Restaurant groups turn to litigation to block new joint employer standard

A coalition of trade groups intends to ask for an injunction blocking adoption before Dec. 26, when the redefinition is scheduled to take force.
The federal lawsuit comes as opponents of the new definition are also seeking relief via Congress. | Photo: Shutterstock

A coalition of business groups has filed a federal lawsuit to block the National Labor Relations Board from expanding the circumstances under which a franchisor can be regarded in legal or regulatory proceedings as a joint employer of franchisees’ staffs.

The plaintiffs, which include several restaurant groups, said they will ask the U.S. District Court for the Eastern District of Texas for an expedited judgment, aiming to halt adoption of a broader “joint employer” definition before it takes force on Dec. 26.

The action comes as opponents of the redefinition are also pushing the U.S. Congress to kill the weeks-old new joint employer standard. Measures have been introduced in the Senate and House of Representatives to have Congress invoke the Congressional Review Act, which allows the legislature to overturn regulations decreed by the executive branch.

Opponents of the broadened joint-employer standard say the new guideline will throw a potentially fatal chill into franchising by exposing franchisors to litigation or punitive actions for alleged employment lapses by franchisees. Rather than run that risk, the opponents say, chains will likely forgo franchising, or pair up only with licensees they know well and trust. Newcomers could be denied a chance to use the model to go into business for themselves with a well-known brand.

According to the new definition that the NLRB announced on Oct. 27, a franchisor can be regarded as a joint employer if it can influence the labor and management policies of franchisees, regardless of whether or not that power is exercised. What constitutes that latent power is vague, meaning the limits will likely be set through costly litigation, the critics allege.

The new standard succeeds the less-ambiguous joint-employer definition that was put forth by the Trump administration. Under that guideline, a franchisor was a joint employer only if it exercised the traditional powers of a boss, like hiring, firing, setting wages or scheduling.

The lawsuit filed today in Texas argues that the NLRB exceeded its statutory authority in setting such a broad definition of “joint employer.”

The plaintiffs also fault the board for failing to adequately factor feedback from the public into their re-definition, contrary to the legislation that governs rulemaking by federal agencies.

“The NLRB’s joint employer rule would have dire consequences on the franchise model and our economy as a whole,” Matt Haller, CEO of the International Franchise Association, said in a statement. “We are exercising all available measures to prevent this rule from taking effect and are proud to join this broad coalition of business leaders in defense of the interests of franchisors and franchisees alike.”

The IFA led the effort to thwart a broadening of the joint employer definition.

The coalition of plaintiffs also includes the Texas Restaurant Association, the National Restaurant Association’s Restaurant Law Center, the U.S. Chamber of Commerce, the American Hotel & Lodging Association, the National Retail Federation and NACS, a national trade group for convenience stores.

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