Federal labor regulators have dropped their 10-year effort to routinely hold franchisors responsible for the employment policies and practices of franchisees. Or at least for now.
The National Labor Relations Board (NLRB) revealed Friday that it would not appeal a federal court’s ruling that franchisor and franchisee should be regarded as joint employers only in the rare instances where the licensor has direct influence over how a licensee manages its staff. The lawsuit challenged the NLRB’s expansion of the joint-employer definition so it would apply in any situation where a franchisor could conceivably affect licensees’ human-resources policies, regardless of whether any influence was actually exercised.
Under that broadened standard, franchisors would have been subject to penalties or lawsuits stemming from licensees’ management actions if the brand parent so much as made recommendations on how many people to hire or what job each should do. The applicability of the joint-employer standard would have been near universal.
The court decision left unchallenged by the NLRB came in a lawsuit filed by a coalition of business groups, including the National Restaurant Association’s legal arm, the Restaurant Law Center; the Texas Restaurant Association; the International Franchise Association; and the U.S. Chamber of Commerce.
The plaintiffs had argued that the redefinition of “joint employer” put forward by the NLRB was too broad, and that the agency had not followed standard rule-making protocols before promulgating that definition. The suit noted that the NLRB had ignored public input and feedback on the new definition when it was still in proposal form.
U.S. District Judge J. Campbell Barker ruled in favor of the plaintiffs just one business day before the NLRB’s broader definition was scheduled to take effect.
An appeal of that ruling was widely expected from the NLRB. The federal agency said in a filing with Barker’s court on Friday that it wanted to further consider the judge’s decision on the new definition being too broad and hence was dropping the appeal.
“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, CEO of the International Franchise Association, said in a statement. IFA president and CEO.
However, the NLRB could still significantly broaden the definition of “joint employer” by proposing a standard slightly less sweeping than the one that was shot down.
“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,” Haller said.
The franchise community has been resisting a redefinition of the term since December 2014, when the NLRB announced a few days before Christmas that it was changing the standard. The move was seen as a way of pushing through a revision while the likely opponents were preoccupied by one of their busiest times of the year.
For a variety of technical reasons, the broad standard preferred by the NLRB has been repeatedly aired and then thwarted.
Earlier this year, opponents of the new definition found ready allies on Capitol Hill. The U.S. House of Representatives and the Senate both passed legislation that would block the NLRB from adopting the revision. But President Biden vetoed the bill, citing the impact on organized labor.
Unions have pushed hard for the broader joint-employer standard because the task of organizing large franchised chains would be greatly eased. Instead of having to organize the brand franchisee by franchisee, the labor groups could force collective bargaining across the whole system if the staff of a licensee opted to unionize. The franchisor would be forced to sit at the bargaining table since it was the respective franchisee’s employment partner.
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