Why Your Employer May Not Be Too Small For A Discrimination Claim

Many employees are frustrated to hear that most discrimination and other employment laws don't cover small employers. For Title VII, which covers race, sex, national origin, sexual orientation (at least EEOC thinks it does), color, pregnancy, and religion, and the Americans With Disabilities Act, employers must have at least 15 employees to be covered. For the Age Discrimination in Employment Act, they must have at least 20. For COBRA, it's also 20. Family and Medical Leave Act requires 50 employees with in 75 miles of your work location.

State laws vary, but here in Florida our discrimination law, the Florida Civil Rights Act (which also covers age) covers employers with 15 employees, but some county ordinances like Miami-Dade and Broward cover employers with 5. In California it's five, Texas 15, New York 4. Here's a list of the discrimination laws by state.

But don't despair if your employer is too small to be covered under these laws. The National Labor Relations Board just issued a decision regarding a case against Browning-Ferris Industries that may help. Although NLRB doesn't rule on discrimination cases, this decision was about whether you can count the parent company if you work for a franchise. And this is important, because you may work for, say, a KFC, but your real employer is ABC Company, the tiny company that bought the franchise to your location. So your corporate employer may only have 10 employees. Part of the reason franchises are so popular is that it's a way to escape those pesky employment laws.

But maybe not for long. NLRB said that the parent company may well be liable for the misdeeds of the franchise owner. The test is simple (but complicated, as in all things legal), namely, does the parent company share or co-determine the terms or conditions of your employment? Here's how they explained it:

The Board’s joint-employer doctrine is best understood as always having incorporated the common-law concept of control—as the Supreme Court’s one decision involving the doctrine confirms. In the Greyhound case, as we have seen, the Court framed the issue presented as whether one statutory employer “possessed sufficient control over the work of the employees to qualify as a joint employer with” another statutory employer.64 Thus, the Board properly considers the existence, extent, and object of the putative joint employer’s control, in the context of examining the factors relevant to determining the existence of an employment relationship.

There's actually nothing new in this. That's always been the standard. What is new, and is causing much consternation in management-side circles, is that now NLRB will also consider whether the parent has the ability to control your terms and conditions of employment, even if it doesn't:

Under common-law principles, the right to control is probative of an employment relationship—whether or not that right is exercised. Sections 2(2) and 220(1) of the Restatement (Second) of Agency make this plain, in referring to a master as someone who “controls or has the right to control” another and to a servant as “subject to the [employer’s] control or right to control” (emphasis added). In setting forth the test for distinguishing between employees and independent contractors, Restatement (Second) Section 220(2), considers (among other factors) the “extent of control which, by the agreement, the master may exercise over the details of the work” (emphasis added). The Board’s joint-employer decisions requiring the exercise of control impermissibly ignore this principle.  

Nothing about the joint-employer context suggests that the principle should not apply in cases like this one. Indeed, the Supreme Court’s decision in Greyhound, supra, was entirely consistent with the Restatement (Second) when it described the issue as whether one firm “possessed [not exercised] sufficient control over the work of the employees to qualify as a joint employer.” Where a user employer reserves a contractual right (emphasis added) to set a specific term or condition of employment for a supplier employer’s workers, it retains the ultimate authority to ensure that the term in question is administered in accordance with its preferences. Even where it appears that the user, in practice, has ceded administration of a term to the supplier, the user can still compel the supplier to conform to its expectations. In such a case, a supplier’s apparently independent control over hiring, discipline, and work direction is actually exercised subject to the user’s control. If the supplier does not exercise its discretion in conformance with the user’s requirements, the user may at any time exercise its contractual right and intervene. Where a user has reserved authority, we assume that it has rationally chosen to do so, in its own interest. There is no unfairness, then, in holding that legal consequences may follow from this choice.

Causing additional woe-is-me complaints among management-side lawyers is that the control exercised doesn't need to be direct or immediate. Indirect control is enough.

Just as the common law does not require that control must be exercised in order to establish an employment relationship, neither does it require that control (when it is exercised) must be exercised directly and immediately, and not in a limited and routine manner (as the Board’s current joint-employer standard demands). Comment d (“Control or right to control”) to Section 220(1) of the Restatement (Second) observes that “the control or right to control needed to establish the relation of master and servant may be very attenuated.”  The common law, indeed, recognizes that control may be indirect. For example, the Restatement of Agency (Second) §220, comment l (“Control of the premises”) observes that [i]f the work is done upon the premises of the employer with his machinery by workmen who agree to obey general rules for the regulation of the conduct of employees, the inference is strong that such workmen are the servants of the owner... and illustrates this principle by citing the example of a coal mine owner employing miners who, in turn, supply their own helpers. Both the miners and their helpers are servants of the mine owner. As the illustration demonstrates, the common law’s “subservant” doctrine addresses situations in which one employer’s control is or may be exercised indirectly, where a second employer directly controls the employee.

There are very few franchise parent companies that don't control things like uniforms, time recordkeeping, the specifics of how the work is done (e.g., just how many fries are in a small order, and how long it should take to serve each customer), the equipment used, and even the training. I suspect few parent companies will not be found to be joint employers under this standard. While this case doesn't apply to discrimination and other employment laws outside the National Labor Relations Act, the reasoning is based on common law, which does apply to all these laws. And it will probably be persuasive to other agencies and possibly the courts.

Bottom line: If you work for a franchise, the parent company may be a joint employer, which means you can also count their employees when pursuing discrimination and other employment law claims, and you may have a deep pocket to reach to when suing for violations of these laws. And that's how it should be. The parent companies of franchises have taken a not-me hands off approach to the misdeeds of their franchises all too long. If they are making money off the backs of these employees, they should be responsible for making sure they are treated legally.