In recent years there has been a campaign among fast food workers, particularly those employed by McDonald's franchisees, to demand "$15.00 and a union" and the results are leading to changes in the legal environment. Demonstrations were held in as many as 150 cities across the U.S. in September, and in some cases the fast food workers walked off their jobs. It is difficult for fast food workers at McDonald's to organize a union since there are more than 3,000 different franchisees, but in a recent NLRB complaint, the Board indicated it will name McDonald's as a joint respondent in certain cases in which employees of franchisees contend they were retaliated against because of their protected activities. In bringing this complaint, the NLRB apparently intends to re-evaluate the traditional standard for deciding when a contractual business arrangement can cause one employer to be a "joint employer" of the workers directly employed by another. The "joint employer doctrine" has most often been employed in situations involving subcontracting and temporary-employment agencies. It has rarely been employed in franchising situations, although analogous principles are utilized by the NLRB where a claimant attempts to hold a parent company responsible for employment law violations committed by a subsidiary. The NLRB apparently intends to argue that franchisees "often function as little more than capital investors without meaningful control over their restaurants' business plans or the most essential terms and conditions of their workers' employment." One union, the Service Employees International Union, is reportedly investing some $15 million into the fast food campaign to unionize fast food workers. The union attempts to characterize its actions as an economic justice movement to provide livable wages comparable to the civil rights movement. The union further argues that the franchisor is a joint employer on the grounds that it orders its franchise owners to strictly follow its rules on food, cleanliness, and employment practices, as well as use menus, supplies, uniforms, and training materials supplied by the franchisor. There have been similar efforts by immigrant owners of franchised office cleaning companies to contend that they are actually employees of the franchisors, because the franchisors control every aspect of their jobs, from the uniforms and badges to wear to the clients they receive. A few class or collective actions are pending on wage-hour issues pertaining to such janitorial personnel, with the plaintiffs contending that they were never truly franchise owners at all, but rather employees.
The significance of these cases goes beyond the franchisor/franchisee relationship, as nationally, businesses are increasingly turning to contract workers. For example, staffing and other temporary employment companies employ an average of over 3 million contract workers a week. Further, these concepts could be extended to other subcontracting arrangements by contending that the employees of the subcontractors are actually jointly employed by the primary contractor. The NLRB and various plaintiff and civil rights groups want to attack the traditional concept that one business cannot be held liable for the employment-related claims of another, unless they have direct control over the employees in question. The construction industry may at some point be attacked since subcontracting practices are quite common there.
Various employer groups contend the attacks could interfere with efficiencies resulting from freedom of contracting. Further, a couple of recent legal rulings appear to favor employers on the issue. In Orozco v. Plackis, 757 F.3d 445 (7/3/14), the Fifth Circuit Court of Appeals ruled that a franchisor was entitled to judgment as a matter of law after a jury found that it was an "employer" under the wage-hour laws of the franchisee's employees. Similarly, the California Supreme Court ruled 4-3 in a recent state law claim against Domino's Pizza that the franchisor was not liable for the sexual harassment claims by employees of one of the chain's franchised locations. Patterson v. Domino's Pizza, LLC, No. S204543 (California Supreme Court, 8/28/14). In the latter case, the California Supreme Court stated that the decision was not intended to shield franchisors from liability under all circumstances: "A franchisor will be liable if it has retained or assumed the right of general control over the relevant day-to-day operations at its franchised locations. . . ."
As an essential part of its business model, over the years Federal Express (FedEx) has contracted with its drivers to deliver packages to its customers. The drivers must wear company uniforms, drive company-approved vehicles, and groom themselves according to the company's appearance standards. The company tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform work on those routes, they may do so only with the company's consent. FedEx has always considered its drivers to be independent contracts, and thus not subject to the labor and employment laws, including the Labor Act, the wage-hour laws, and the like.
Over the last 10 years, various lawsuits claiming employment status on the part of FedEx drivers have been filed in over 40 states. Many of the cases were consolidated in a single federal district court in Indiana, and the court there certified a class-action on the part of the drivers. Both sides moved for summary judgment seeking a judicial ruling for the status of the drivers as either employees or independent contractors, as a matter of law. FedEx was largely successful at the district court level, but on appeal, the Ninth Circuit Federal Court of Appeals found that the drivers were employees as a matter of law. Slayman v. FedEx Ground Package System, Inc., 23 W.H. Cases 2d. 301 (C.A. 9, 8/27/14)). The court reasoned that the drivers had employment status because of the "powerful evidence of FedEx's right to control its drivers," and that none of the other factors sufficiently favored FedEx to allow a holding of the plaintiffs as independent contractors.
In response to the ruling, FedEx officials stated that the business model at issue in the Slayman litigation was no longer in effect, and had been replaced by a business model in which FedEx only contracts with incorporated entities who directly employ the employees.
On August 8, the Office of Federal Contract Compliance Programs (OFCCP) proposed to amend its implementing regulations for Executive Order 11246, which sets forth the reporting obligations of federal contractors and subcontractors. The amendment would add a requirement that employers who file EEO-1 reports, have more than 100 employees, and a contract, subcontract, or purchase order amounting to $50,000.00 or more that covers a period of at least thirty (30) days, submit additional information in a new Equal Pay Report to OFCCP. The public may submit comments on the proposed regulations which must be received on or before November 6, 2014.
