How NLRB Joint Employer Appeal Could Impact Your Business

As anticipated, the National Labor Relations Board (NLRB) has appealed the Eastern District of Texas’ ruling overturning the expanded Joint Employer Rule. Particularly in light of President Biden’s May 3 veto of a bipartisan resolution that would have killed the expanded rule (and curbed the NLRB’s ability to make future drastic rule changes), this isn’t good news. But the franchise-crushing expanded version of the rule is still not in place, and the International Franchise Association continues to oppose it.

“The courts made clear that the Joint Employer Rule exceeds the scope of the NLRB’s authority and should not stand,” says Michael Layman, IFA’s senior vice president of government affairs. “IFA will not stop fighting to protect franchised businesses from the harm the NLRB’s overreach will bring, so franchising can continue to be one of the greatest avenues for business ownership and job creation.”

Related: Considering franchise ownership? Get started now to find your personalized list of franchises that match your lifestyle, interests and budget.

‘Landmark win’

In addition to the legislative pressure leading to the now-vetoed bipartisan resolution, a coalition led by the IFA, including the U.S. Chamber of Commerce, filed a lawsuit in 2023 challenging the legality of the expanded rule in the Eastern District of Texas. A federal judge ruled in the IFA’s favor in March and struck down the expanded rule in what IFA President and CEO Matthew Haller called a “landmark win for franchising.”

Related: The NLRB’s New Joint Employer Rule is So Extreme That Even California Rejected a State-Level Version of the Franchise-Killing Policy

NLRB appeal

The NLRB has now appealed the Eastern District of Texas decision. This means that, although the expanded rule is still not in effect, it will get another look, this time by a the 5th U.S. Circuit Court of Appeals. That court could reverse the Eastern District’s decision and reinstate the expanded rule or confirm the decision.

Meanwhile, in Washington, D.C., the Service Employees International Union (SEIU) is also challenging the rule in court, arguing that it is too narrow. The same coalition from the Texas case, led by the IFA, intervened in the D.C. lawsuit, and the court is currently considering a motion to dismiss.

Related: How the NLRB’s New Joint-Employer Rule Will Affect Franchisees and Franchisors and Redefine Franchise Relations

Protect your business

According to Alex MacDonald, an attorney at labor relations firm Littler Mendelson, franchisors can do some simple things today to start protecting and preparing their businesses for a revived expanded Joint Employer Rule. MacDonald spoke during the IFA’s April 23 webinar, “Joint Employer: Are Franchise Companies In the Clear?”

First, MacDonald recommended thoroughly reviewing all contracts (with vendors, franchisees, etc.) for indirect or reserved control specifications, such as:

• Direct training requirements
• Right to exclude workers
• Background check requirements
• Minimum qualifications
• Specific staffing and coverage level requirements

Business owners can counter these risks by clearly assigning responsibility for as many essential terms and conditions as possible to the employer.

Next, scrutinize your business arrangements: Emphasize brand standards over individual worker standards when you do need service requirements in contracts or in-house reporting and inspections. Minimize your involvement in recruiting, timekeeping, record keeping, pay policies and other operations.

If a franchisor must inspect a site, MacDonald again recommended focusing on brand standards, not individual worker standards. “You want to be watching for things like cleanliness,” he said. “Is the brand label displayed in the right place? Are they clearly communicating that they are a franchisee? Are the products stocked? Rather than on how many employees are working at the desk and how those employees are acting. Those kinds of things can start to look like supervision as opposed to protecting your brand standards.”

Additionally, reduce your reliance on nonessential vendors — especially if they need to be on-site — and train your supervisors on how to interact with vendors. But most of all, MacDonald said, “Pick reliable partners. If you end up contracting with a vendor who is operating on the borderline, then these rules make it more likely that you could be responsible for that vendor’s misconduct or mistakes.”