The National Labor Relations Board issued a new joint employer rule that creates a lower bar for franchisors to share liability with contracted third parties or franchisees when it comes to workers’ rights violations and other issues.
The law establishes that entities, like a franchisor and operator, may be considered joint employers if each side has an employment relationship with workers and if they share or codetermine “essential terms and conditions of employment.”
The rule casts a wide net on these essential terms, making it easier for a franchisor to qualify as a joint employer. They are defined as wage, benefits, and other compensation; hours of work and scheduling; the assignment of duties to be performed; the supervision of the performance of duties; work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; the tenure of employment, including hiring and discharge; and working conditions related to the safety and health of employees.
According to the NLRB, the joint-employer standard is implicated if an entity has the authority to control at least one of these essential terms or conditions. This is considered whether or not such control is actually exercised and whether or not the control is direct or indirect. All of these factors make it easier for a franchisor to be considered a joint employer.
“The Board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA,” chairman Lauren McFerran said in a statement. “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”
The mandate rejects a narrower 2020 Trump era joint employer rule that required a higher standard of “substantial direct and immediate control” over essential terms and conditions of employment.
The updated rule will take effect on December 26. Only cases occurring after this date will be affected.
The National Restaurant Association and Restaurant Law Center said in a news release that they “strongly oppose” the new definition of joint employer.
Sean Kennedy, executive vice president for public affairs, called it a “heavy blow to small business restaurant operators.” He noted that almost one-third of the industry uses a franchisee-franchisor relationship and nearly all restaurants contract with third parties for work like laundry or delivery. There’s concern around operators scrambling to figure out whether they have joint liability and decreased franchisee independence as franchisors would have to be more involved in decision-making since they’d shoulder more liability.
The rule also paves the way for more potential union activity among employees of franchised locations since franchisors could have additional legal burden.
“This new definition of Joint Employer will create chaos and legal questions across the restaurant industry,” Kennedy said in a statement. “The National Restaurant Association and the Restaurant Law Center will work to help franchisors and franchisees understand their responsibilities while we fight to restore a workable joint employer standard based on the direct and immediate control of their employees.”
The International Franchise Association cited the same worries, stating “This attack on the franchise model would shut the door of opportunity to thousands of would-be entrepreneurs.” The organization said there’s bipartisan support against the joint employer rule and urged Congress to act.
“Today’s final joint employer rule solidifies that this NLRB is fundamentally hostile to Main Street business owners,” Michael Layman, IFA senior vice president for government relations and public affairs, said in a statement. “This overreaching and unworkable joint employment policy is designed to change the rules in the middle of the game for hundreds of thousands of franchise owners and turn them into middle managers in their own businesses. What’s worse, we have seen this misguided policy before and it resulted in hundreds of thousands in lost job opportunities, billions in increased costs for franchised business, and a doubling of lawsuits.”
The ruling is a return to the expanded standard that was in place from 2015 to 2017. According to the IFA, the change cost franchise businesses $33 billion per year in operational costs and led to 376,000 lost job opportunities and a 93 percent increase in lawsuits.
The NLRB’s rule was first proposed in September 2022 and the public comment period ran through December 7. The Board received 13,000-plus comments, including some from the IFA and the Association.