News & Updates

Franchisors Protected in New Ruling by California Supreme Court After NLRB Asserts Determination That Franchisors Are Joint Employers

Two noteworthy developments in past months in the area of employment law issues related to franchise relationships may have franchisors understandably concerned, but there is also reason to be cautiously optimistic in light of a more recent California Supreme Court opinion on the issue.

First, on July 29, 2014, the National Labor Relations Board (NLRB) ruled that McDonald’s (as a franchisor) was a joint employer with its franchisees in connection with labor claims made by employees of its franchisees. In a striking reversal of the approach that is typically taken to determine whether a joint employer relationship exists, the NLRB asserted without explaining its rationale that McDonald’s “and/or” its franchisees will be named as respondents in several pending matters because the Board “determine[d]” that McDonald’s was a joint employer.

In the two-paragraph “ruling,” the NLRB General Counsel stated that the Board found “merit” in 43 of 181 claims filed against McDonald’s and its franchisees regarding alleged conduct in connection with pro-labor protest activities by workers. The fact that the NLRB is taking the position that McDonald’s is a joint employer in these cases suggests that the company could be held responsible for the actions of franchisees and the franchisee’s employees at McDonald’s restaurants nationwide. Not surprisingly, McDonald’s is publicly taking the position that it is not a joint employer and that the ruling represents a significant departure from several decades of legal precedent on the issue. While the next step in this matter will involve either a settlement(s) with McDonald’s or several hearings before administrative law judges regarding the employees’ claims, the issue is likely to be appealed – possibly up to the U.S. Supreme Court – if McDonald’s status as a joint employer in these matters is upheld.

Then, almost exactly one month later on August 28, 2014, the California Supreme Court struck a very different tone in Patterson v. Domino’s Pizza, — Cal. 4th — (Aug. 28, 2014, No. S204543), where it reaffirmed that the traditional “degree of control” analysis governs whether a franchisor could be held vicariously liable for the alleged harassment of one franchisee employee by another (supervisory) franchisee employee.

In Patterson, the Court affirmed the trial court’s original judgment granting the franchisor’s motion for summary judgment and held that “the [franchisor’s] imposition and enforcement of a uniform marketing and operations plan cannot automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job.” Furthermore, the Court stated that “[i]t follows that potential liability on the theories pled here requires that the franchisor exhibit the traditionally understood characteristics of an ‘employer’ or ‘principal,’ i.e.it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”

The Supreme Court therefore affirmed that it is the “totality of the circumstances” involved in the franchise relationship itself and the degree of “control” that the franchisor exercises over the franchisee that governs whether a franchisor can be liable for the employment or personnel practices of the franchisee. Because the “essentially uncontradicted evidence” in the Patterson case showed that it was the franchisee that made day-to-day decisions regarding hiring, supervision, and disciplining of employees, no employment or agency relationship existed between Domino’s and the franchisee, and Domino’s was therefore not held vicariously liable for the alleged conduct at issue involving sexual harassment in the workplace.

The California Supreme Court’s opinion on this issue will hopefully influence other courts nationwide that may hear appeals regarding similar issues, but, at the same time, the NLRB will most certainly continue to pursue its recently adopted position on this matter. Companies and individuals in franchise relationships are advised to stay tuned regarding further developments in this area of law.

Employment Law Tips For Small Employers with Household Employees in California

To assist estate planning and other attorneys who represent household employers, Genevieve Evarts made a presentation titled “Keeping Clients with Household Employees Out of Trouble with the Law” for the Bar Association of San Francisco on September 17, 2014.

The program provided an overview of the key compliance issues to be aware of when small employers are hiring and managing household employees in California.  While the ever-changing legal requirements in the employment area are difficult to comply and keep up with even for large employers, many individual and small employers are unfortunately putting themselves at risk by not understanding or ignoring the breadth of employment-related rules that also apply to them.  The topics covered during the presentation included:

  • The Employee vs. Independent Contractor Distinction
  • Hiring Checklist
  • Pay and Benefit Obligations
  • Wage and Hour Requirements
  • Best Practices for Discipline and Termination

You can access a copy of the outline accompanying the presentation here.

