The NLRB stirred a hornet’s nest on Tuesday when its Office of the General Counsel announced that McDonald’s will be named as a joint employer respondent with regard to any unresolved charges against its franchisees stemming from worker protests. The reactions were quick and pointed. It is important, however, to keep in mind the context of the development — for purposes of issuing a complaint — that the General Counsel is alleging a joint employer relationship. The Board has not issued a ruling that McDonald’s is in fact a joint employer of any of its franchisees’ employees, or that the global company bears any liability. But the move could signal one more shift in the already changing labor landscape.
It’s also no secret that the Board is reconsidering its long-standing joint employer standard. In May, NLRB extended an invitation to parties and interested amici to filed briefs addressing the Board’s joint employer standard, as raised in Browning-Ferris Industries (No 32-RC-109684). On April 30, 2014, the Board granted the employer’s request for review of a Regional Director’s decision and direction of election, finding it raised substantial issues warranting review.
Joint-employer relationship denied. McDonald’s denied any joint employer relationship with its franchisees, stating that the global fast-food giant “serves its 3,000 independent franchisees’ interests by protecting and promoting the McDonald’s brand and by providing access to resources related to food quality, customer service, and restaurant management, among other things, that help them run successful businesses.” This relationship, according to McDonald’s, does not establish a joint employer relationship under labor law. “This decision to allow unfair labor practice complaints to allege that McDonald’s is a joint employer with its franchisees is wrong,” Heather Smedstad, Senior Vice President Human Resources, McDonald’s USA, said in a statement. She also made it clear that the corporation intends to contest the allegation.
“McDonald’s also believes that this decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the United States. McDonald’s, as well as every other company involved in franchising, relies on these existing rules to run successful businesses as part of a system that every day creates significant employment, entrepreneurial and economic opportunities across the country,” Smedstad continued. “McDonald’s does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees — which are the well-established criteria governing the definition of a ‘joint employer,’” the executive explained.
Franchise community alarmed. Not surprisingly, the General Counsel’s decision to allege McDonald’s is a joint employer with franchisees, should complaints issue, has sparked much concern in the franchise industry. International Franchise Association President & CEO Steve Caldeira, CFE, quickly released a statement regarding what he described as a “the decision by the NLRB Division of Advice recommending franchisors and franchisees can be designated as joint-employers,” calling it “both wrong and unjustified.” He continued, “This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors, a bedrock principle of the rule of law.”
At the time of press, the NLRB had not made public any Advice Memorandum related to joint employers or to McDonald’s.
“Millions of jobs and the livelihoods of hundreds of thousands of independent franchise small businesses are now at risk due to the radical and unprecedented nature of this decision,’ Caldeira suggested. “Ruling that franchises are joint-employers will be a devastating blow to franchise businesses and the franchise model. Franchise job growth and new business formation have outpaced non-franchise growth for the last five years but will undoubtedly come to a screeching halt if this decision is affirmed by the NLRB’s New York Regional Office.”
Caldeira said that “[t]his recommendation is a drastic and overreaching solution,” and that ample federal, state and local remedies are available and used regularly to enforce current law. He pointed to the remedies of more limited NLRB action, state attorneys’ general action, and private rights of action to deal with labor violations. “Destroying the fundamental tenets of the franchise model would eviscerate the most successful business model in existence,” according to Caldeira.
Lawmakers react. On Capitol Hill, the development drew the ire of leading Republican lawmakers. House Education and the Workforce Committee Chairman John Kline (R-Minn.) issued a statement responding to the development, saying that the General Counsel has “determined McDonald’s Corp. and its franchisees are ‘joint employers’ — a decision he called “detached from reality.”
“While the board is considering this very issue, the general counsel is trying to rewrite the franchise model workers, employers, and consumers have known for decades,” Kline charged. “This is yet another activist decision from the general counsel’s office. Big Labor has scored once again at the expense of workers and employers. Let’s hope wiser heads prevail and this absurd decision is rejected.”
