Courts and NLRB may dispute franchisors' liability for years

It may take years to resolve whether franchisors can be considered joint employers with their franchisees.

A late July ruling by the National Labor Relations Board's general counsel has generated consternation among franchisors and franchisees, but there also is general consensus that the position will not become law — meaning no change to the current structure under which franchisees are essentially independent operators.

“There's a lot of steps that would have to come into play before this would become effective,” said Tom Hams, Chicago-based managing director at Aon Risk Solutions' financial services group

First, an administrative hearing or hearings must take place in the 43 cases in which the NLRB general counsel determined that Warrenville, Illinois-based franchisor unit McDonald's USA L.L.C. may have had a joint employer relationship with its franchisees, assuming the cases are not settled.

Then, the full NLRB board would have to render its decision. If it were to conclude that McDonald's is a joint employer, McDonald's, the franchisee or both could seek review in a federal appeals court.

And a court would not necessarily side with the NLRB.

“There is definitely some tension between the courts and the NLRB,” said Rochelle Spandorf, a partner at law firm Davis Wright Tremaine L.L.P. in Los Angeles.

Ultimately, the case could reach the U.S. Supreme Court, experts say.

Meanwhile, depending on the outcome of the 2016 presidential election, the political makeup of the board may change, which could derail the entire issue.

Experts generally believe the current franchising model will prevail as a matter of law, though.

“The ruling is so completely irrational that ultimately it will be overruled,” said Peter Taffae, Los Angeles-based managing director at FranchisePerils, a division of ExecutivePerils Inc.