Ohio House Passes Bill Clarifying State Law on Joint-Employer Standard for Franchisees

Yesterday, the Ohio House of Representatives passed House Bill 494 which would further clarify that the employees of a franchisee will not be considered employees of a franchisor for the purposes of Ohio Minimum Fair Wage Standards, Workers’ Compensation, Unemployment Compensation, or Income Tax laws. The legislation passed 69-24 with bipartisan support and will now move over to the Senate for further consideration.

HB 494 was introduced, in part, due to the National Labor Relations Board (NLRB) decision in Browning-Ferris Industries, 362 NLRB No. 186 (2015), which upended 30 years of precedent and established an unworkable joint-employer standard that could have a devastating impact on the franchise business model. In Browning-Ferris the 2015 NLRB ruled that employers could be deemed joint employers simply by reserving control or exerting indirect control over the same workers. This eliminated the previously long-standing requirement that an employer actually exercise control rather than simply having a contractual right to do so. The board in the case also threw out the precedent that an employer must exercise direct, immediate, and not limited and routine control over an employee ruling that indirect control, such as through an intermediary, was sufficient to establish joint employment.

Thus, under the Browning-Ferris decision, simply having a contractual right to control could create joint-employment between two separate businesses. This is especially problematic for businesses utilizing the franchise model because both parties to the relationship could be deemed joint employers for purposes of unionization, collective bargaining, and defense of unfair labor practice allegations. If this interpretation is adopted in other areas, such as those state laws clarified by HB 494, it could threaten the autonomy of franchisees to act as independent business owners. Further, franchisors could face unfettered liability for the HR and other decisions of franchisees even when they do not exercise control over daily operations or employment decisions.

While state law cannot overturn the NLRB decision—steps to achieve that are progressing at the federal level—HB 494 will prevent state agencies and regulators from extending the Browning-Ferris­ joint-employer standard when interpreting state laws here in Ohio. The legislation clarifies that the employees of a franchisee will not be considered the employees of a franchisor unless the franchisor expressly assumes that role in writing. HB 494 simply codifies what the parties to franchise agreements always knew the law to be and improves Ohio’s legal climate by bringing stability and predictability to this area of the law.