On the Senate side, Senator Lamar Alexander (R-Tenn.), the senior Republican on the Health, Education, Labor and Pensions Committee, also reacted quickly. “Imagine being an owner of a franchise business and being told that all the employees that you recruit, hire, train, pay, promote, and work alongside day after day are actually another company’s employees, too,” he said. “The NLRB General Counsel’s absurd determination ignores decades of precedent and plain old common sense in what can only be an effort to help labor unions add more members. It’s time to change the Board for good and ensure it’s the umpire it’s intended to be, not the advocate it’s become.”
Employee side of the equation. To place the controversial development in broader context and get a glimpse of the employee side of the equation, Employment Law Daily reached out to Marquette University Law School professor Paul Secunda. The decision by the NLRB General Counsel to treat McDonald’s, and presumably, other fast food restaurants, as joint employers could potentially have a large impact on protecting workers’ labor rights under Section 7 of the NLRA, he said.
“Of course, just because McDonald’s could be found liable, does not mean that they will, and many of the cases (68) were already found by the General Counsel not to have merit,” Secunda noted.
He also pointed to the significant challenges still facing workers who seek to organize unions at such workplaces or who seek to file an unfair labor practice claim against the company for unfair treatment. “On the election side, such fast food restaurants still have very transient workforces and it might be hard to keep the momentum of an organization campaign going as employees come and leave such jobs,” he suggested.
“On the unfair labor practice side, there are no compensatory or punitive damages for such claims under the NLRA,” Secunda noted. “The normal remedy is reinstatement with some form of backpay. Those types of damages may certainly help some workers. But the remedies for failure to bargain with a recognized union are very weak and may make it no more likely that a restaurant like McDonald’s will ever enter into a collective bargaining agreement with its workers.”
Turning his attention beyond the traditional Wagner Act model of labor law where unions are organized and then bargain with their employers for contracts, Secunda observed: “It may be that this joint employer decision is more important because of the alternative strategies that workers are increasingly using outside the traditional models of unionism, like the protests and pickets involved in these McDonald’s cases.”
Those strategies, according to Secunda, may prove more effective — regardless of whether a union is involved — if workers can involve a franchisor like McDonald’s in their allegations of unfair pay, benefits, and working conditions. “Not only does McDonald’s have a proverbial deeper pocket, but from a public relations perspective, it does not allow the corporate headquarters to deflect allegations down to the level of the franchisee.”
If McDonald’s is in fact found liable for committing an unfair labor practice, the decision finding it to be a joint employer will be undoubtedly be appealed to the D.C. Circuit or another court, and its fate there remains to be seen, Secunda point out.
As everyone knows, on June 26, the Supreme Court released its Noel Canning decision and invalidated President Obama’s January 4, 2012 appointments of three individuals to the NLRB. Those members were Terence Flynn, Richard Griffin, Jr., and Sharon Block. The Court’s holding now calls into question hundreds of Board decisions issued while those appointees were seated. The NLRB issued 331 published cases (for a complete list of the cases, click here) during the roughly 18 months that two of the appointees served on the Board – the third, Terence Flynn, resigned after five months in the face of controversy surrounding his disclosures of confidential Board information to third parties.
The current five-member Board must know decide whether to revisit each of these cases in order to preempt additional challenges. Referring to the scope of the problem now facing the Board, data provided by then-NLRB GC Richard F. Griffin, Jr. in a March, 26, 2014, Memorandum indicated there were more than 142 cases that raised issues affected by the Noel Canning case. Griffin noted there were then about 107 pending cases in the courts of appeals in which a party or the court has raised a question regarding the validity of the recess appointments. Another 35 cases, according to the Memorandum, have raised the question of the validity of Member Becker’s appointment. The GC also pointed to a Southern District of Ohio case that had been stayed since July 2013 awaiting the Noel Canning ruling — it was filed by National Right to Work on behalf of an individual seeking declaratory and injunctive relief that a Board order dismissing his petition was ultra vires.
The Memorandum also noted that the NLRB’s Section 10(j) litigation program continued to be affected by the issues raised in Noel Canning. While the validity of the president’s appointment of three members to the Board was challenged in some district courts in response to Sec. 10(j) petitions, the primary challenges were to the Board’s 2011 delegation of authority to the GC to initiate 10(j) proceedings, either at its inception or that it lapsed when the Board fell below a quorum.
