Outside Insights | February 2017 | By Guest Author

What a Trump Administration Means for Franchising

Now that Donald Trump has been elected, how much will his administration truly benefit business?
Inevitably, a significant number of laws and regulations enacted by the Obama administration will probably be overturned by the Board's new Republican majority. Thinkstock

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The election of Donald Trump as the next president of the United States certainly promises significant changes for the nation's businesses. Despite the fact that many of Trump's policies on labor and employment are still unclear, many laws and regulations promulgated during the Obama administration, including many rulings by the National Labor Relations Board (NLRB), may be challenged by the new Republican administration going forward in 2017 and beyond. Some of the more controversial rulings by the NLRB in Obama's last administration have involved issues related to joint-employers.

In August 2015, the NLRB ruled against Browning-Ferris Industries (BFI), finding that in a relationship between two companies, an "indirect relationship" was sufficient to make both companies joint employers. Thus, one entity may be liable for the acts or omissions of the other entity, i.e., a franchisor may be liable for the acts of a franchisee. This relationship includes companies that are franchisors and franchisees. The BFI ruling overturned law, which insulated franchisors from joint liability for 30 years.

In this much criticized and highly controversial decision, the NLRB significantly reduced the criteria for a company to be considered a joint employer, thus making it easier for a franchisor to be held accountable for the acts of a franchisee. Under the new test, a finding of joint employment only requires that a business exercise “indirect” control over workers, which may include the ability to potentially control workers. The NLRB's finding in the BFI case changes a joint employer test that focused on control, management, and decision-making, while excluding limited and routine oversight and supervision.

The significance of the ruling in the BFI case is that it affects a large number of business relationships in addition to franchisor/franchisee relationships, specifically any business enterprise that outsources any area of its business. All such relationships are currently subject to review under the new joint employer standard formulated by the BFI ruling.

Now that Donald Trump has been elected, how much will his administration truly benefit business? How will Trump shape the NLRB? Many Republican Congressmen, as well as business and management groups, including the Chamber of Commerce, have criticized the NLRB's ruling in the BFI case.

Two of the five positions on the National Labor Relations Board are currently vacant and another member's five-year term will expire at the end of 2017. It is safe to assume that Trump will fill the first two vacancies with pro-business Republicans. Inevitably, a significant number of laws and regulations enacted by the Obama administration will probably be overturned by the Board's new Republican majority, which may resolve the issue by enacting legislation that revises the definition of a joint employer.

The issue may be resolved by the courts as BFI's appeal of the NLRB decision is currently pending. In its appeal, BFI argues that the ruling's new joint employer standard is “hopelessly vague,” contradicts the standard definition of “employee” as defined by federal law, and destabilizes collective bargaining relationships. However, the matter is unlikely to be adjudicated by the D.C. Circuit Court of Appeals before the beginning of spring 2017.

Because of an increase in claims against franchisors for acts of their franchisees and other labor violations, franchisors must create a work environment where they do not primarily control personnel decisions, including how work is assigned and job duties are delegated. Business owners who are franchisors must be proactive and form effective policies that carefully shield them from joint employer liability, instead of relying on Congress, the NLRB, or the D.C. Circuit to resolve the issue related to the definition of a joint employer. 

The delicate balance here is that while franchisors generally seek to help their franchisees succeed by providing systems and guidelines in every other part of the business, they are now hamstrung in the most important part—people. Hopefully, the new Administration will see that franchisors need to be able to provide meaningful assistance to franchisees in this critical area, just like they always did before BFI.

Perry McGuire: Esq. at Smith, Gambrell & Russell, LLP. SGR is a full-service, international law firm that advises regional, national. and global businesses on a wide range of legal matters. The firm’s 200-plus attorneys provide legal counsel in more than 45 specialized practice areas, including corporate transactions, litigation, intellectual property, aviation, banking, construction and employment law. Founded in 1893, SGR has offices in Atlanta, Austin, Jacksonville, New York, Washington, D.C., London, and Munich.

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