Restaurants have won the battle against changing the joint employer rule.
The National Labor Relations Board withdrew its appeal of a March ruling in the Fifth District Court of Texas that struck down the federal agency’s wider scope of what a joint employer should be. If the rule had gone into effect, franchisors would’ve been more likely to be held liable for matters at the franchisee level, such as labor violations or union negotiations.
“This announcement means that the latest attempt to implement joint employer is finally finished and represents a landmark victory for franchise small businesses in communities across America,” Matt Haller, IFA president and CEO, said in a statement. “The franchise business model is the best vehicle for American workers to generate upward mobility and create small business ownership from all walks of life. Make no mistake: while today’s news means the current threat is behind us, IFA will remain vigilant against any attempts to target the franchise model or our members.”
The court, in rejecting the ruling, argued the changes were too broad and the rule would treat some companies as employers of franchise or contract workers when they don’t have meaningful control over work conditions. The judge also agreed that the NLRB didn’t adequately consider public input during the commentary phase of the rule-making process. The NLRB said in its withdrawal that it “would like the opportunity to further consider the issues identified in the district court’s opinion.”
In October, the NLRB ruled 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 joint-employer standard would’ve been implicated if an entity had 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, opening the path for franchisors to get roped into a variety of disputes at the franchisee level.
A few weeks later, the U.S. Chamber of Commerce, the International Franchise Association, the Restaurant Law Center, the Texas Restaurant Association, and several other groups sued the NLRB in federal court in the Eastern District of Texas to block the regulation. Additionally, the Senate and House of Representatives both voted to block the new joint employer rule. Biden later vetoed the effort, and Congress failed to override it.
“The Restaurant Law Center welcomes the dismissal of the NLRB’s appeal,” Angelo I. Amador, executive director of the Restaurant Law Center, a leading co-plaintiff in the legal challenge, said in a statement. “If the new Joint Employer rule had been allowed to stand, it would have imposed joint-and-several liability on virtually every entity that hires contractors subject to routine parameters or on any employer that collaborates with a third party of any kind in achieving common goals that have an incidental or indirect effect on the third party’s employees. In other words, it was an unmanageable standard. Nothing in the National Labor Relations Act or common law compelled such an approach.”
The new rule would’ve departed from the previous 2020 Trump-era rule, which requires actual, direct control over employment terms to establish joint employer status. This standard allows traditional franchise relationships and third-party service contracts without the risk of joint employer liability from merely reserving control rights. Historically, the joint employer standard has fluctuated. The 2015 Browning Ferris Industries decision under the Obama administration expanded joint employer status to include those with indirect or reserved control.
What happens next with the joint employer rule depends on political outcomes. The now Democratic-controlled Senate must vote on whether to nominate NLRB chair Lauren McFerran for another five-year term. If she is confirmed, the board would have a Democratic majority until August 2026, meaning the entity would likely do more in that time frame to go away from the 2020 rule.
