A coalition of restaurant advocates is suing the National Labor Relations Board over a new joint employer rule that would make it easier for franchisors to be held liable for legal violations at the franchisee level.

According to the new rule, a franchisor and franchisee may be considered joint employers if they both have an employment relationship with workers and they share or codetermine “essential terms and conditions of employment.” This could be 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.

A franchisor may be considered a joint employer if it has the authority to control at least one of these essential terms and conditions. It wouldn’t matter if the control is exercised or not or if the control is direct or indirect. All of these parameters widen the possibility of a franchisor being called a joint employer.

The updated rule will take effect on December 26. Only cases occurring after this date will be affected.

The lawsuit described the new rule as “overbroad” and stated that it “threatens billions of dollars in liability and costs.” It also claimed that the law rejects a limiting principle of the National Labor Relations Act, which is that a joint employer must “possess sufficient control over workers’ essential terms and conditions of employment to permit meaningful collective bargaining.”

Additionally, the coalition argued that the rule replaces a clear 2020 standard and that it “threatens chaos and indeterminacy in national labor relations across major industry sectors.” The court document is referring to a narrower Trump era joint employer rule that required a higher standard of “substantial direct and immediate control” over essential terms and conditions of employment.

The legal move wants the court to declare the rule unlawful and prevent the NLRB from enforcing it.

“The NLRB’s joint employer rule would have dire consequences on the franchise model and our economy as a whole,” Matt Haller, president and CEO of the International Franchise Association, said in a statement. “We are exercising all available measures to prevent this rule from taking effect and are proud to join this broad coalition of business leaders in defense of the interests of franchisors and franchisees alike.” 

After the joint employer was expanded in 2015 under the Obama administration, the IFA conducted a study that found franchises lost $33.3 billion each year, 376,000 jobs were lost, and lawsuits increased by 93 percent. The group also cited research from Oxford Economics that showed 70 percent of franchisees expect increased litigation and costs due to the NLRB rule, while 66 percent believe the new standard will raise barriers to entry into the franchising sector. 

Angelo I. Amador, the Restaurant Law Center’s executive director, said the NLRB issued the joint employer standard “arbitrarily and capriciously” after codifying the 2020 version.

“The new Joint Employer Standard is already raising a plethora of legal questions across the restaurant industry,” Amador said in a statement. “While the National Restaurant Association attempts to educate operators on the vague, confusing, and sometimes contradictory new standards, the Restaurant Law Center will fight to restore the workable joint employer standard that has existed for nearly 30 years based on the direct and immediate control of employees.”

The lawsuit features the International Franchise Association, U.S. Chamber of Commerce, American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, Coalition for a Democratic Workplace, Longview Chamber of Commerce, National Retail Federation, National Association of Convenience Stores, Restaurant Law Center, Texas Association of Business, and Texas Restaurant Association.