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NLRB redefines the ‘joint-employer’ standard, setting the stage for increased franchisor liability

The National Labor Relations Board has paved the way for franchisors to be held responsible for the employment practices of franchisees, ruling that a party doesn't have to actively supervise a staff to be regarded as a "joint employer."

The long-awaited landmark ruling was immediately assailed as a dire threat to restaurant franchising, even though the ruling had nothing to do with either the restaurant or franchise industries.

“The NLRB today satisfied the politically-motivated requests of organized labor and manufactured a new joint employer standard that small businesses have long been bracing for,” International Franchise Association CEO Steve Caldeira said in a statement. “In doing so, the Board ignored decades of judicial precedent and bipartisan policy agreement dating back to the Johnson Administration to invent new labor law.”

However, the decision will likely have implications on the case the NLRB is litigating against McDonald’s and several of its franchisees to determine whether large franchisors can be defined as “joint employers” of franchisees’ staffs.

Last week, the NLRB blocked McDonald’s challenge of a preliminary ruling that stated a franchisor should be viewed as a joint employer. 
To redefine large franchisors as joint employers would challenge longstanding protocols of restaurant franchising, as franchisees are generally responsible for employee recruitment, training, wages and working conditions, as well as a number of daily activities central to maintaining their staffs.

Deeming franchisors joint employers would hold parent corporations legally accountable for those employees, making them more vulnerable to lawsuits and a slew of other regulatory actions enacted on workers’ behalf. 

“While we continue to review the NLRB’s ruling, it appears that once again the Board is stacking the deck against small businesses,” said Angelo Amador, senior vice president of labor and workforce policy and regulatory counsel for the National Restaurant Association, in a statement. “The NLRB is already using its new rationale to dismantle the franchisor-franchisee model, which would stifle entrepreneurship and obstruct small businesses’ ability to continue to create jobs in an increasingly challenging economic and regulatory environment.” 

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