April 30, 2026|Franchise Frontlines
April 30, 2026 | National Labor Relations Board | Published Decision
Executive Summary
In an important published decision that franchisors, staffing clients, and other brand or platform systems should note, a unanimous three-member panel of the National Labor Relations Board reversed a Regional Director’s finding that PeaceHealth was a joint employer of hospitalists employed by South Sound Inpatient Physicians, PLLC. Applying the Board’s Rules and Regulations, specifically 29 C.F.R. § 103.40, the Board held that the union failed to prove that PeaceHealth exercised “substantial direct and immediate control” over hiring, supervision, wages, or benefits. The Union of American Physicians and Dentists argued that PeaceHealth jointly employed the hospitalists because it participated in interviews, imposed credentialing and facility requirements, influenced wage timing through its contracts with Sound, and required malpractice insurance. Sound and PeaceHealth disputed joint-employer status, arguing that PeaceHealth acted as a hospital client setting ordinary service, credentialing, and contract requirements, not as an employer. The Board agreed with Sound and PeaceHealth, rejected the Regional Director’s contrary analysis, and remanded the case for further appropriate action.
Relevant Background
Sound provides hospitalist services to acute-care hospital clients, including two PeaceHealth hospitals in Washington: United General Hospital in Sedro Woolley and St. Joseph’s Medical Center in Bellingham. Sound provides those services through separate client contracts with each hospital. The Union of American Physicians and Dentists sought to represent medical professionals employed by Sound and staffed to the PeaceHealth hospitals. The petitioned-for unit included approximately 29 full-time, regular part-time, and per diem hospitalists working at the two facilities.
The UAPD filed a representation petition and asserted that Sound and PeaceHealth were joint employers of the hospitalists. Sound and PeaceHealth disputed that assertion. Following a hearing, the Regional Director concluded that PeaceHealth was a joint employer because, in the Regional Director’s view, PeaceHealth exercised substantial direct and immediate control over hiring, supervision, wages, and benefits. An election followed, and a majority of employees selected the UAPD as their collective-bargaining representative.
Sound and PeaceHealth requested Board review, which a three-member panel consisting of Chairman James R. Murphy and Members David M. Prouty and Scott A. Mayer conducted. While the matter was pending, the Board addressed which joint-employer regulation governed the case. The Board applied Section 103.40 as the operative standard, explaining that the 2023 final rule that would have dramatically altered the joint-employer standard never took effect and that the Board had restored the prior regulatory text. The Board therefore evaluated the case under the restored 2020 regulatory framework rather than the broader 2023 rule. Member Prouty noted that he applied Section 103.40 as existing law, although he did not agree that it stated the proper standard.
Decision
The Board recognized that under Section 103.40, joint-employer status exists “only if the two employers share or codetermine the employees’ essential terms and conditions of employment.” To establish that a putative joint employer shares or codetermines those terms, the party asserting joint-employer status must show that the putative joint employer “possess[es] and exercise[s] such substantial direct and immediate control” over one or more essential terms and conditions of employment that the entity meaningfully affects the employment relationship.
The Board emphasized that indirect control, contractually reserved but unexercised authority, and control over non-essential terms may carry probative value only if they “supplement and reinforce” evidence of direct and immediate control over a particular essential term. The Board also noted that joint-employer status must turn on “the totality of the relevant facts in each particular employment setting.” The essential terms and conditions identified in the regulation include wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
In evaluating those terms and conditions, the Board first held that PeaceHealth’s involvement in the hiring process was minimal at best and rejected the Regional Director’s conclusion that PeaceHealth exercised direct and immediate control over hiring. The Board held that participating in interviews and requiring credentialing, whether because of regulatory standards or as minimum qualification requirements imposed by PeaceHealth, did not establish joint-employer status, particularly where the record did not show that PeaceHealth actually determined who Sound hired.
The Board likewise rejected the Regional Director’s supervision analysis. PeaceHealth’s requirements for charting, training, committee participation, and patient volume reflected routine worksite and service expectations, not substantial control over how the hospitalists performed their work. The Board emphasized that Sound onsite personnel supervised the hospitalists’ day-to-day activities and that supervisory control under Section 103.40 turns on the ability to direct how employees perform their work and whether the putative joint employer conducts performance evaluations.
The wage analysis may have the greatest practical significance for franchisors and other commercial contracting systems. The Regional Director had relied on evidence that Sound delayed wage increases until new contracts with PeaceHealth were executed, told hospitalists that raises depended on PeaceHealth’s approval of new contracts, and referenced that PeaceHealth quality payments funded hospitalist bonuses. The Board held that this evidence did not establish direct and immediate control over wages. Instead, it reflected the ordinary economic influence inherent in commercial contracting. While service contracts may affect what a business can afford to pay its employees, the Board emphasized that such influence does not mean that the contracting party actually determines wages, salaries, or other rates of pay. The Board therefore found that PeaceHealth did not control the hospitalists’ wages.
