NLRB narrows franchisors' liability with new joint employer standard

The redefinition narrows the circumstances under which a restaurant brand's owner can be held accountable for a franchisee's possible violation of union protection laws.
department of labor
Photograph: Shutterstock

In a development certain to be welcomed by restaurant chains, the National Labor Relations Board (NLRB) has aired the guideline it will adopt later this year for determining when franchisors can be held accountable for franchisees’ infractions of federal union protections.

The new definition of “joint employer” replaces the broader standard set by the NLRB during the Obama administration. Restaurant franchisors had feared the more liberal definition would leave them liable for the errors of franchisees, a risk many said would prompt them to reconsider franchising altogether. Franchisees, meanwhile, voiced concerns that franchisors would meddle in their recruitment and retention efforts, functions that have historically been left to the local operators because of their familiarity with a given market’s labor pool.

Franchising advocacy groups such as the International Franchise Association blasted the broad guideline as a lethal threat to the franchising model.

Under the new standard, franchisor and franchisee will be considered joint employers “only if the two share or codetermine the employees’ essential terms and conditions of employment,” the NLRB said.

Those essential terms and conditions “are exclusively defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction,” the regulatory body continued.

Shannon Meade, VP of public policy for the National Restaurant Association, described the new standard as "a clear, actionable, and predictable approach to joint employment based on a thorough and transparent rule-making process.”

“Today the National Labor Relations Board enacted vital and long-overdue regulations to provide clarity and certainty for thousands of small- and family-owned businesses, especially restaurants," Meade said in a statement.  “For five years, these independent businesses, many of which are single-unit franchises, have faced serious threats of regulatory non-compliance and legal action that have restricted capital investment and stifled growth and job creation."

Union advocates had a much different take on the redefinition.

“The new NLRB joint employer rule is just the latest example of the Trump Administration doing McDonald’s bidding," Jennifer Berry, a McDonald's worker said in a statement issued by the Fight for $15 and Union, an advocacy group backed by the Service Employees International Union. “But workers like me know who our boss is: McDonald’s. We wear the company’s uniform, serve its Big Macs and fries and help make its billions in profits possible."

McDonald's was cited as a joint employer of several franchisees' workers in various legal actions that were taken in recent years. A judge recently upheld a ruling that the quick-service giant did not qualify as a joint employer in a trial stemming from the franchisees' handling of employees during a national walk-out called by the Fight for $15 and Union.

The U.S. Department of Labor (DOL) has already redefined the joint employer standard that applies in federal court cases. Under the rule it revealed in January, a franchisor can be held accountable in an employee-related action brought against a franchisee only if it has an active role in hiring or firing the local operator’s employees; determines their schedules or otherwise controls workplace activities to a substantial degree; sets wages; or maintains employment records.

Industry groups had pushed for the narrower standards set by the NLRB and DOL. But the advocates have warned that both bodies could change their definitions again if a new president is voted into the White House and the administration changes its viewpoint again.

They’ve called for eliminating that possibility and sparing the franchise community any further uncertainty by defining joint employer via legislation.

The NLRB’s new standard will take effect 60 days after the rule is published in the Federal Register.

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