The GC also said that for the first time, respondents have also mounted challenges to Regional Directors that had been appointed by the recess Board and to the President’s designation of Acting General Counsel Lafe Solomon. He noted that a district court in the Western District of Washington dismissed a 10(j) petition on the basis that Solomon’s designation was invalid under the Federal Vacancies Reform Act (FVRA). The appeal of that case was still pending in the Ninth Circuit at the time the Memorandum was issued.
In a five-member decision last week, a divided National Labor Relations Board affirmed that a petitioned-for departmental unit of 41 cosmetics and fragrances employees was appropriate and upheld, in a 4-1 decision, the so-called “micro” bargaining unit under Specialty Healthcare. The Board majority concluded that the employees in the petitioned-for unit were a readily identifiable group who shared a community of interest and that the employer had not met its burden of demonstrating that the other selling and nonselling employees it sought to include in the unit shared an overwhelming community of interest with the petitioned-for employees so as to require their inclusion in the unit. Member Hirozawa filed a separate concurring opinion, while Member Miscimarra dissented (Macy’s, Inc, July 22, 2014).
Cosmetics and fragrances. In November 2012, the acting regional director of Region 1 issued a decision that a petitioned-for departmental unit of cosmetics and fragrances employees, including counter managers, at a Massachusetts store was appropriate. Of 150 total employees at the store, 120 are selling employees, and of these, just 41 work in cosmetics and fragrances. The sales manager for cosmetics and fragrances had no regular responsibilities for the other sales departments, nor did other sales managers have any regular responsibilities for the cosmetics and fragrances department.
All selling employees? Macy’s argued that the only appropriate unit must include all other employees of the store, or at least all of the selling employees. But evidence about the selling employees of other departments was less specific than that for the cosmetics and fragrances employees. The record revealed only that the other selling employees had their own sales manager and that some of them were divided into subdepartments. There was no indication that the other sales departments had the equivalent of counter managers, and the record also was unclear as to whether the other departments utilized the equivalent of on-call employees. Not all selling employees were paid on the base-plus commission formula used in cosmetics and fragrances, either.
There was some incidental contact between cosmetics and fragrances employees and other selling employees. All employees participated in daily morning rallies that reviewed the previous day’s sales figures and any in-store events. Selling employees were expected to help each other out and to assist customers; this could lead to contact between the petitioned-for unit and other selling employees. But otherwise, there was little evidence of even temporary interchange between the petitioned-for employees and other selling employees. Both groups of employees (cosmetic/fragrances and other selling employees) worked shifts during the same time periods, used the same entrance, had the same clocking system, and used the same break room. There was no bargaining history at the store.
Specialty Healthcare framework. Applying Specialty Healthcare, the acting regional director first found that the employees in the petitioned-for unit were readily identifiable as a group. They shared a community of interest because the petitioned-for employees worked in one of two distinct areas of the store and worked in one of two job classifications. He further found that the unit tracked a departmental line drawn by the employer; this departmental line reflected differences between the petitioned-for unit and other selling employees. Although the petitioned-for employees shared some common interests with other selling employees, the acting regional director determined that the employer had not established that they shared an overwhelming community of interest because there were “meaningful differences” between the petitioned-for employees and other selling employees.
Specialty Healthcare sets forth the principles that apply in cases in which a party contends that the smallest appropriate bargaining unit must include additional employees beyond those in the petitioned-for unit. When a union seeks to represent a unit of employees “who are readily identifiable as a group (based on job classifications, departments, functions, work locations, skills, or similar factors), and the Board finds that the employees in the group share a community of interest after considering the traditional criteria, the Board will find the petitioned-for unit to be an appropriate unit … .” If the petitioned-for unit satisfies that standard, the burden is on the proponent of a larger unit to demonstrate that the additional employees it seeks to include share an “overwhelming” community of interest with the petitioned-for employees, such that there “is no legitimate basis upon which to exclude certain employees from” the larger unit because the traditional community of interest factors “overlap almost completely.”
Community of interest factors. Applying this framework to these facts, the Board majority found that the petitioned-for “micro” unit was appropriate. First, the majority found that the cosmetics and fragrances employees were “readily identifiable as a group” and shared a community of interest. The cosmetic employees were all in three nonsupervisory classifications and performed the same selling function. Although there were some differences among the petitioned-for employees, they worked in the same selling department and performed their functions in two connected, defined work areas. They had common supervision, and their work also had a shared purpose and functional integration. Employees in the petitioned-for unit were the only store employees selling cosmetics and fragrances, and they had only limited contact with other employees.
