Franchise Community Urges Action on Joint Employer Rule | Franchise News

Last week’s decision on the joint employer rule by the National Labor Relations Board caused a groundswell of opposition throughout the franchise community.

Voices of opposition weren’t limited to those directly involved in franchising, either, as it also extended to the U.S. Congress. During a webinar Monday hosted by the International Franchise Association, U.S. Sen. Joe Manchin, D-WV, called the move by the NLRB a “vast overreach” that imposes “additional and unnecessary regulations that threaten our economy.”

In his comments, Manchin touted the importance of the franchise model, labeling it as a method to build generational wealth and provide access to capital, allowing Americans to overcome barriers to owning their own business. During the event, Manchin repeated his plan to take congressional action with Sen. Dr. Bill Cassidy, R-LA, to reject the rule.

In response to the NLRB releasing its decision last week, Manchin and Cassidy announced their intention to introduce a Congressional Review Act resolution to overturn the joint employer rule. The CRA allows Congress to introduce resolutions of disapproval, which can lead to legislation to overturn rules.

Announced October 26, the NLRB’s rule broadened the definition of joint employer status, increasing the likelihood of franchisors being held liable with their franchisees for labor law violations. The new rule, taking effect December 26, will also require franchisors to join franchisees in negotiating with unions.

Also joining Monday’s IFA meeting to slam the rule was John Ring, former NLRB chair and partner at Morgan Lewis.

“Rather than providing clear guidance, the rule declines to provide examples or any specific guidance, and without that clarity and predictability, it’s very difficult for all stakeholders to plan or know how to structure their business arrangements,” Ring said.

Also sharing concerns over clarity with the new rule was the Coalition of Franchisee Associations, which released its own statement on the new subject.

“The new standard set forth by the NLRB is far more encompassing, intrusive and unnecessary if its goal truly is to protect employees and allow small businesses to exist in their local communities independent of their franchisor,” the statement read. “The rule makes it much more likely that franchisees’ workers will eventually become the direct employees of its franchisor.

“The additional costs associated with compliance and implementation of this rule will, undoubtedly, harm the well-being, financial prospects and legal standing of all parties involved,” the CFA stated. “The CFA has many concerns regarding this new rule and seeks immediate clarification from the NLRB that definitively states what does, and does not, constitute, joint-employer liability within the inherently unique franchisor/franchisee relationship.”

Labor unions, meanwhile, urged Congress to halt efforts to nullify or weaken the NLRB’s action. In a joint statement, the Service Employees International Union, the AFL-CIO and the Teamsters said the rule “will ensure that workers have a real voice at the bargaining table when multiple companies control their working conditions.”

“The crux of this issue is simple – when workers seek to bargain collectively over their wages, hours and working condition, every entity with control over those issues must be at the bargaining table,” the unions stated. “The rule does not proclaim that all franchisors are now joint employers with their franchisees… The particular business model used by parties in any case is not determinative. Instead, the board looks at every case individually, and grants companies a full and fair opportunity to explain the underlying business relationship and dispute.”

Legal minds share expectations

Dan Rodriguez, an attorney at Fox Rothschild who focuses on labor-management relations, said union negotiations that result from the rule will cause a rift in the franchisor-franchisee relationship.

“If a franchisee gets organized, then it’s that franchisee’s responsibility that they’re not violating the National Labor Relations Act, and that they sit down and bargain in good faith with that union,” Rodriguez said. “After December 26, what’s going to happen is, if I’m a union organizer, I’m going to organize at that franchisee’s location and I’m going to pull the franchisor in, and say ‘you’re the one with deep pockets, and I want you to negotiate certain aspects of this collective bargaining agreement.’”

The conflict, Rodriguez said, will come from the franchisees needing to turn to the franchisor to provide benefits and wages that it can’t afford. The impact of the rule won’t be limited to collective bargaining, in Rodriguez’s view.

“I think that’s going to be a key thrust initially, but you know the Department of Labor is going to be looking at this rule and saying, ‘we need to apply that from a Fair Labor Standards Act context,’” Rodriguez said. “Or OSHA will want to say, ‘let’s look at it from a safety and health context. The U.S. Equal Employment Opportunity Commission is going to be looking at this rule and saying, ‘we should be looking at this from a discrimination and harassment context as well.’”

Jeffrey Goldstein of Goldstein Law Firm weighed in on the subject as well, and also pointed toward unions endorsing the rule to have better access to franchisors.

“This is an attempt by labor, that does relatively have more political power than it has in the past, to redistribute some of the funds and profits that come out of franchising,” Goldstein said. “The entity that has those funds is the franchisor, primarily, not the franchisee.”

 One path forward for franchisors, Goldstein said, is for brands to improve training and assistance to franchisees to limit impacts from the new rule.

“They can agree to be more liable, but give the assistance that should have been given,” Goldstein said. “In that way, costs are going to go up for the franchisor, and it’s indeterminant if the costs for the franchisees go up.

“It’s one area of the franchise relationship that, quite honestly, the franchisees didn’t do that well in over time, and it will finally get done,” said Goldstein. “If the franchisees had done a good job with all the labor relations, we might not be here today. I’m not saying franchisees did anything wrong, though. They’re already squeezed many times.”

The other option for franchisors, Goldstein said, is working with legal counsel to avoid liability by interpreting the rule’s language.