In a victory for franchisors, the National Labor Relations Board announced Tuesday a final rule clarifying “joint employer” status, which will limit a restaurant chain’s liability when it comes to federal labor law violations.

According to the NLRB, to be a joint employer under the rule, a business “must possess and exercise substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.” The rule adds specificity to what is considered “essential terms and conditions of employment” and what does and doesn’t constitute “direct and immediate control.”

The new rule overturns the 2015 Browning-Ferris decision in which the NLRB decided a franchisor only needed to exert indirect control or reserve the right to control to qualify as a joint employer, even if the control was never exercised.

“This final rule gives our joint-employer standard the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy,” said John F. Ring, NLRB chairman, in a statement. “With the completion of today’s rule, employers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective-bargaining relationship.”

The announcement comes a month after the Department of Labor updated its joint employer regulations. The guidelines includes a four-factor balancing test to determine if a franchisor is a joint employer: Hires or fires the employee; supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; determines the employee’s rate and method of payment; or maintains the employee’s employment records.

In December, McDonald’s—the highest-earning fast-food chain in the world—won an appeals case in which the NLRB ruled the brand was not considered a joint employer and therefore should not be subjected to penalties for labor violations alongside its franchisees.

Mark Kisicki, an attorney with Ogletree Deakins in Phoenix who represented Browning-Ferris Industries, said that in 2015, the NLRB overturned 30 years of precedent and replaced it with a concept rather than a clear standard, leaving the business community without any reasonable guidance about how to structure their operations and contracts. 

“Uncertainty adversely affects every business, but it disproportionately affects small businesses and franchisees by adding yet another layer of legal complexity and expense to their entrepreneurial efforts,” Kisicki said in an email to QSR magazine. “Yet, small franchise operations and small businesses lead the country in job creation and in providing the greatest opportunity for employees to become business owners themselves. … The final rule does much more than erase the uncertainty it caused in BFI: it provides both greater clarity and stability. By articulating its joint employer standard in a clear and well-crafted federal regulation, the board has resolved many of the ambiguities that existed.”

The National Restaurant Association applauded the NLRB’s ruling.

“Today the National Labor Relations Board enacted vital and long-overdue regulations to provide clarity and certainty for thousands of small- and family-owned businesses, especially restaurants,” said Shannon Meade, vice president of public policy, in an email to QSR. “For five years, these independent businesses, many of which are single-unit franchises, have faced serious threats of regulatory non-compliance and legal action that have restricted capital investment and stifled growth and job creation.”

“By overturning the controversial and convoluted Browning-Ferris decision, the National Labor Relations Board has enacted a clear, actionable, and predictable approach to joint employment based on a thorough and transparent rule-making process,” she added.

The rule will be effective April 27.

Fast Food, Franchising, Legal, Story