United States: Tennessee Takes Shot At NLRB In New Law Limiting Franchisor Liability

Franchisors in Tennessee can breathe a small sigh of relief thanks to a newly enacted state statute that seeks to limit their potential liability and strike back at the general counsel of the National Labor Relations Board.

Last year, the NLRB's general counsel filed complaints against McDonald's franchisees and McDonald's franchisor, arguing that the two were joint-employers. If joint-employers, then the franchisor would potentially have to defend itself for the conduct of the local franchisees and, importantly for organized labor, union formation would be facilitated. The change, if accepted by the NLRB, would fundamentally transform the franchise business model. The NLRB has not yet determined whether it will accept the general counsel's broader joint employer test or continue to use the joint employer test it has used for the past 30 years, which is much more favorable to franchisors.

The Tennessee General Assembly responded this year, passing a statute expressly stating that a franchisee's employees shall not be considered employees of the franchisor for any purpose absent a voluntary agreement between the U.S. Department of Labor and the franchisee. The law went into effect on April 10, 2015. This means, if an employee of a franchisee tries to claim that the franchisor is also his employer in employment-related litigation under Tennessee law, the franchisor can argue that it is not the employer as a matter of law and cite the newly enacted state statute to try to avoid any liability.

It is questionable what effect the law would have, if any, in a case before the NLRB if the NLRB adopts the general counsel's position. The NLRB would be considering who is a joint employer under the National Labor Relations Act and interpreting caselaw, not Tennessee law. As a result, the law's effect would likely be minimal at best before the NLRB, but it could have an affect in Tennessee employment litigation involving franchises.

The International Franchise Association and the Chamber of Commerce's Workforce Freedom Initiative are lobbying several states to adopt similar legislation to Tennessee's, according to news reports.

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