The gist of the proposed rule is that contractors filing EEO-1 reports would be required to provide aggregate EEO-1 classification annual earnings by category annually, based on annual W-2 reports. OFCCP would come up with some type of national, regional, or other breakdown by industry to develop "norms" for that industry based on these EEO-1 categories, so that both OFCCP and the contractors themselves could see how they stood in relation to the industry. The data would be analyzed separately by sex and the same racial categories used in EEO-1 reports. The idea would then be for OFCCP to encourage contractors to improve their demographic workforce as compared to the industry, and for OFCCP to use such data to select which contractors to be subject to a compliance review.
The proposal is rather vague as to how the OFCCP is going to aggregate and analyze the data received, and publish the industry-wide data. However, the overall concepts are more obvious, and the OFCCP has the argument that they are requiring the data in a format more likely readily available to contractors, which is annualized W-2 earnings broken down into EEO-1 categories.
There is something unstated anywhere in the proposed regulations that is very disturbing, but it must be very tactfully presented in making any public comments on the proposal. In civil litigation, plaintiffs routinely request copies of employers' EEO-1 reports. Once the equal pay proposal goes into effect, plaintiffs will obviously request the aggregate pay data from defendant employers that they have provided to the OFCCP. Plaintiffs will use such data to great assistance in bringing discrimination class actions against the employer. Further, special interest groups may bring litigation for the purpose of getting such data, and using it in political, civil rights or union organizing campaigns to "expose" the employer as one that practices discrimination and "cheats" the disadvantaged groups. It is not hard to imagine how such data could be used to disadvantage other industry employers.
There may be a way for activists to get such information without even suing the employer. That is, activists can request data from the OFCCP under the Freedom of Information Act (FOIA), and the proposed regulations are not as strong as they could be as to the ability of the OFCCP to protect such information from FOIA requests. Further, the OFCCP plans to publish the pay ranges by industry, labor market, or other groupings, and one should expect such industry pay data to show up on organizing campaign handouts by unions all across the country, at least in the case of industry employers paying less than those "norms." The proposals indicated that the submitter of the information may designate by appropriate markings any portion that it considers to be protected from disclosure under the FOIA, and the proposed regulations require OFCCP to notify the submitter on a case-by-case basis whenever an FOIA request is made for such information. The OFCCP claims it is "not aware" of any instance in which such compensation data has been disclosed without the consent of the submitter.
The above discussion about the information requests probably leads to a point in which the proposed regulations may be of special concern. That is, an argument can be made that competitors can use the data secured in information requests from the OFCCP to "raid" the workforces of their competitors. This would certainly be an argument for the industry to consider if it chooses to oppose the regulations.
Another possible but broader way to attack or address the proposed regulations is the context of the numerous additional requirements being placed upon government contractors. That is, in the course of less than six months, proposals have been made to require government contractors to do the following: (1) adopt a $10.10 per hour minimum wage for the employees of certain federal contractors; (2) disclose to federal agencies violations of 14 federal employment/labor laws to be considered in the bidding process; (3) implement new OFCCP rules on affirmative action for veterans and the disabled; (4) ban sexual orientation and gender identity discrimination of federal contractors; (5) prohibit federal contractors from maintaining pay secrecy policies; and (6) implement new proposed equal pay rules.
In the much publicized case involving Northwestern University football players, the NLRB regional director in Chicago ruled that college players that receive football scholarships to private colleges qualify as employees under the Labor Act because they receive compensation and are subject to the employer's control. Northwestern University, Case 13-RC-121359, 198 LRRM 1837 (3/26/14). The NLRB regional director discussed the time spent on college football, finding that players devote 50-60 hours per week on football-related activities during training camp and 40-50 hours per week during a season. He further found that the players are "under strict and exacting control by their employer throughout the entire year," and that they are essentially paid for their work by a scholarship that covers tuition, fees and room and board worth about $61,000.00 a year. While the ruling is only by an NLRB regional director, and not the NLRB itself, there is certainly a possibility the litigation could drag on for years, and that during the appeal the Board might allow an election among the Northwestern players to unionize. The players indicated they were particularly interested in more money, better protection against injury, the ability to transfer to other schools more easily, and compensation for commercial sponsorships. Other different but related issues are pending in various federal courts, including an anti-trust suit filed by Ed O'Bannon, the former basketball player at UCLA.
It is interesting to note that even the federal government does not recognize the regional director's ruling. In a recent private ruling, the Internal Revenue Service indicated that the NLRB decision does not make the players employees for tax purposes and trigger a tax bill on their athletic scholarships.
The real importance of the Northwestern ruling, as well as other developments covered in this newsletter, is that organized labor is trying to redefine the traditional employer/employee relationship to expand its potential membership.
An editorial in a recent Wall Street Journal edition makes an interesting point by raising the question of whether some of the new OFCCP government contracting rules can be applied to labor unions. President Obama's Executive Order signed on July 31 of this year requires federal contractors to disclose labor law violations for the past three years before federal contracts can be approved. Since many unions contract with the federal government as representatives of employees, and since unions as well as employers can be guilty of violating labor laws, it will interesting to see whether the Administration imposes the same reporting obligations on labor unions as it imposes on employers. The Wall Street Journal reports that during 2010, the latest year for which information is available, unions faced over 6,000 charges of violating different labor laws.