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Arizona Changes Franchise Law To Limit “Joint Employer” Liability

Posted by Robert Fischer | Apr 20, 2017 | 0 Comments

Arizona just enacted a new law H.B. 2322 (to be codified as A.R.S. § 23-1604) that will protect franchisors from joint employer liability. The Arizona legislature passed this new law in response to the National Labor Relations Board‘s (NLRB) August 2015 decision that shockingly discarded the NLRB's thirty-year standard for determining joint employer liability. See Browning-Ferris Indus. of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015).

 Here is a quick recap of this legal issue: in 1984, the NLRB determined that joint employer status existed where “two separate entities share or codetermine those matters governing the essential terms and conditions of employment” and a joint employer must “meaningfully affect matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.” Tli, Inc., 271 NLRB 798 (1984). That ruling remained the law of the land until the NLRB's astonishing August 2015 decision. Before that 2015 ruling, courts routinely absolved franchisors of liability as a joint employer.

The NLRB's August 2015 adopted a new two-part test for joint employer liability.  That new test examined: 1) whether a common-law employment relationship exists; and 2) whether the potential joint employer “possesses sufficient control over employees' essential terms and conditions of employment to permit meaningful bargaining.” Browning-Ferris, supra. Under this new amorphous test, franchisors and others suddenly became liable as joint employers because the definition of control was expanded ostensibly so that the joint employer standard could “keep pace with changes in the workplace and economic circumstances”. Id. In the process, the NLRB overturned thirty years of precedent and a clear, well-defined standard, and created more questions than answers (e.g., under the August 2015 NRLB decision, it is unclear if a franchisor can be liable for any unfair labor practices of a franchisee). 

Although the long-term viability of the August 2015 NRLB decision remains in doubt (there is a pending appeal and the new administration may appoint new Board members to overturn the August 2015 decision), many states have refused to wait for the federal wheels of justice to run its course. Instead, Arizona, like many of its sister states have enacted legislation to protect franchisors. Arizona's new law will become effective ninety (90) days after the end of the current, legislative session.  That law says a franchisor is not an employer or co-employer of either a franchisee or an employee of the franchisee for purposes of Title 23 (“Labor”) of the Arizona Revised Statutes, unless the franchisor agrees, in writing, to assume that role. The new law also provides that, for purposes of state labor law, the owner of a mark is not an employer or co-employer of either the licensee or an employee of the licensee, unless the owner of the mark agrees (in writing) to assume the role of employer or co-employer of the licensee or the employee of the licensee. The net effect could be a showdown between state and federal law as to whether the NLRB decision preempts the new Arizona law.  Until then, however, a franchisor has renewed arguments and “life” to avoid liability as a joint employer. 

Please contact Tim Medcoff or Ali Farhang with any questions related to this topic or any other labor and employment issue. 

About the Author

Robert Fischer

Robert is an associate attorney in the litigation department. He has taken more...

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