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Rationality Returns To The NLRB

McDonald's restaurant
photo by Mike Mozart

In the Obama era, the National Labor Relations Board’s general counsel determined the conclusion it wanted to reach, stated the conclusion with or without any supporting legal or factual rationale, and awaited the rubber stamp of the Board’s Democrat-dominated majority.

With Republicans back in control, a century of case and statutory law is back in control as well.

In 2014, I wrote in this space about one of the NLRB’s many overreaches during the Obama administration, a ruling in which the board determined that McDonald’s Corp. could be held jointly liable if franchise owners violated federal labor laws. This decision was designed, in part, to allow fast-food workers to unionize more easily, with only the minor drawback that it made no sense at all from a legal standpoint.

That joint liability was not merely theoretical once it was in place. Later the same year, the NLRB’s General Counsel filed 13 complaints against McDonald’s for the alleged unfair labor practices of various local franchisees. When the company asked for details, the Board proved unwilling to force its General Counsel to supply any of the particular facts and law to support its position that McDonald’s was jointly liable for these infractions.

While McDonald’s was a favorite NLRB punching bag at the time, it was not the only target. A 2015 case, Browning-Ferris Industries, further broadened the standard for determining joint-employer status. While Browning-Ferris dealt with a staffing agency supplying contractors to a recycling center, observers at the time noted the decision could also profoundly affect franchises. The NLRB seemed determined to cast as wide a net for joint liability as possible, regardless of the underlying legal logic (or lack thereof).

Under the law, however, joint employment exists only when one company directly controls the activities of an individual employed by another company. That is not the case in franchises such as McDonald’s. It wasn’t the case in Browning-Ferris either. Employees of Browning-Ferris contractors work for those contractors, not Browning-Ferris, unless the facts of a particular employee’s (or group of employees’) relationship dictate otherwise.

The newly reconfigured NLRB has recognized this fundamental truth. The Board, which includes two new appointees from President Trump, recently overruled the Browning-Ferris decision, reverting to the previous standard for determining joint-employer liability. The 3-2 decision, split along party lines, specified that joint employers must have demonstrably exercised control over employment terms, and done so directly and immediately “in a manner that is not limited and routine.” Contractually reserving the right to theoretically exercise such control is not enough to establish joint liability.

So contractors and franchise employees can take note. Their boss is whoever directly controls their working conditions – whoever can hire them, supervise and direct them, and discipline or fire them if necessary. This is the party with whom they should collectively bargain if they choose to organize, and no one else. It is also the party they should blame if their rights are violated.

As Randy Johnson, senior vice president of the U.S. Chamber of Commerce, told The Wall Street Journal, “The NLRB’s decision is a tremendous win for common sense.”

Welcome back to the rule of law. And for those who wonder whether the first year of the Trump administration accomplished much, this is a reminder that governmental action in the modern world does not come exclusively, or even primarily, from the legislative branch, where presidential influence is limited by the separation of powers. For good or ill, these days much is accomplished directly in the executive branch. When it came to having labor regulations that followed the law, much of what was accomplished in the Obama era was profoundly ill; the Trump administration is already doing some good.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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