In Specialty Healthcare, the Board held that two groups share an overwhelming community of interest when their community-of-interest factors “overlap almost completely.” But here the employer failed to establish that the petitioned-for employees and nonselling employees shared an overwhelming community of interest. Additionally, it failed to meet its burden that the petitioned-for employees shared an overwhelming community of interest with the other selling employees. It was undisputed that the petitioned-for employees worked in a separate department from all other selling employees, and it was particularly significant to the Board majority that the petitioned-for unit tracked a dividing line drawn by the employer.
Also important was the fact that the cosmetics and fragrances department was structured differently than other primary sales departments. The petitioned-for employees were separately supervised and worked in their own distinct selling areas. Likewise, the record did not show significant interchange between the petitioned-for employees and other selling employees. Moreover, the significance of functional integration was reduced where, as here, there was limited interaction between the petitioned-for employees and those that the employer sought to add. Taken together, the Board found that these facts supported its finding that the petitioned-for employees did not share an overwhelming community of interest with other selling employees.
Dissent. In his dissent, Member Miscimarra suggested that the petitioned-for unit was not appropriate and that the smallest potential appropriate unit would consist of all salespeople store-wide. He argued that the result in this case was contrary to the Board’s traditional standards governing retail operations. According to Miscimarra, the record revealed that all salespeople store-wide had the same or similar working conditions, employment policies, job responsibilities, performance criteria, benefit plans, and commission and compensation arrangements. As applied in this case, the Specialty Healthcare standard, said the dissent, highlighted important shortcomings that rendered that decision inappropriate and contrary to the NLRA.
A union did not violate the NLRA by threatening to sue a former member for the fees he accrued while the union continued to represent him after his expulsion; by not giving him notice that he had no further obligation to pay dues; or by refusing to disgorge the fees it collected from the employee after his expulsion but before he registered an objection, ruled a three-member panel of the NLRB. In International Brotherhood of Teamsters, Local Union 89 (United Parcel Service, Inc), the Board declined to give an expansive reading to Proviso B of Sec. 8(a)(3), so as to preclude the union from threatening a lawsuit to collect dues from a lawfully expelled union member who continued to receive representation by the union. Moreover, the Board concluded that the union had no obligation to inform the employee of his right to “refrain” from paying any dues or equivalent fees charged to nonmembers at the time of his expulsion.
Expulsion from union. The charging party in this case is a current employee of United Parcel Service (UPS), and former member of the Teamsters. The union continues to represent him as a member of the bargaining unit at UPS. UPS and the Teamsters were parties to a collective bargaining agreement that contained union-security and dues checkoff provisions, whereby the employer deducted monthly union dues from the paychecks of unit members and forwarded them to the union. The employee was a union member and a shop steward until October 27, 2007, when he was expelled for campaigning for a rival union. Following the employee’s expulsion until April 30, 2008, UPS continued to make monthly dues deductions from his paycheck in the amount of an objecting nonmember’s Beck fee.
On April 6, 2008, the employee sent a letter to the union demanding that it “not charge or attempt to collect any dues or fees from me,” and that it refund “all of the dues that have been collected from my paychecks” since the date of his expulsion. The union refunded the employee’s April dues, and agreed to no longer bill the employer for monthly dues. However, it stated that it was considering its legal options. In a second letter, the union contended that non-members must still pay a “financial core” fee to cover their share of the costs of representation. The letter stated that if the employee refused to pay, it would institute court action. Pending the outcome of this case, the union had not attempted to collect additional fees.
The NLRB General Counsel filed a complaint alleging that the union violated Sec. 8(b)(1)(A) by failing to inform the union member that he had a right to refrain from paying any union dues, nonmember financial core fees, or reduced Beck fees because of his recent expulsion from the union; (2) refusing to reimburse the member for the reduced Beck fees that were deducted from his pay from the time of his expulsion; and (3) threatening to sue him in civil court to recover the amount of reduced Beck fees that he failed to pay subsequent to April 6, 2008.
