The Texas Labor Code has been amended to provide that afranchisor is not considered an employer for claims related toemployment discrimination, wage payment, the Texas Minimum WageAct, and the Texas Workers’ Compensation Act, among other laws.According to S.B. 652, the franchisor will not be consideredan employer unless the franchisor has been found by a state courtof competent jurisdiction to have exercised a type or degree ofcontrol over its franchisee or its franchisee’s employees notcustomarily exercised by a franchisor for the purpose of protectingthe franchisor’s trademarks and brand. The amendment goes intoeffect on September 1, 2015.

The bill was introduced by state Senator Charles Schwertner,reportedly because of franchisors’ concerns that recent NationalLabor Relations Board (NLRB) actions targeted franchisors forfranchisees’ labor law violations. The NLRB’s general counsel hasissued unfair labor practice complaints asserting that certainfranchisors are “joint employers” with their franchisees whoallegedly have violated employees’ rights. This has openedfranchisors to lawsuits for the actions of franchisees, criticsassert. Current NLRB decisions treat two companies as jointemployers only if both exercise a significant degree of directcontrol over the same employees. Direct control requires thatputative joint employers have control over the terms and conditionsof employment of the subject employees. This includes hiring andfiring, setting work hours, determining compensation and benefits,and exercising day-to-day supervision.

Responsibility for employment decisions iskey

Senator Schwertner commented that the NLRB actions “called thecommon understanding of a franchisor-franchisee relationship intoquestion….” That common understanding is that a franchisee isresponsible for all employment decisions regarding employees of thefranchisee, and the franchisor has no interaction with or authorityover the franchisee’s employees.

Despite the new law’s protection for franchisors in Texas, it isuncertain how the exception—in this case, the type of controlexerted by a franchisor that is not customarily exercised toprotect a franchisor’s trademark and brand—will be interpreted.Although the NLRB general counsel’s actions may have been thecatalyst for the new Texas law, because of the strong pre-emptivereach of the National Labor Relations Act, it is unlikely that thelaw will affect NLRB decision-making about joint employment.

Many believe the Board’s analysis of the issue is likely tochange in the not-too-distant future. In a brief filed with theBoard in connection with Browning-Ferris Industries[Case 32-RC-109684], the NLRB’s general counsel hasurged the board to abandon the current “direct control”joint-employer standard and replace it with a “totality of thecircumstances” test—one based on whether an alleged joint-employerexercises either direct or indirect control over thesubject employees who work for another employer, and even toconsider whether the alleged joint-employer has “unexercisedpotential to control working conditions” of those employees.

[Related: Calling the WC ‘Option’]

© 2015 Jackson Lewis P.C. Reprinted with permission.Originally published at www.jacksonlewis.com. JacksonLewis P.C. is a national workplace law firm with officesnationwide, including Puerto Rico.