The so-called “joint-employer” ruling was overturned by a U.S. labor board Thursday. In a 3-2 decision, the Republican controlled National Labor Relations Board reversed the standard it set in a 2015 case involving Browning-Ferris Industries Inc. The Obama-era rule put employers potentially on the hook for labor law violations committed by their subcontractors. It made it easier for unions and workers to hold companies accountable for practices of contractors and franchisees.

Thursday’s decision reinstated a previous test that said companies are “joint employers” only when they exercise direct control over workers.

“We applaud today’s decision from the National Labor Relations Board. The 2015 Browning-Ferris ruling stacked the deck against small businesses and inserted uncertainty into day-to-day operations. Today’s decision restores years of established law and brings back clarity for restaurants and small businesses across the country,” Cicely Simpson, executive vice president, Public Affairs at the National Restaurant Association, said in a statement.

This decision will likely be celebrated throughout the restaurant industry, especially in the franchising community. The rule was seen by many as anti-franchise, given that the series of rulings held that franchisors might be the joint employers of their franchisees’ employees. A franchise is a trademark license that extends use of a brand while shifting costs of overhead such as labor to an independent contractor.

In the words of Perry McGuire, Esq. with Smith, Gambrell & Russell, LLP, “The idea that the employees of a franchise may also be the employees of the franchisor defeats the purpose and value of the franchise as a trademark license.”

The NLRB said in a statement following the ruling that in all future and pending cases two or more entities will be deemed joint employers under the National Labor Relations Act if there is proof that one entity has exercised direct and immediate control over essential employment terms of another’s entity’s employees.

Essentially, prior to the 2015 ruling in Browning-Ferris, companies were recognized as joint employers of workers hired by another business if they had “direct and immediate” control over working conditions.

In the Browning-Ferris decision, the NLRB changed that to say joint employment could also exist when companies have only “indirect or unexercised control” over workers.

This was convoluted and confusing in regards to franchising. Franchising or contract labor laws allow companies to avoid the costs of directly employing workers. Becoming a joint employer, however, could force the company to bargain with unions and be held liable for labor law violations by contractors, staffing agencies, or franchisees.

The board said Thursday that the former Democratic majority (President Donald Trump appointed two Republicans earlier in the year to give the party a 3-2 majority—its first in a decade) overstepped its authority by altering the legal definitions of employment. The board called the standard created by Browning-Ferris “a distortion of common law.”

This ruling could have a major impact on McDonald’s. The NLRB had filed complaints against the fast-food chain claiming it was the joint employer of franchise workers across the country. A trial began more than two years ago. Thursday’s change could squash much of the case.

Legal, Story