Adoption of a new joint-employer definition is delayed

A federal judge has pushed back the day the controversial rule change takes effect by two weeks. He also indicated that he intends to rule soon on whether the new standard should be scrapped.
The reprieve could run for just two weeks. | Photo: Shutterstock

A controversial move to make restaurant franchisors accountable for the labor missteps of their franchisees has been put on hold at least temporarily by the judge deliberating on a final legal challenge of the regulatory change.

Franchisors were scheduled to have the responsibility foisted on them Monday, Feb. 26, when a new definition of the legal and federal regulatory term “joint employer” was set to take effect. U.S. District Court Judge J. Campbell Barker has pushed back the adoption date to March 11.

In announcing the delay, the judge indicated he will rule soon on whether the re-definition should be scrapped altogether. Its legality has been challenged in a lawsuit filed by a group that includes the Texas Restaurant Association, the International Franchise Association and the Restaurant Law Center, the litigation arm of the National Restaurant Association.

The suit alleges that the new joint-employer definition, as set by the National Labor Relations Board, directly contradicts longstanding labor law and gives organized labor an undue and unfair advantage in its efforts to organize employers.

The new definition would require that a franchisor be regarded as a joint employer of a franchisee’s staff if it could theoretically influence key aspects of the licensee’s labor policies, such as who should do what inside of a franchised restaurant. As a joint employer of franchisees’ staffs, the franchisor could be sued or sanctioned by regulators for licensees’ violations of labor regulations.

Organized labor would also have a much easier time of unionizing a whole franchised chain under the new definition. Organizing one franchisee would in effect force the franchisor to bargain collectively with the union, since that licensor is technically also the employer of the licensee’s staff. No longer would a union have to organize a system franchisee by franchisee, a challenge widely seen as a reason no major franchised chain has been unionized. (About 360 units of Starbucks have been organized, but those stores are company-operated rather than franchised.)

The new definition of joint employer would replace a far more narrow guideline. Currently, a franchisor is categorized as a joint employer of its franchisees’ staffs if it has a direct and profound influence on the licensees’ employment practices, such as setting wages or hours, or recruiting and dismissing workers as it sees fit.

The franchise community has blasted the new definition as an existential threat to the franchising model, though cooler heads contend that may be an overstatement. But a change in the guideline would likely subject franchisors to more litigation, which could prompt chains to award franchises solely to a select group of operators who’ve proven they rigidly follow employment regulations.

Attempts to redefine “joint employer” have been underway since 2015.

“While the temporary reprieve is a positive development for small businesses, Congress still needs to kill joint employer once and for all by passing a Congressional Review Act (CRA) resolution to overturn the rule,” Michael Layman, the International Franchise Association’s SVP of government relations and public affairs, said in a statement.

A CRA resolution—essentially a Congressional veto of rules issued by federal regulatory agencies—was passed by the House of Representatives. Passage in the Senate is viewed as possible, though not certain.

President Biden has said he’ll veto the resolution if it is indeed passed by Congress.

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