IFA Pleased as Franchisors Stay Protected from Individual Franchisees’ Labor Disputes
The National Labor Relations Board abandoned its attempt to alter the joint employer rule, which would have made franchisors legally liable for labor infractions committed by franchisees. On July 19, the NLRB dropped its court appeal to keep the rule change.
The International Franchise Association (IFA) vigorously battled the NLRB’s regulatory change. Had the NLRB prevailed, it could have exerted a major impact on franchising, which employs more than 8 million Americans at approximately 800,000 franchise units nationwide, according to the IFA’s 2024 Economic Outlook report. Under that rule, unions could have organized a franchise’s full slate of employees more easily, and franchisors could have become embroiled in any franchise unit disputes over labor practices such as overtime eligibility and work schedules and conditions.
In a news release after the NLRB ended its appeal, IFA President and CEO Matt Haller said that the board’s about-face “represents a landmark victory” for franchising. “IFA will remain vigilant against any attempts to target the franchise model or our members,” he added.
Rule Overturned
Last October, the NLRB ruled that if franchisors and franchisees coordinate in determining “essential terms and conditions of employment” – even just one term or condition – they would be treated as joint employers, QSR Magazine reported. And the joint employer rule would apply even if they didn’t exercise control over employment and even if control is indirect. The new rule deviated from the Trump administration rule that required direct control over employment terms.
The proposed change led to intense IFA lobbying in Washington and was a back-and-forth tug of war that began in 2022 after the NLRB proposal dawned. Various business groups including the IFA sued the NLRB in a federal court in the Eastern District of Texas, and the judge struck down the NLRB rule revision in March of this year.
In his support of the business groups’ position, Judge J. Campbell Barker labeled the changes as overly broad and said they would hold parent companies responsible for the actions of franchise employees and contract workers even if the companies had little to no input on working conditions, according to QSR Magazine. Barker also stated that the NLRB hadn’t properly factored in public comment before approving the rule change, QSR said. The NLRB filed an appeal in May.
In the meantime, the IFA pushed lawmakers to overturn the rule change via the Congressional Review Act, and the Senate completed passage of a joint resolution doing so in April. President Biden vetoed the congressional repeal in May, resuscitating the rule, and Congress did not override the veto.
But Is It Over?
The change was at least temporarily scrapped last week when the NLRB withdrew its appeal of the judge’s ruling. In its filing, however, the NLRB said it would “like the opportunity to further consider the issues identified in the district court’s opinion” and that dismissal would “allow it to consider options for addressing the outstanding joint employer matters before it,” HR Dive pointed out.
What occurs next regarding the joint employer rule will hinge upon politics, the QSR article said. The Democratic-majority Senate could nominate NLRB Chair Lauren McFerran for an additional five-year term. If she is confirmed, the NLRB would operate with a Democratic majority among its five board members at least through August 2026, so further changes – or attempted changes – to the 2020 joint employer rule may yet happen.
Where Unions Stand
Labor unions had backed the expansion of the NLRB’s joint employer rule because they have had difficulty organizing employees of franchise businesses, according to a Competitive Enterprise Institute blog. At present, unions must organize workers one franchisee at a time, which is a time-consuming and difficult process. If the new rule had stood up, the blogger wrote, they would have been able to organize all of a franchisor’s workers simultaneously.
IFA Pledges Continued Opposition
In the news release, Haller implored the Senate to reject the nomination of McFerran, who had helped craft the expanded joint employer rule during the Biden administration. It essentially would have reinstated the Browning-Ferris standard set forth by a 2015 Obama-era NLRB, HRdive.com noted.
Haller also promised that the IFA would continue to battle: “We intend to work shoulder-to-shoulder with our bipartisan coalition of allies and champions in the House and Senate to prevent the NLRB from implementing the expanded joint employer rule by other means.”
