Reference to the CFA’s Advocacy Update from September 15, 2022

The International Franchise Association monitors joint-employer rules and lobbies strenuously against regulatory changes that expand the types of businesses that are covered by those rules. Recently the IFA has battled state and federal regulations – such as a National Labor Relations Board rule proposed Tuesday, Sept. 6 – that would make franchisors liable for actions by franchisees.

The IFA and its members, which include franchisees as well as franchisors, have been satisfied with a Trump-era rule set in April 2020 stating that a business is legally considered to be a joint employer if it has direct, immediate control over another business entity’s workers. “The IFA sees no reason to change the rule,” Michael Layman, IFA senior vice president for government relations and public affairs, told reporters Tuesday, Sept. 6, during a conference call.

Effects of Proposed NLRB Rule Change

But under the proposed rule change published earlier that day, two or more employers such as a franchisor and franchisee are considered joint employers if they “share or co-determine” rules and policies relating to terms and conditions of employment. As joint employers under this change, both business entities must bargain with unions representing jointly employed workers, and both are liable and punishable for unfair labor practices that either one commits. The rule change also dictates that both of the employers would be subject to union actions such as picketing if a labor disagreement erupts.

The NLRB proposal goes beyond the Trump era direct-control standard for joint employers, potentially adding two categories establishing franchisors as joint employers: 1) if the franchisor has indirect control of workers or 2) if the franchisor has what’s called “reserved control,” defined as a business entity that could potentially exercise authority, but may or may not opt to do so. Layman told reporters these new categories “set up an unpredictable framework for employers and small business to know what the rules are.”

In a nutshell, if the definition of joint employer expands under the new rule, franchisors would be on the hook for labor law infractions as though they are on-site managing the operation and allowing violations to manifest.

Next Step for the Rule Change

The NPRM (Notice of Proposed Rule Making) published Sept. 6 by the NLRB is a significant first step toward replacing the April 2020 rule set under the GOP. Next up is a public comment period as required by law. Comments are allowed through Nov. 7, 2022, and comments in response to initial comments have a Nov. 21 deadline.

“You have to go through all these hoops, so it takes a while,” Anne Lofaso, a former board lawyer and labor law professor at West Virginia University, told Bloomberg Law. “They can’t just immediately overturn it.”

IFA Advocacy

Staying true to its mission to protect franchising, IFA plans to bring 300 advocates to Capitol Hill later this month. In IFA’s statement about the proposed joint employer rule, the group plans to “ask lawmakers to consider the harm this expanded definition would bring to their businesses and those they serve.”