Johnson Controls II standard. In Johnson Controls II, the NLRB observed that the expulsion of a member for disloyalty was necessarily a termination of membership “for reasons other than the failure of the employee to tender periodic dues.” Accordingly, in that case, the Board concluded that the enforcement of a union-security clause against an expelled employee, for the purpose of collecting membership dues or the equivalent fee paid by nonmembers, by threatened or attempted discharge, was barred by Proviso B of Sec. 8(a)(3). In this instance, the General Counsel contended that Johnson Controls II similarly extinguished the union’s right to seek dues from the employee by means other than threat of discharge, while continuing to represent him. However, the Board found that the stipulated record in this case did not establish the violations alleged in the complaint, concluding that the General Counsel had misapplied Johnson Controls II to the fact of this case, and there was no statutory basis for finding the union’s actions unlawful.
Johnson Controls II goes no farther than to bar the threatened or actual enforcement of a union security clause by threat of discharge. It does not state that a union has no entitlement to fees from an ex-member who has been lawfully expelled but continues to receive representation. Nor does Johnson Controls II suggest that the union is barred from seeking ongoing payment in some form from a lawfully expelled employee by lawful means other than by threatening or seeking the employee’s discharge. In this case, the union never threatened the employee with discharge or attempted to procure his discharge for nonpayment of dues after his expulsion from membership. Further, there was no allegation that the union failed to comply with its duty to represent the employee fairly after his expulsion. Because the union’s threat of a collection lawsuit did not target any of the employee’s protected activity, none of the union’s action fell within the prohibition imposed by Johnson Controls II.
Collection of dues. Johnson Controls II applies Proviso B of Sec. 8(a)(3) and Sec. 8(b)(2) to bar a union and an employer from using a threat of discharge to enforce a union-security clause against an employee expelled from membership for disloyal misconduct. However, Sec. 8(a)(3) does not prohibit a union from attempting to collect dues or equivalent fees by any other lawful means from such an employee whom the union is required to represent. Similarly, Sec. 8(b)(2) echoed Proviso B in barring a union from causing an employer to discharge an employee for any reason “other than his failure to tender” dues. However, neither Sec. 8(b) nor any other provision in the Act bars a union from seeking dues or core fees by other lawful means from an employee who remains in the represented bargaining unit.
Here, the NLRB compared an employee who has been lawfully expelled or disciplined by a union to a Beck dues objector who voluntarily resigns from or refuses to join the union. Thus, the Board observed that there is no question that such an employee can reduce his or her monetary obligation to the amount chargeable for representational expenses. However, the NLRA does not bar a union from seeking payment of core fees from such an employee, as the union did here by threat of a collection lawsuit. Thus, the Board concluded that the union did not violate the Act by threatening to sue the employee for unpaid fees.
A recent decision by a federal district court in Indiana should serve as a reminder to employers that just having an anti-discrimination policy isn’t enough. As a dry cleaning company in that state discovered, the failure to properly implement the policy and train all employees in federal anti-discrimination laws, or in its anti-discrimination policy, can subject the employer to the possibility of punitive damages.
In this case, an African-American presser for a dry cleaning company agreed to perform assistant manager duties without an official promotion or pay raise; he was even allowed to run the store by himself while the store manager was away for two weeks. Though he was purportedly told that he had to wait for a raise until the company was out of bankruptcy, it hired two new employees to cover his pressing duties.
Not “the face for this store.” After another worker was transferred to the store several months later to fill the assistant manager position, the employee went back to pressing full time; he never received a raise for his work as assistant manager; nor did he complain. When he asked the store manager about his demotion, she told him that the regional manager did not believe that he was “the face for this store.” Asked to explain what that meant, she responded, “What do you think I mean by face for this store? Your skin color is not right for this store, for this community.”
The employee then filed a charge with the EEOC. Shortly thereafter, he was offered the position and told that he would be paid for the time he performed assistant manager duties in the prior months. The EEOC then brought suit on his behalf, contending that he was denied a promotion because of his race in violation of Title VII. The employer moved for summary judgment on the punitive damages claim. Observing that Title VII allows an award of punitive damages when a plaintiff “demonstrates that the defendant engaged in intentional discrimination with malice or with reckless indifference to the federally protected rights of an aggrieved individual,” the court denied the employer’s motion.
