The National Labor Relations Board has taken the first step toward setting specific criteria for determining when a restaurant chain or other franchisor can be held accountable for the employment policies and practices of a franchisee.
The agency said today in an official filing that it may issue new rules determining when franchisors and franchisees can be regarded as joint employers subject to the same legal and regulatory actions. The definition of joint employer has changed about three times since 2015 because of reinterpretations by the NLRB and federal court decisions.
A definition overly broad in the eyes of most restaurant franchisors currently prevails, the result of a preferred interpretation being recently overturned because of ethical rather than legal considerations.
The issue of whether franchisors and franchisees can regularly be regarded as joint employers is viewed as a life-and-death matter for the franchise community. Brand owners fear employees angered by the actions of a franchise employer will routinely also seek redress in the courts from deeper-pocketed franchisors. Licensees, meanwhile, worry they’ll lose the autonomy to hire and manage employees in accordance with local market conditions, a dynamic that’s been a foundation of the franchise model.
Crafting a set rule would lessen the chances of further whipsawing back and forth about whether franchisors are liable for franchisees’ actions. But the endeavor would also raise the possibility of the definition running contrary to the interests of employers. A broad definition of the term is favored by labor advocates, who would like to turn the mistakes or transgressions of a single local franchisee into a mark of disgrace for the whole brand. Organizing a national chain would be easier if public outrage were aimed at a McDonald’s or Carl’s Jr. rather than at a two-unit operator.
The restaurant industry has favored setting a standard in stone legislatively. A bill supporting a narrow joint employer definition has been passed by the House of Representatives, but has been stuck in the Senate.
“In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be,” NLRB Chairman John Ring said in announcing the possibility of setting new regulatory criteria. “I am committed to working with my colleagues to issue a proposed rule as soon as possible.”
Proponents of a legislative remedy argue that setting a once-and-for-all definition by statute would eliminate a reinterpretation with every change in control of the executive branch. Until 2015, the chances of restaurant franchisors and franchisees being viewed as joint employers was virtually nil. Then an NLRB reconstituted by President Obama greatly broadened the definition, saying the reinterpretation better fit the board’s mandate under the Great Depression-era National Labor Relations Act.
After President Trump took office, a revamped Board reversed itself again. Then, a few weeks later, a three-person subcommittee of the NLRB decided the reversal couldn’t stand because a fellow Board member could have been influenced by a conflict of interest.
The broad definition was in force again, though legal experts noted the gap between intention and the technical legalities.
“It’s a frickin’ nightmare,” Michael Lotito of the labor law firm Littler Mendelson told attendees of last month's Restaurant Leadership Conference.
“Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today,” said Ring. “The current uncertainty over the standard to be applied in determining joint-employer status under the Act undermines employers’ willingness to create jobs and expand business opportunities.”
"This uncertainty has led to needless and costly litigation, a reduction in the services franchisors provide franchisees as part of contractual agreements, and fewer new businesses and jobs being created by the franchise business model," commented Matt Haller, SVP of government relations and public affairs for the International Franchise Association. "Today’s announcement is an acknowledgement the Trump administration recognizes the importance of providing clear rules for employers on joint employer in the long term."
But, he added, the "IFA continues to primarily advocate for the Save Local Business Act in Congress as the best way to address the full scope of the joint employer uncertainty facing franchise businesses."
The next step for the NLRB would be publishing a proposed rule and inviting public comment. The rules would then be adjusted in response to the feedback and possibly reissued again. An act of Congress would not be needed to put the new standard into place.
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