New York Attorney General Eric Schneiderman has sued Domino's LLC, the worldwide pizza chain, seeking to hold the company liable as a joint employer with several New York franchisees. The lawsuit represents the first time a state enforcement agency has sought to avail itself of the National Labor Relations Board's (NLRB's) recently revised joint employer standard, and is the latest in a recent trend of aggressive government enforcement actions with respect to joint employer liability.
The NLRB has led a federal push to expand the circumstances under which two companies can be found to be joint employers, threatening to upend myriad third-party business relationships, including franchise arrangements and independent contractor engagements. Specifically, the NLRB decided that a company could be considered a "joint employer" if it possesses the right to control various terms and conditions of employment, regardless of whether the company actually exercises such control.
The New York lawsuit alleges that Domino's headquarters exercises wide control over the operations at each individual Domino's store, including requiring all franchisees to use the same payment software system, PULSE. This should lead to a finding of joint employment between Domino's and its franchisees, the lawsuit argues. Domino's approved the use of PULSE to generate and submit payroll reports to payroll services despite the fact that PULSE contained numerous flaws that led to widespread underpayment of wages, the lawsuit alleges.
Broadening the joint employer standard will expose more companies to legal liability for how other entities treat their employees. It also makes businesses more susceptible to workforce unionization by imposing new collective bargaining obligations and allowing unions the ability to strike or picket a large corporate entity rather than the individual location where there is a dispute.
The New York lawsuit and other recent developments has created a substantial amount of uncertainty that NATSO members can refer to when determining whether they may be joint employers with other entities with whom they have contractual relationships. Indeed, some franchisors may fear that they will be considered joint employers with all of their franchisees, and decide to exert significantly more control over those entities' day-to-day operations to mitigate liability exposure.
NATSO members that function as restaurant franchisees may in turn be relegated to middle managers if the franchisor elects to impose near total control over their franchisees. Decisions such as work schedules, hiring and firing, wages, and the like may be made by franchisors.
Other companies may take the opposite approach and try to avoid joint employer relationships by exerting significantly less control over their contractors and/or franchisees. This will also lead to undesirable consequences, as franchisors may be less inclined to assist their franchisees on matters unrelated to core issues affecting the brand.
Given the prevalence of third-party business relationships. such as franchises, in the truckstop and travel plaza industry, NATSO watches the joint employer issue very closely.
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