March 14, 2024
The International Franchise Association and U.S. Chamber of Commerce Successfully Challenge Rule.
A federal judge on Friday struck down a National Labor Relations Board rule that would have classified many contract and franchise workers as company employees. The rule also would have required companies to engage in collective bargaining with unions that represent those workers. The International Franchise Association and the U.S. Chamber of Commerce were among the parties fighting the new rule, which had been scheduled to take effect on Monday, March 11.
The NLRB rules change has the potential for imposing sweeping changes on franchisors, who would have been considered in many cases to be employers of the people working for their franchisees. The IFA 2024 Economic Outlook report states that franchising supports more than 8.6 million direct jobs. Franchises also hire contract workers, also known as 1099 workers, who comprise a large and growing segment of the U.S. workforce. MBO Partners’ research found that 72.1 million Americans were full- or part-time contract workers in 2023, up from 64.6 million in 2022.
Details of Judge’s Decision
On Friday, U.S. District Judge J. Campbell Barker in the East Texas community of Tyler sided with the challengers of the “joint employer” rule, Reuters reported. They had contended the rule is overly broad and violates federal labor law.
In explaining his decision, Barker said the rule would treat some companies as the employers of contract or franchise workers even when those companies had no control over their working conditions. Reuters quoted from the judge’s written decision that the rule “would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly … essential terms and conditions of employment.”
Reaction from IFA President
IFA President and CEO Matthew Haller celebrated the decision in a post on LinkedIn. “Today’s court ruling is a landmark win for franchising,” he wrote. “The ruling preserves the franchise business model — the best vehicle for small-business formation on Main Street — by rejecting a flawed regulation enacted solely for the benefit of advancing the political goals of organized labor.”
In the same post, Haller also encouraged U.S. lawmakers to walk their talk. “Elected officials on both sides of the aisle talk a big game about standing up for small businesses, and now the U.S. Senate can act on those promises by putting the bipartisan CRA [Congressional Review Act] resolution on President Biden’s desk,” he stated.
Details of Joint Employer Rule
The rule would define companies as joint employers of contract and franchise workers when the companies control major aspects of working conditions, including wages, scheduling, supervision and discipline. The joint employer status would apply even when that control is only indirect and even when it is not exercised. In particular, franchisors are not typically involved in the day-to-day operations and labor practices of their franchisees, so the new rule flashed warning signs of expanded liability.
Trade groups such as the IFA, as well as many Republican lawmakers, claim the new rule would lead to confusion over employee classifications and would disrupt contract hiring. The Restaurant Law Center and Texas Restaurant Association were among the parties to the legal challenge, Nations Restaurant News reported in November. Others involved in the court pushback include the National Association of Convenience Stores, American Hospital Association, American Hotel & Lodging Association and National Retail Federation.
What the Rule’s Supporters Say
The NLRB and many unions assert that the rule is necessary for two reasons. First, they want to ensure that companies will be legally required to participate in collective bargaining. And second, they maintain that franchisors and other companies can and should be held accountable for violating labor laws affecting working conditions of certain contract or franchise workers.
The rule, which was issued during the Biden administration, would repeal one put in place during the Trump administration. It would restore a rule similar to one put in place when President Obama was in office.
By late Friday, the NLRB and U.S. Chamber of Commerce had not replied to Reuters’ requests for comment on the ruling by Barker. The NLRB is expected to appeal his decision to the 5th U.S. Circuit Court of Appeals in New Orleans.