Knowledge that action may have violated law. Of particular importance to employers, the court first found that there was evidence that the employer acted with knowledge that its actions may have violated Title VII. It was undisputed that the regional manager was a managerial agent acting within the scope of his employment. In addition, there was evidence that he was familiar with Title VII as well as his employer’s policies. Specifically, he attended employment discrimination training and claimed to be “well grounded” in such laws, as well as his employer’s discrimination policy. He also attended “almost all” of the orientation programs for new employees. In this situation, the court noted, the employee was not required to make a formal complaint against the regional manager because only the manager’s awareness that he was acting in violation of federal law, not his awareness that he was engaging in discrimination, was relevant.
No good-faith effort to implement policy. There was also evidence that the employer did not engage in good-faith efforts to implement its anti-discrimination policy. It was undisputed that it had a policy, which was contained in its handbook. Moreover, the employee signed an acknowledgement of receipt of that handbook. What was lacking was evidence that the employer actually enforced its policy. Although the regional manager indicated that there was a “comprehensive orientation program” that covered “all types of discrimination,” the district manager, store manager, and employee all denied having received any race discrimination training. The district manager indicated he had “probably received” some materials, but he could not recall them specifically. He was also unfamiliar with Title VII.
Without evidence of employee training in federal anti-discrimination laws or in the employer’s anti-discrimination policy, the court here observed, courts are reluctant to grant summary judgment precluding the issue of punitive damages from reaching the jury. In this case, three employees (two managers) testified that they did not receive such training. Moreover, the fact that the store manager did not take appropriate measures to address the regional manager’s “face” comment indicated that she did not understand race discrimination laws or her role in ensuring that the employer was in compliance with anti-discrimination laws.
No complaint mechanism. Nor was there evidence that the employer had a complaint mechanism in place. Although the regional manager stated that he had an “open door policy,” the employee was not aware of the policy or the fact that the regional manager was involved in the promotion process. Nor did anyone tell the employee he could talk directly to the regional manager. Further, the EEO clause in the handbook did not contain a complaint mechanism for employees complaining of race discrimination; instead, it referred to anyone who felt they had been “harassed.” And although the employee testified that Title VII notices were posted in the bathroom, there was no indication that those notices outlined a complaint mechanism.
Finally, the court acknowledged the employee did not “specifically complain” that “he felt discriminated against on the basis of his race” when he was not promoted and thus, the employer did not have an opportunity to remedy the situation prior to the EEOC charge. However, the court noted, although the employer took action after the EEOC charge, the court could only consider the employer’s efforts before the charge was filed. The “only undisputed fact in the record” was that a policy existed, which the court noted “had been repeatedly held to be insufficient to establish a good faith effort to comply with Title VII.”
Take away for employers. While it is important to have an anti-discrimination policy, the implementation of a written or formal policy is not sufficient in and of itself to insulate an employer from a punitive damages award. As the court here pointed out, employers otherwise would have an incentive to adopt formal policies in order to escape liability for punitive damages but they would have no incentive to enforce those policies. Here, the employer failed to show that it provided sufficient training to its employees regarding its policies or anti-discrimination law or a mechanism to enable employees to make complaints.
While sexual harassment and/or anti-discrimination training, either for employees or for supervisors, is not mandated by federal law, it may be mandated by state law. As this case emphasizes, training about workplace discrimination and harassment and other inappropriate behavior is beneficial in several ways. It can help to:
- Prevent liability for supervisor discrimination or harassment. Training can assist an employer’s ability to prove both that it acted reasonably by teaching supervisors and employees workplace harassment and discrimination prevention and by showing that the employee acted unreasonably because he or she was educated on discrimination and harassment and the organization’s complaint procedure, but failed to utilize it.
- Prevent liability for coworker and non-employee conduct. Employees must learn that they have a duty to report harassment or discrimination themselves, so that the employer is given the opportunity to promptly correct the situation and, therefore, avoid liability. Additionally, supervisors must be taught to recognize and address workplace such conduct so that “known” discrimination or harassment does not go uncorrected.
- Prevent liability for punitive damages. Documented training efforts can demonstrate an employer’s strong commitment to a non-discriminatory work environment.