From JDSupra, Richard Reibstein discusses the new joint employer rule issued by the National Labor Relations Board (NLRB) and recommends that franchisors and clients do not include provisions in franchise agreements and staffing contracts that give them the right to control franchisees and service providers. Richard writes:
The highly controversial joint employer regulation just issued by the National Labor Relations Board (NLRB) on October 26 is not so different than the standard that has historically been applied in determining whether a group of workers are employees or independent contractors under many state and federal laws. Indeed, a legitimate criticism of the NLRB’s joint employer rule is that it improperly relies upon one of the most important factors used by the courts to determine independent contractor status: reservation of the “right to control” the manner and means by which the agreed upon services are performed, “regardless of whether control is exercised.” 29 C.F.R. 103.40(e)(1).
Franchise agreements as well as service and staffing contracts have been drafted by lawyers for decades and they typically include dozens and sometimes hundreds of provisions that needlessly reserve control over an endless array of matters. Some of those matters may arguably implicate “essential terms and conditions of employment” of the employees of franchisees or service providers – precisely what the NLRB’s joint employer rule focuses upon. 29 C.F.R. 103.40(b). Undoing those types of provisions and replacing them with clauses that avoid the type of reserved control that is now in the crosshairs of the NLRB’s joint employer rule is not an easy task but can be accomplished.
Lawyers have been trained in law school and on the job to draft agreements reserving control for their clients, especially when the client has greater bargaining leverage in a transaction or is drafting an agreement for another party to sign on a take-it-or-leave-it basis. It’s difficult for lawyers to disregard decades of on-the-job training and their everyday practice skills because it goes against everything they have learned and have gotten pretty good at doing. It has taken over a decade for us to learn how to effectively “unlawyer” and draft independent contractor agreements without needless reserved control over matters that plaintiffs’ counsel and administrative agencies use to support their arguments that a group of workers are employees, even those who are, in day-to-day practice, legitimate independent contractors.
Most if not all franchisors, staffing companies, and service recipients don’t need or want to actually exercise control over employees of their franchisees. They just want to be sure their franchised operations are operated in a manner that promotes brand excellence. Similarly, most if not all staffing companies and service recipients have little interest in actually controlling essential terms and conditions of workers who are providing labor or services. The key is “unlawyering” these franchise, staffing, and service agreements, the same way independent contractor agreements should be reworked to avoid needless types of reserved control. This can be done by using effective and creative drafting, without the use of artifices and tricks. Notably, some companies’ efforts to negate their right to control certain aspects of a service provider’s work, even drafted by lawyers representing large companies, have been roundly criticized by federal and state appellate courts as little more than “obfuscation.”
Rather than hoping the NLRB’s new joint employer rule is stricken down or disregarded by the courts, franchisors as well as staffing companies and service recipients should consider the alternative: “unlawyering” many provisions of their agreements to minimize or avoid entirely any joint employer exposure.