In response to concerns of franchisors that recent National Labor Relations Board (NLRB) actions threaten to undermine the common understanding of a franchisor-franchisee relationship, the Texas Labor Code was amended by the Texas Legislature. The amendment, which goes into effect on September 1, 2015, was introduced to protect franchisors from unmitigated exposure to employment claims asserted against franchisees. The amendment is reportedly in response to the NLRB's General Counsel issuance of unfair labor practice complaints asserting that certain franchisors are "joint employers" with their franchisees. Specifically, S.B. 652 amends the Texas Labor Code to confirm that a franchisor is not considered an employer of its franchisee's workers for any purpose, including employment discrimination, wage and hour laws, workers compensation, and workplace safety.
While S.B. 652 is a step in the right direction in protecting a franchisor from broad liability for its franchisee's labor law violations, the new Texas law is not without its limitations. For example, the new law excepts from this amendment those franchisors that exercise a type or degree of control over its franchisee or its franchisee's employees beyond that necessary to protect the franchisor's trademarks and brand. Future Texas decisions will inevitably define the limits of "necessary" control.
Further, although the NLRB's actions may have been the driving force behind S.B. 652, it is uncertain what effect, if any, the new Texas law will have on NLRB decision-making about joint employment. Indeed, it appears that the NLRB's framework of analysis may change in the near future. In a brief filed in connection with Browning-Ferris Industries (Case 32-RC-109684), the General Counsel urged the Board to replace its "direct control" test with a "totality of the circumstances" test. Hopefully, the new Texas law will help persuade the NLRB to reevaluate its decision-making about joint employment in the franchisor-franchisee context.
Until then, a recent Advice Memo provides some guidance in this area that may be useful in analyzing joint employment under both the National Labor Relations Act and the new Texas law. In the Advice Memo, the NLRB General Counsel stated that companies will be considered joint employers if they "share or co-determine those matters governing the essential terms and conditions of employment." According to the Advice Memo, the General Counsel has argued that the test should be whether "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." Therefore, the Advice Memo may provide some limited guidance and comfort for franchisors in that the NLRB at least appears, to this point, willing to find that not all franchisors are joint employers. Further, the Advice Memo may be instructive in determining what constitutes "necessary" control under the new Texas law while we await further guidance from the courts.
We will continue to monitor this area and will provide updated recommendations as additional information becomes available.
If you have any questions regarding this legal alert, please feel free to contact the author, Jennifer Jones, jjones@fordharrison.com, who is a senior associate in our Dallas, Texas office. You may also contact the FordHarrison attorney with whom you usually work.