September 1, 2015

Solicitor’s Office: ‘Economic Realities’ Key OSHA Test Of Joint Employer Status

Labor Department lawyers have drafted a policy for OSHA to determine whether a joint employer relationship exists between franchisors and franchisees that includes several key tests, including an analysis of “economic realities,” according to an internal document obtained by Inside OSHA Online.

The draft policy was devised in the run-up to a landmark decision reached Thursday (Aug. 27) by the National Labor Relations Board (NLRB) that will effectively result in franchising corporations being held partly responsible in OSHA and other labor law enforcement actions against franchise businesses. Sources say the contentious split ruling, long feared by large franchise enterprises, and DOL policy give OSHA a powerful new tool to widen enforcement against companies found to be joint employers.

Repeated efforts to contact the Solicitor’s Office produced no response. (Editor’s note: Following the publication of this article an official from the Solicitor’s Office contacted by declined to comment on the draft document, citing office policy.)

The draft policy addresses whether, for purposes of the OSH Act, a joint employment relationship can be found between the franchisor and the franchisee, leading both entities to be liable as employers.

“Ultimate determination will be reached based on factual information about the relationship between the franchisor and franchisee over the terms and conditions of employment,” the guidance states. “While the franchisor and the franchisee may appear to be separate and independent employers, a joint employer standard may apply where the corporate entity exercises direct or indirect control over working conditions, has the unexercised potential to control working conditions or based on the economic realities.”

The Solicitor’s Office (SOL) draft policy states that as a general matter, two entities will be determined to be joint employers “when they share or codetermine those matters governing the essential terms and conditions of employment and the putative joint employer meaningfully affects the matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction.”

The following information should be obtained to reach the determination, SOL says: any franchise agreement and written document that addresses relationship; how the franchisee obtains the franchise; what the franchise submits to corporate; what fee the franchisee pays to corporate; whether the franchise pays a royalty or other compensation for the use of corporate’s trademarks and marketing system; whether the franchise has to agree to certain corporate conditions; and whether the franchise has to submit plans to corporate.

OSHA should also obtain information, according to the draft policy, on the franchise’s interaction with corporate; with whom the franchise interacts from corporate; whether corporate has any ownership interest in the franchise; whether corporate has any investment in equipment; whether corporate selects/approve the location of the franchise; whether corporate approves advertising the franchise uses; and what rules/policies corporate has on brand standards.

The draft policy also says OSHA should find out: whether after franchise is established, corporate does any kind of review; what kind of ongoing communions take place between the franchise and corporate; whether the franchise contacts corporate for any type of assistance after the franchise is up and running; whether the franchise is separately incorporated; whether anyone from corporate visits the franchise, and if so, what corporate does during its visit; and whether corporate provides manuals detailing how a franchisee should operate its franchise, including the best way to staff a franchise or define job responsibilities.

SOL’s draft further details that OSHA should determine: whether corporate provides a common set of operating procedures; whether corporate creates menus and/or products for franchisee to sell; whether corporate approves signage for the franchisee to use; and whether corporate requires franchise to use any specific computer system.

Also the draft policy says OSHA should gather numerous pieces of written documentation of corporate direction and control of the franchise; corporate control over the essential terms and conditions of employment of the workers at the franchise; and corporate control over safety and health policies and practices at the franchisee.

Already the draft solicitor’s guidance is drawing contention from industry, which is still determining the potential fallout from NLRB’s decision in Browning-Ferris that makes it easier for agencies like OSHA and Wage & Hour to go after large franchisors and could also help union organizing.

One legal source calls the draft policy “outrageous” and “way beyond” Browning-Ferris, saying the investigation into the economic relationship between franchisor and franchisee is outside the authority of OSHA. “Evening Browning Ferris studiously avoided the ‘economic realities’ test, mouthing the common law ‘right to control’ test.”

“When all is said and done, the only authority OSHA has is the investigation of franchisor control over the day-to-day working conditions of employees; does the franchisor, for example, affect whether the machines are locked out or guarded, how hot the boiling oil for French fries that may splatter is, etc. The rest of this stuff is grist for the union organization,” the source says in an email.

Also Thursday, the International Franchise Association filed a Freedom of Information Act request with OSHA that the organization said was “asking for the rationale behind questions OSHA inspectors are asking franchise owners, which appear specifically designed to presume a joint employer relationship between brand companies and local franchise small business owners.” — Christopher Cole ()


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