McDonald’s Labor Case May Have Environmental Law Implications

Labor rulings have in the past served as precedent for eroding traditional corporate law doctrines and expanding liability of corporations. For example, the doctrine known as either Continuity of Enterprise or Substantial Continuity was used in the 1990s to impose successor liability for environmental contamination originated with a line of labor law cases dating back to the early 1970s (see, e.g.,  William J. Burns International Detective Agency, Inc. v. NLRB, 441 F.2d 911 (2nd Cir. 1971) where a security firm outbid the existing firm providing security services and was required to honor the collective bargaining agreement entered into by the prior firm after hiring most of the former firm’s employees).

Indeed, those of us who were practicing environmental law in the 1980s can recall how the larger corporate law firms initially viewed environmental law as a niche area that was primarily the domain of “tree huggers and critter lovers”-as one cynical corporate once told me. The corporate firms were confident that well-entrenched doctrines of corporate law would shield their clients from significant environmental liability. After the Substantial Continuity test was used override state corporate law and  impose environmental liability on purchasers  of corporate assets, the “white shoe” law firms suddenly  realized they needed environmental lawyers to protect their institutional clients and started scrambling to hire environmental lawyers.

We have taken this path down memory land because of labor ruling earlier this week that may profoundly change corporate relationships. This past Tuesday, the National Relations Labor Board (NRLB) Office of General Counsel issued a decision finding that franchisor McDonalds USA could be liable as a “joint employer” of its approximately 13,000 franchised restaurants in the United States for alleged workplace violations. The employees had asserted that McDonald’s was a “joint employer” with the franchise restaurants  on the grounds that McDonalds required its franchisees to strictly follow its rules on food, cleanliness and employment practices and that McDonald’s often owned the restaurants that franchisees use.

The ruling will now be heard by the five-member NRLB. If the NRLB upholds decision is affirmed and the ruling survives appellate review, it could impact large swaths of the national economy including manufacturers, real estate management firms, hotels, health care, automotive services, and cleaning companies that use temp agencies or subcontractors. It could also possibly impact the environmental consulting firms that heavily relying on independent contractors (“1099s”) to perform phase 1 reports since those individuals might be deemed to be employees that are entitled to benefits.

It should be noted that in the early 1980s, the NLRB ruled that a company could be considered a “joint employer” where two or more employers exerted “significant control” over the same employees. After that ruling was affirmed by an appeals court, though, the NLRB adopted a narrower standard, holding that a company could only be deemed to be a “joint employer” when it directly controlled, for instance, a franchisee’s or a temp agency’s employment practices. The McDonald’s decision suggests that the NLRB may be returning the earlier “significant control” standard.

What are the implications for environmental law? Well, since the inception of state and federal underground storage tank (UST) programs, purchasers of former gas stations and residents with homes impacted by leaking gas station USTs have sought to impose operator liability on Big Oil franchisors because of the control allegedly exercised over their franchisees. The indicia of control frequently asserted by these plaintiffs included that franchisors required the station operators to maintain the premises in a certain manner, keep specific minimum hours and purchase minimum amounts of their products.   Except for a couple of outlier cases where courts found the fuel distributors or “jobbers” essentially acted as agents of the franchisors, these cases have been unsuccessful. The allegations in the McDonald’s case focused on the level of control exerted by the franchisor. It is not a big step from arguing that a company that is liable as a “joint employer” because of the control is exercised over its franchise operations should be liable as an “operator” under state or federal environmental laws.

Likewise, plaintiffs have pursued dry cleaner franchisors and equipment manufacturers under “operator” and arranger” theories. The plaintiffs have asserted that because the manufacturers/franchisors had control over the design of the dry cleaning machines including installing the equipment, chose the locations of the floor drains, physically connecting the discharge piping to the building, inspected the connections to ensure that the waste water was disposed into the sewer system and provided instructions  recommending that the dry cleaners be connected to the sewer system, the manufacturers/franchisors  amounted to either control or actual involvement in decisions about disposal of waste (for example compare Berg v. Popham, 412 F.3d 1122 (9th Cir. 2005) and Vine Street LLC v. Keeling, 361 F. Supp. 2d 600 (E.D. Tex. 2005) with California Department of Toxic Substances Control v. Payless Cleaners, 368 F. Supp. 2d 1069 (E.D. Cal. 2005), Team Enters., LLC v. W. Inv. Real Estate Trust, 2010 U.S. Dist. LEXIS 79912 (9th Cir. 09/09/2010)). One could envision the reasoning in the McDonald’s case being extended to the dry cleaner franchisor/equipment manufacturer cases at least on the “operator” theory of liability.  

The McDonald’s case may not be the first joint employer case to reach the federal appellate courts, though. The NLRB is currently reviewing a request by the Teamsters union to declare Browning-Ferris, Inc (BFI) as a joint employer along with the staffing agency it uses to supply workers at a recycling plant in California because of how closely BFI directs the use of the staffing agency’s workers. 

It is true that following the US Supreme Court decision in United States v. Bestfoods, 524 U.S. 51, 141 L. Ed. 2d 43, 118 S. Ct. 1876 (1998) where the Court ruled that CERCLA did not replace settled rules of state corporation law that several federal appellate courts over the past decade have ruled that the Substantial Continuity test was only applicable to labor law and should not be used to extend liability under CERCLA ( see New York v. Nat’l Servs. Indus., 352 F.3d 682 (2nd Cir. 2005) ruling that the fact that the substantial continuity test is well-established in the context of federal labor law does not indicate that it is extendable to other areas of federal common law, it was  not a part of general federal common law and should not be used to determine whether a corporation takes on CERCLA liability) .  Thus, it is possible that federal courts may decline to apply the reasoning of the “joint employer” cases to CERCLA operator liability. However, the doctrine may be a useful tool for  creative lawyers who will likely be presenting their cases before federal judges appointed over the last eight years-at least on the district court level-  and therefore be more receptive to these arguments.