From 1984 until Aug. 27, 2015, the National Labor Relations Board standard for who could be characterized as a “joint employer”—that is, two or more entities legally charged with responsibility for employment duties, payments, taxes and labor law violations—was fixed and unwavering. Only if an entity exercised actual control over employees, as opposed to merely possessing a reserved but unexercised right to exert control, would joint employer status result. The two principal cases expounding this principle are Laerco Transportation, 269 NLRB 324 (1984) and TLI, Inc., 271 NLRB 798 (1984).

But on Aug. 27, 2015, the NLRB promulgated its now rather infamous decision in Browning-Ferris Industries of California, Inc. et al., 362 NLRB 186 (2015), which—at the instigation of labor unions and the Obama-era NLRB General Counsel—held that two or more entities would be deemed joint employers of the same employee if they merely possessed some reserved authority to control the terms and conditions of employment, even if never exercised. This approach was driven by the politics of “income inequality,” calls for an increase in the minimum wage, and an attempt by unions to have franchisors declared the joint employer of their franchisees' employees, which would make them the economic “bargaining units” with which unions could negotiate their franchisees' employees' salaries and benefits.

This “joint employer” thrust first hit the franchise arena in December 2014, when the very same NLRB General Counsel—whose philosophy was adopted in the Browning-Ferris decision—issued complaints against McDonald's Corporation and certain McDonald's franchisees, alleging that those franchisees violated the rights of employees working at their franchised restaurants and asserting that McDonald's, as a “joint employer” of those franchisees' employees, was equally liable for any violations of the National Labor Relations Act that may have transpired.

Thereafter, both the Browning-Ferris decision and the NLRB administrative proceeding against McDonald's have traveled quite circuitous routes.

Browning-Ferris was appealed to the U.S. Court of Appeals for the District of Columbia. But before that appeal could be heard and determined, the NLRB—now reconstituted with a Republican majority under the Trump administration and in a 3-2 decision—in Hy-Brand Industrial Contractors, Ltd. et al., 365 NLRB 156 (2017), overruled the Browning-Ferris decision and returned to the pre-Browning-Ferris standard, restoring prior precedent by holding that only a clear “direct and immediate” control standard would govern joint employer proceedings. Held the NLRB in Hy-Brand:” The Browning-Ferris standard (was) a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.”

But then came another turn of events which no one anticipated. On Feb. 26, 2018, the NLRB vacated Hy-Brand on the grounds that an NLRB ethics official determined that one of the members deciding that case should have been disqualified from participating in the proceeding—the NLRB specifically holding that, as a consequence, Hy-Brand's “overruling of the Browning-Ferris decision is of no force or effect.” And a few days later, the NLRB asked the U.S. Circuit Court of Appeals for the D.C. Circuit to recall the case involving Browning-Ferris Industries that it had agreed to remand to the NLRB in December, 2017, after the NLRB in Hy-Brand reinstituted the historic “joint employer” standard which Browning-Ferris abandoned. The Court of Appeals granted the NLRB's motion but—on its own motion—held that the Browning-Ferris case would be held in abeyance pending the NLRB's reconsideration of its Hy-Brand decision. Browning-Ferris Industries of California, Inc. v. NLRB, No. 16-1028 (D.C. Cir. April 6, 2017). So it is that the D.C. Circuit Court of Appeals once again undertook to review the NLRB Browning-Ferris decision.

In the meantime, the NLRB proceedings against McDonald's and its franchisees continued, with the NLRB announcing on Feb. 20, 2018, that settlement agreements had been entered into—an announcement that led to a campaign spearheaded by unions and Senator Elizabeth Warren (D-Mass.) to persuade NLRB Administrative Law Judge Esposito not to approve the settlements. Judge Esposito thereafter advised that she would be scheduling a hearing on the proposed settlements.

Meanwhile, the NLRB announced on May 9, 2018, that it was considering engaging in a rulemaking to address the standard for determining “joint employer” status under the National Labor Relations Act, an announcement which led Senators Bernie Sanders (I-Vt.), Elizabeth Warren (D-Mass.) and Kirsten Gillibrand (D-N.Y.) to make public a letter they sent to the NLRB expressing concern that the agency was looking to avoid ethical restrictions on board members by using the regulatory process to overturn Browning-Ferris. In response, on June 5, 2018, NLRB Chairman John F. Ring issued a statement refuting any suggestion that ethics would be compromised by the NLRB.

Separately, on June 14, 2018, the NLRB asked the D.C. Circuit Court of Appeals to resume its review of the Browning-Ferris decision a week after the NLRB failed to restore its historic “joint employer” standard in its latest Hy-Brand decision.

Then, on the McDonald's front, something entirely unforeseeable occurred: on July 17, 2018, NLRB Administrative Law Judge Esposito rejected the proposed NLRB-McDonald's settlement agreements following strenuous objections thereto by fast food worker organizers and unions. Held ALJ Esposito: “Here, the proposed informal settlements are not a reasonable resolution based on the nature and scope of the violations alleged and the settlements' limited remedial impact ….” McDonald's USA, LLC et al. and Fast Food Workers Committee et al., NLRB Case Nos. 02-CA-093893 et al. (NLRB, Division of Judges, New York Branch Office, July 17, 2018). Both the NLRB and McDonald's were granted permission to appeal ALJ Esposito's order. (It is pertinent to note that Administrative Law Judge Esposito, according to her NLRB biography, worked for nine years as an NLRB field attorney and, prior thereto, spent seven years in private practice representing labor unions, benefit funds and employees in cases before the NLRB.)

So where does all of this leave us? Good question. As of today, McDonald's has said it is considering appealing ALJ Esposito's rejection of the NLRB-McDonald's settlements, calling them fair and reasonable. The unions opposing McDonald's will certainly oppose any such appeal, having already termed the NLRB-McDonald's resolution a “sham settlement.” On Aug. 15, 2018, the “Fight for $15” organizing group told the NLRB that its chairman and another board member should recuse themselves on ethical grounds from consideration of McDonald's request for permission to appeal the NLRB administrative judge's order rejecting the NLRB-McDonald's settlement.

In the meantime, we await the NLRB's promised rulemaking proceeding to establish a definitive “joint employer” standard, presumably (given the current composition of the Board and its earlier Hy-Brand decision) eradicating the principles of Browning-Ferris and restoring the joint employer standard which before that decision prevailed for 30 years.

So it is that we may be weeks, months or years away from the resolution of an issue so critical to franchisors—whether they will be deemed the “joint employers” of their franchisees' employees making them liable for all employment obligations and the “bargaining units” with which unions could negotiate their franchisees' employees' salaries and benefits.

David J. Kaufmann is Senior Partner of Kaufmann Gildin & Robbins in New York City. He authored the New York Franchise Act while serving as Special Deputy Attorney General of New York.