Category Archives: The Franchise Legislation Monitor

Administrative Law Judge Rejects Settlement Between NLRB and McDonald’s

by Amanda Doran Dempsey

Last week, Administrative Law Judge Lauren Esposito rejected a settlement agreement between the NLRB and McDonald’s in its pivotal joint-employer case. This case originally began when the NLRB filed charges, asserting that McDonald’s was liable for several labor law violations committed by its franchisees through a joint-employer theory. In her decision, Judge Esposito reasoned that the settlement agreement lacked “a reasonable resolution based on the nature and scope of the violations alleged and the settlements’ limited remedial impact.” The settlement agreement allowed McDonald’s to maintain its position that it was not liable or responsible for the labor violations of its franchisees. McDonald’s released this statement in response to the decision:

“The NLRB General Counsel, McDonald’s USA, and various franchisees negotiated a settlement agreement that is fair, reasonable, and provides the opportunity now for full and complete relief to all current and former franchisee employees affected by the litigation.”

McDonald’s also stated that it will be exploring their options to appeal this decision or work with the NLRB general counsel to reach a new settlement agreement before Esposito makes her final decision on the case.

McDonald’s was hopeful that Judge Esposito would approve the settlement in order to avoid a broad precedential decision that would force franchisors all over the country to rethink the way they operate their franchises. If this case ends in a ruling against McDonald’s, it would expose franchisors to far more liability for the actions of franchisees with respect to employment issues.

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Supreme Court Rules 4-2 in Favor of Beverage Tax

by Kamron Abedi

On January 1, 2017, the City of Philadelphia became the first major U.S. city to impose a tax on sweetened beverages. The City’s new 1.5 cent per ounce tax on distribution of sweetened beverages includes everything from soda to juices, to Gatorade. Local retailers, restaurants, and businesses challenged the tax citing that it was a form of double-taxation because the beverage tax was being passed along to consumers who already pay sales tax on sweetened beverages.

On Wednesday, the Pennsylvania Supreme Court disagreed with the businesses and retailers who oppose the tax and upheld the tax in a 4-2 decision. The Court reasoned that the local beverage tax is permissible because, pursuant to the Sterling Act, localities are allowed to tax anything the state is not already taxing. The Court similarly found that the beverage tax did not violate the Sterling Act since the tax is imposed on distributors and not retail sales where there is state sales tax involved. In his majority opinion, Chief Justice Saylor wrote, “The legal incidences of the Philadelphia tax and the commonwealth’s sales and use tax are different and, accordingly, Sterling Act preemption does not apply.”

Despite the Supreme Court’s major blow to the beverage industry, the fight against the city’s beverage tax is not over yet. There is a bill in the Pennsylvania house that would preempt the beverage tax and stop any other Pennsylvania city from imposing the same tax. Unfortunately the bill does not seem to have the kind of support the beverage industry is hoping for. Danny Grace, secretary-treasurer for Teamsters Local 830, recently stated, “unless proposed state legislation that would preempt municipalities from enacting their own taxes gains some traction in Harrisburg, this is the grim new reality we must accept.”

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Update on Joint Employer Legislation and NLRB Rulemaking

by Amanda Doran Dempsey

Last November, H.R. 3441, the Save Local Business Act, passed in the House of Representatives and was sent to the Senate for consideration and vote. H.R. 3441 amends the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). The law also rolls back the NLRB decision in Browning-Ferris Industries of California, Inc., et al. The bill is awaiting action from the Senate.

While action in Congress has stalled, the National Labor and Relations Board continues to grapple with the implications of its decision in the Browning-Ferris case, which modified the standard for determining a joint-employer. In 2015, the NLRB’s decision in Browning-Ferris Industries, held that an entity may be a joint-employer of another entity’s employees if it has reserved the right to control essential employment terms of the other entity’s employees. In December 2017, the NLRB overruled the Browning-Ferris Industries decision with the Hy-Brand Industrial Contractors decision, reverting to the former joint-employer standard, whereby an entity could only be considered a joint-employer if it actually exercised significant controls over another entity’s employees. However, the reversal was short lived. On February 26, 2018, the NLRB vacated its decision in Hy-Brand. The NLRB reinstated the Browning-Ferris standard after the NLRB Inspector General concluded that a board member, William Emanuel, had an ethics conflict. Mr. Emanuel’s former law firm had represented an adversely affected client in the Browning-Ferris case.

In addition to the NLRB vacating Hy-Brand, Browning-Ferris requested that the D.C. Circuit reinstate its appeal in early 2018. The court responded and added the case to its docket on April 6. In early June 2018, the NLRB decided it would not reconsider its decision to vacate Hy‑Brand.

As of June 8, 2018, Browning-Ferris remains the standard for what defines a joint-employer relationship. Under this standard, companies are ‘joint employers’ if they have indirect or contractually reserved control over workers, instead of the direct and immediate control standard that used to define the term in labor law.

Proposed rulemaking

On May 9, 2018, the NLRB issued a press release regarding the use of notice-and-comment rulemaking for the joint-employer standard. The NLRB Chairman, John F. Ring, stated that the “notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be,” and that the NLRB had “begun the internal process necessary to consider rulemaking on the joint-employer standard.” The NLRB revised its statement in a June 5, 2018 letter to Senators Warren, Sanders, and Gillibrand. No longer just a consideration, the NLRB is now preparing the internal process necessary for an official Notice of Proposed Rulemaking on joint employment for this summer.

We will continue to monitor the progress regarding the joint-employer standard. If you have questions about how this may affect you or your business, please contact us.

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Wisconsin Senate Bill 422 addresses joint employment

On March 2, 2016, Governor Scott Walker(R), of Wisconsin, signed Wisconsin Senate Bill 422 into law. This law is important to franchisors because, under this new law, franchisors are not considered employers of their franchisees or their franchisees’ employees for purposes of state employment laws relating to worker’s compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments, unless the following applies:

  1. The franchisor has agreed in writing to assume that role.
  2. The franchisor has been found to have exercised a type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand.

As of now this law is only applicable in Wisconsin. However, it is good news for franchisors. It is in direct contrast to recent publications by several federal agencies ( e.g., NLRB) which have tried to make it easier for franchisors to be considered joint employers with their franchisees. Hopefully, other states will follow suit and pass similar state laws.

As always, we will keep up to date on any developments in this area and keep you informed.

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Franchise legislation introduced in the US Congress

Two bills were introduced in the US Congress last week that would significantly impact the franchise relationship as well as the ability to obtain financing from the SBA in order to acquire a franchise.  The first bill, The Fair Franchise Act (H.R. 3196), addresses some of the same issues covered by many state relationship laws such as non-renewal, transfer of franchise units and termination.  The bill would prohibit mandatory arbitration and requires the franchisor to act in “good faith.”

The second bill, the SBA Franchise Loan Transparency Act (H.R. 3195) would require the Franchisor to provide specific financial information to prospective franchisees in order to obtain SBA financing.  The thinking behind H.R. 3195 is that by providing prospective franchisees with additional financial information regarding a franchise system, the prospective franchisee will be able to make a better, well-informed decision regarding the purchase of a franchise.

While the first bill is a re-tread of many state relationship laws, the second bill, H.R.3195, would appear to add significant procedural requirements to an already heavily regulated process in order to obtain SBA financing.  The International Franchise Association has already voiced its opposition to both bills while the Coalition of Franchisee Associations praised the Fair Franchise Act.  I will monitor these bills as they move through the legislative process.

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