Folger Levin Honored At 2014 Healthy Mothers Workplace Coalition Awards Ceremony

Folger Levin received the bronze level award from the Healthy Mothers Workplace Coalition for the firm’s dedication to providing a mother- and family-friendly workplace. The award was presented at the coalition’s second annual awards ceremony on September 15, 2014 in San Francisco. This year’s twenty-four honorees represented a range of businesses, organizations, and law firms in San Francisco, including Twitter, Bi-Rite Market, the Legal Aid Society-Employment Law Center, and UCSF’s National Center of Excellence in Women’s Health.

The Healthy Mothers Workplace Coalition is a collaboration of nonprofit organizations, governmental agencies and employers dedicated to improving the working conditions, health and equity of new mothers and their families. The coalition was formed to tackle inequities and gaps in policy that lead to challenges in balancing healthy motherhood and child development with a successful career. It aims to improve working conditions and ensure lactation accommodations, while educating and supporting employers and working parents through such activities as the Health Mothers Workplace Award.

For more information on the award and the ceremony, click here.

Bay Area Employers Must Adopt Commuter Benefits Program by September 30, 2014

Employers with fifty or more full-time employees working in the nine counties that surround San Francisco Bay (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, southwestern Solano, and southern Sonoma counties) have until September 30, 2014 to adopt a  commuter benefits program.

Covered employers must pick at least one of 4 options:

  • Option 1: Pre-Tax Benefit. The employer allows employees to exclude up to $130 of their transit or vanpooling expenses each month from their taxable income;
  • Option 2: Employer-Provided Subsidy. The employer provides a subsidy, up to $75 per month, to reduce or cover employees’ monthly transit, vanpool costs or bicycling costs;
  • Option 3: Employer-Provided Transit. The employer provides a free or low-cost transit service, such as a bus, shuttle or vanpool service, for employees; or
  • Option 4: Alternative Commuter Benefit. The employer provides an alternative commuter benefit that is as effective in reducing single-occupancy commute trips as Options 1, 2 or 3.

The selected option must be offered to all employees in the nine county area who work at least twenty hours per week.  Note: for determining whether an employer is covered by the commuter benefit law, only employees working thirty or more hours per week are counted among the reach 50 full-time employees.

In addition to offering a commuter benefit, covered employers must:

  • Designate a commuter benefits coordinator (typically an employee already handling payroll/benefits);
  • Submit an online registration form to the Bay Area Air Quality Management District and the Metropolitan Transportation Commission (here) and update their registration information on an annual basis;
  • Notify employees of the commuter benefit option offered and make that option available; and
  • Maintain records to document implementation of the commuter benefit.

The Air District’s Employer’s Guide to the Commuter Benefits Program has helpful information, with links to forms that employers can use to set up various options.

San Francisco’s “Ban the Box” Ordinance Goes Into Effect on August 13, 2014

Earlier this year, San Francisco enacted an ordinance limiting how certain employers can inquire and use criminal background information relating to applicants and employees.  The ordinance, which is technically called the “Fair Chance Ordinance” but is frequently referred to as the “Ban the Box” ordinance, goes into effect on August 13, 2014.  Under the new law, employers are prohibited from inquiring into or using certain types of criminal background information, are restricted in terms of the timing of when permissible background information inquiries can be made, and must comply with stringent record-keeping and procedural requirements starting on August 13th.

Therefore, if your organization does business in San Francisco and employs 20 or more employees anywhere, it’s time to confirm that your employment applications, job postings, policies, adverse action notices, disclosure/authorization forms, and background check procedures are in compliance with the law.  Employees who will be responsible for recruiting and conducting background checks should also be trained on how to comply with the ordinance’s requirements.  The San Francisco Office of Labor Standards Enforcement (“OLSE”) also issued a notice that must be posted in the workplace by August 13th which is available here.  While the OLSE also indicated that it would be issuing regulations and FAQs regarding the ordinance, it has yet to issue any further guidance or information about the ordinance to date.

Click here for a detailed outline regarding the law’s requirements.

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Jon Sobel, CEO, Sight Machine, and former General Counsel, Yahoo! Inc. and Calera, Inc.