Restaurant franchisors’ fears of being held legally accountable for franchisees’ employment practices were calmed this morning by the U.S. Department of Labor’s decision to rescind a redefinition of the so-called “joint employer” standard.
The legal construct sets out when a franchisor or contractor is liable for the policies of a franchisee or subcontractor. The Obama Administration had in effect suggested the standard be reinterpreted to apply to more situations, raising fears that a restaurant brand’s owner would routinely be held accountable for the labor actions of franchisees.
That unofficial redefinition of “joint employer” was consistent with the more liberal interpretation adopted by the National Labor Relations Board in 2015. As a result of the change in the board’s thinking, restaurant workers brought legal actions against big chains like McDonald’s because of alleged labor misconduct by franchisees.
The franchise community erupted in pitched protest, saying the reinterpretation would bring a blizzard of lawsuits against deep-pocketed franchisors, who might stop licensing in response. Many franchisors cited the new standard as a fundamental threat to their business model.
Several legal actions are still before the NLRB, and the decisions in those instances could set legal precedence for a broadened definition of joint employer. But the decision by the DOL would likely be regarded as an indication of how the law underlying the joint-employer standard, the Fair Labor Standards Act, is meant to be interpreted and applied.
“We are pleased the DOL is taking first steps to undo this costly regulation created by the previous administration,” said Matt Haller, VP of public affairs for the International Franchise Association. “That being said, we urge Congress to now recognize the uncertainty and unreasonable costs the NLRB’s decision has placed on franchise owners and take action to find a true permanent solution.”
Similar praise was sounded within the restaurant industry.
“The National Restaurant Association applauds [Labor] Secretary [Alex] Acosta for withdrawing this internal guidance. This is a positive step in the right direction,” said Shannon Meade, director of labor and workforce policy for the industry watchdog. “However, we will continue to work with the Department of Labor as well as Congress on the previous administration’s controversial joint employer standard.”