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A Completely Different Result: Franchisor Found NOT to be Employer of its Franchisee's Employees.

In a recent decision by the General Counsel of the National Labor Relations Boards ("NLRB"), there was a completely different result from the McDonald's matter discussed in our previous article. In the McDonald's matter, the General Counsel of the NLRB sought to have ALL employees of McDonald's US-based restaurants recognized as employees of McDonald's Corporate. That would include the employees of McDonald's franchisees, as well as the employees in McDonald's company-owned restaurants.

The new case involves Freshii Development, LLC ("Freshii"), its franchise development agent for the Chicagoland area, and Nutritionality, Inc. ("Nutritionality"), a Chicago-based franchisee of Freshii. The case arose from the actions of Nutritionality, who, in the summer of 2014, terminated one employee and disciplined and terminated another employee for attempting to unionize the workforce.

The issue before the NLRB was whether Freshii should be liable for Nutritionality's alleged unfair labor practices regarding the termination and discipline of employees. The General Counsel of the NLRB determined that Freshii was NOT a joint employer with Nutritionality and/or the Chicagoland development agent. This result is a victory for the Franchisor, quite the opposite of what is happening in the McDonald's case.

How did Freshii avoid the finding of joint employer with its franchisee's employees? The General Counsel for the NLRB articulated 4 areas of review, all of which supported its finding that Freshii was not a joint employer:

1. Franchise Agreement language

2. Ancillary documents

3. Franchisor's conduct

4. Franchisor's enforcement practices.

1. The Franchise Agreement language clearly places upon the Franchisee all decisions regarding employees. The Franchise Agreement specifies that required System Standards do not include "any personnel policies or procedures." The Franchise Agreement further provides that Freshii "neither dictates nor controls labor or employment matters for franchisees and their employees...." This language was found by the General Counsel to be compelling in distancing Freshii from the employment policies and practices of its franchisees.

2. Freshii's ancillary documents make it clear that standards and suggestions by the Franchisor are optional on the part of the Franchisee. Freshii's Operations Manual suggested guidance, but not mandatory requirements, on employee performance in terms of food preparation, food safety regulations, use and cleaning of equipment, and customer interactions, and on employment matters, such as hiring and scheduling employees. Freshii provides its franchisees with a sample employee handbook that contains personnel policies, which the franchisees are free to use or not use as they see fit. Thus, these ancillary documents as they relate to employment matters are optional and not mandatory. By making employment matters optional and not mandatory on the part of the Franchisees, Freshii was able to show that it was not involved in the employment decisions of its franchisees.

3. The conduct of the Franchisor in connection with employment matters clearly reflected that the Franchisee, and not the Franchisor, is solely responsible for such matters. The Chicagoland development agent confirmed that he is not involved in the hiring, firing, or scheduling of employees in any of the franchise stores in his area. The General Counsel for the NLRB determined that this "hands-off" conduct and policy of the Franchisor and its Chicagoland development agent was an important factor in its finding that Freshii was not a joint employer with its Franchisee.

4. Enforcement by the Franchisor does not involve employment related standards. Freshii, through its development agents, conducts monthly evaluations of its restaurants, to ensure that employees are wearing Freshii uniforms, and that the restaurant is clean and is preparing and serving the proper food items. If the development agent finds deficiencies, it recommends to Freshii that action be taken against a franchisee for failing to meet brand standards. The General Counsel found it significant that even when Freshii or the development agent communicated deficiencies to a franchisee in connection with employment-related issues (such as not wearing uniforms), the franchisee was not required to comply or to compel its employees to comply.

As a franchisor, what can you be doing to avoid a decision that you are a joint employer with your franchisees?

- Have your franchise legal counsel review your franchise agreement and clarify wherever possible that your franchisees make all decisions relating to the employees of the franchise business.

- Work with your franchise legal counsel to review operations manuals, training materials, system forms and reports, websites, and any other information that is provided to your franchisees and/or to your franchisees' employees, to make sure that they are consistent in clarifying that there is no employment relationship between the franchisor and the franchisee's employees and that the franchisee is solely responsible for all employment decisions.

- Interview your employees and review reports on site visits and inspections to find out what your employees are doing and telling franchisees in the field relating to activities of the franchisee's employees.

- Set policies regarding the enforcement of franchise agreement provisions, written standards and specifications that may relate to the franchisee's employees and the employment relationship, determining what is the minimum necessary for protection of the brand and the quality of the products and services provided to the customer.

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