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The NLRB’s joint employer rule: How might a change affect franchisers?

On Behalf of | Jun 17, 2024 | Business And Corporate Law

In 2023, the National Labor Relations Board (NLRB) broadened the definition of joint employment. This change could have significant implications for the franchise industry, potentially holding franchisors liable for employees at franchises they do not directly employ or manage. The expanded rule has been challenged by several business groups, notably the International Franchise Association (IFA). Despite these challenges, President Biden’s recent veto of a bipartisan resolution under the Congressional Review Act has solidified the rule’s standing.

Potential impact on Tennessee franchisors and franchisees

The expanded joint employer rule presents a dilemma for franchisors. On one hand, franchisors might reduce their involvement to avoid liability, leaving franchisees without the support they need. Conversely, they might increase their control to ensure compliance, effectively transforming franchise owners into middle managers. This shift could undermine the independence that attracts entrepreneurs to the franchise model. Either result could significantly disrupt the usual franchisor-franchisee relationship.

Who benefits from the rule change?

Organized labor groups stand to gain from the expanded joint employer rule. By broadening the definition of joint employment, unions can streamline the process of organizing workers across multiple franchise locations. Instead of negotiating on a site-by-site basis, they can engage with the national franchisor, potentially covering numerous stores in a single bargaining agreement. This efficiency makes the broader joint employer standard a priority for labor organizations.

Strategies for franchisors

To mitigate risks, franchisors should scrutinize their level of control over franchisees. It’s essential to strike a balance between maintaining brand standards and avoiding day-to-day management that could classify them as joint employers. Reviewing agreements and practices can help ensure compliance with both the expanded and previous rules.

Keep up with legal developments

Navigating the complexities of the NLRB’s joint employer rule can be challenging for franchisors and franchisees alike. Consulting with a business attorney can provide valuable insights and help ensure that your business remains compliant while maintaining its operational integrity.