The standard for determining when restaurant franchisors and franchisees can be treated as joint employers is officially up for redefinition again.
The U.S. Department of Labor announced its intentions on Thursday to drop the four-question test adopted by the Trump administration a year ago to determine when franchisors can be held co-responsible for the employment practices of their franchisees. DOL did not suggest a replacement standard.
The development was met with confusion and exasperation from the franchise community and its main trade group, the International Franchise Association (IFA).
“It’s bewildering that the Biden administration seems intent on simultaneously helping and hurting small businesses,” Matt Haller, SVP of government relations and public affairs for the IFA, said in statement. “While IFA appreciates the administration’s work promoting small business survival through the American Rescue Plan, this new proposed rule seems intent on undoing the good that was done.”
A hard and fast definition of “joint employer” is critical to franchisors because of the potential influence it bears on the volume and scope of litigation both parties could face. Civil and criminal actions could be brought against the partners for alleged illegal employment actions by franchisees.
Franchisors have voiced fears that they’ll routinely be dragged into lawsuits because of their deep pockets. The IFA argues that franchisees could face more lawsuits themselves from plaintiffs drawn to the prospect of bigger payoffs.
Franchisors and their trade groups have warned that an expanded joint-employer definition would prompt chains to reconsider the use of franchising altogether.
Yet a definition of joint employer has proven elusive since the National Labor Relations Board (NLRB) attempted to expand the concept’s applicability in late 2014. It raised the possibility of treating franchisors and franchisees as joint employers in a landmark case filed against McDonald’s USA and several of its franchisees by employees of the franchised operations, with help from a major labor union.
Since then, the legal concept has been re-interpreted and molded by a slew of court cases and regulatory rulemaking. The Trump administration attempted to end the ambiguity with the standard it put forward last January and adopted on March 16, 2020. That interpretation of the joint employer standard essentially held franchisors to be co-bosses if they exert direct control over a staff in such ways as setting schedules, determining pay and hiring and firing.
The Trump standard was weakened last September in a federal case brought by the attorneys general of 18 states against Eugene Scalia, then the U.S. secretary of labor. It alleged that the standard should be scuttled because DOL did not follow standard rule-making procedures in hammering out the redefinition. The judge agreed.
The franchising and restaurant industries have tried to halt the flip-flopping on a joint-employer definition by pursuing legislation that would set one standard as law. But Congress has refused to push through a bill.