The Board reached the same conclusion for benefits. Although the Regional Director found that PeaceHealth controlled benefits by determining the level of malpractice insurance coverage, the Board found the record more limited. In the Board’s determination, the record showed only that PeaceHealth required the hospitalists to have malpractice insurance. PeaceHealth did not select the plan or carrier, and it did not dictate coverage levels. Instead, the hospitalists’ individual employment agreements left the amount of coverage to Sound, subject only to minimum facility requirements. The Board therefore held that PeaceHealth did not actually control the hospitalists’ benefits.
Taken together, the Board found the evidence too limited to establish that PeaceHealth exercised substantial direct and immediate control over any essential term or condition of employment. The Board reversed the Regional Director’s joint-employer finding and remanded the case for further appropriate action.
Looking Forward
This decision should remind franchisors, staffing clients, employers, and other brand or platform systems that not every form of contractual influence amounts to joint-employer control. The Board did not treat client requirements, credentialing expectations, quality metrics, or commercial payment terms as enough, by themselves, to establish a joint-employer relationship. Instead, it focused on whether PeaceHealth actually exercised substantial direct and immediate control over essential employment terms.
That distinction matters in franchise systems. Franchisors often impose brand standards, require training, monitor quality, establish customer-facing protocols, and structure economic terms that affect the franchisee’s business. Plaintiffs, unions, and agencies may try to recast those features as evidence of employment control. The South Sound decision provides a useful framework for resisting that move where the franchisor does not actually determine who the franchisee hires, what the franchisee pays, what benefits the franchisee provides, or how the franchisee supervises employees’ day-to-day work.
The hiring analysis is particularly useful. The Board distinguished participation in interviews and credentialing-related requirements from actual hiring authority. In the franchise context, franchisors may have legitimate reasons to require minimum qualifications, certifications, background standards, licensing compliance, or brand-related eligibility criteria. This decision supports the position that minimum standards do not necessarily become direct hiring control unless the franchisor actually decides which particular workers a franchisee hires or rejects. Franchisors should still draft and implement those standards carefully so that quality assurance and compliance screening do not shift into individualized employment decision-making.
The supervision analysis also reinforces an important line between brand compliance and employment supervision. PeaceHealth’s charting, training, committee, and patient-volume requirements did not establish joint-employer status because the Board did not view them as instructions on how the hospitalists performed their work. For franchisors, the analogous lesson is that System standards should focus on brand outcomes, customer experience, legal compliance, and product or service uniformity. Conversely, the more a franchisor directs the daily methods, sequencing, evaluation, discipline, or coaching of franchisee employees, the easier it becomes for a plaintiff, union, or agency to argue that the franchisor has converted brand protection into employment supervision.
The wage discussion may be the most important part of the decision for commercial contracting. The Board recognized that the financial terms of a business-to-business contract may affect what one company can pay its employees as a matter of economic reality. But economic influence is not the same as actual wage-setting authority. That principle has obvious relevance to royalty structures, advertising fees, pricing models, incentive programs, vendor rebates, quality bonuses, and other economic features of franchise and licensing systems. Those structures may affect franchisee economics. They do not necessarily mean the franchisor determines employee wage rates. Franchisors should preserve that distinction in both contract language and operational practice.
The benefits analysis points in the same direction. A requirement that personnel maintain legally or operationally necessary coverage, credentials, or qualifications differs from selecting the benefits that another employer provides. Franchise systems should take care not to choose benefit plans, dictate benefit levels, or involve themselves in individualized benefit administration for franchisee employees. Compliance requirements should remain tied to legal, safety, insurance, or brand-protection needs rather than franchisee employment administration.
This decision should not be read as a universal safe harbor. It arose in a healthcare services setting, not a franchise dispute, and the Board applied the current regulatory standard against a contested regulatory backdrop. The Board also emphasized that joint-employer status depends on the totality of the facts in the particular employment setting. A different record, especially one showing actual authority over hiring, discipline, wage rates, schedules, or performance appraisals, could produce a different result.
The practical takeaway is narrower and stronger: ordinary commercial contracting, standing alone, should not be conflated with employment control. Franchisors, staffing clients, and other contracting parties can strengthen that position by aligning their agreements, training, field operations, compliance audits, and communications with the actual division of responsibility in the business. As a system-design matter, franchisees should remain responsible for hiring, paying, scheduling, supervising, disciplining, and evaluating their own employees. Franchisors should protect the brand, maintain System standards, and support compliance without assuming direct control over local employment decisions.
For franchisors facing joint-employer allegations, South Sound provides a useful roadmap. The most effective defense may come from breaking the alleged control into specific essential terms and asking the same questions the Board asked here: Who actually hires? Who actually supervises day-to-day work? Who actually determines wages? Who actually selects benefits? When the record shows that the local operator or service provider makes those decisions, brand standards and commercial constraints may remain what they are supposed to be—tools of quality control and contract performance, not evidence of joint employment.
This article is based solely on the opinion of the Board in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Board’s decision in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group, and Christopher Mason is a Labor and Employment Law Partner at Buchalter LLP. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com or Chris at cmason@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
