Protect Franchisors and Franchisees Against “Joint Employer” Liability.

In addition to Georgia, other states have already passed similar bills, including for example, Texas, Wisconsin, Michigan, Indiana, and Utah. After the BrowningFerris decision, a number of other states have also introduced legislation in attempt to protect franchisors and franchisees from joint employer liability.  Approximately five separate bills were introduced by the Michigan Legislature to amend various employment statutes to limit a franchisor’s liability to a franchisee’s employees. (See Senate Bills 492, 493, and 5073 and house Bills 5070 and 5072). Likewise, Virginia’s Legislature introduced HB 18 which provides that absent an agreement between the franchisor and franchisee, “neither a franchisee nor a franchisee’s employee shall be deemed to be an employee of the franchisee’s franchisor for any purpose.” Yet in other states, like Colorado, similar legislation has stalled.  (Colorado HB 16-1154). Although the Protecting Georgia Small Businesses Act and similar laws in other states appear favorable to employers, the question remains as to whether or not such laws may be preempted by federal law, including the NLRA.

Contributor:  Lizbeth V. West, Attorney at Law | Weintraub Tobin