Government action at the state and federal level supported by labor unions has made the past several months an urgent time for restaurant industry associations.
Those regulatory battles from the past year and those still to come were detailed to attendees at the Restaurant Finance & Development Conference by leadership from two groups. Moderated by Franchise Times Editor in Chief Laura Michaels, the discussion featured International Franchise Association CEO Matthew Haller and National Restaurant Association CEO Michelle Korsmo.
In his description of the situation, Haller named the Service Employees International Union as the main foe in recent government challenges.
“This is a multi-fronted war that we’re fighting against the SEIU, primarily, and organized labor,” Haller said. “They have dwindling market share, so this is happening now because they want that market share. They are trying to grow and they see market share in this room with each and every one of you, and your employees.”
The most pressing matter highlighted in the conversation was the new joint employer rule from the National Labor Relations Board. The new rule, announced in October, increases the likelihood of franchisors being held liable with their franchisees for labor law violations.
Under the new standard, taking effect December 26, franchisors don’t need to deal directly with their franchisee’s employees, yet are still responsible for an owner’s action if the brand provides directions on performance of duties. Such involvement is inherent in the franchise model, as franchisors commonly recommend how jobs are executed. The standard would also bring franchisors to the collective bargaining table.
The latest rule is a reverse of the standard put in place in 2020 during the Trump Administration, which had been opposed by the SEIU. In 2021, the SEIU filed a lawsuit challenging the board’s action.
With the latest ruling, it’s the industry associations taking legal action. On November 9, the NRA and IFA, with support from other groups, such as the U.S. Chamber of Commerce, filed a lawsuit against the NLRB over the recent rule.
“This is something people should pay attention to,” Korsmo said. “There’s a concern about the potential for unions to use this new regulation to try and unionize other brands. So, the NRA, through our Restaurant Law Center, along with partners, have filed a lawsuit.”
National Restaurant Association CEO Michelle Korsmo
“When you look at joint employment, it’s not good for anyone in this room,” Haller said. “No matter what side of the relationship you’re on, if you’re a franchisor, a franchisee, a supplier, this is not a good scenario. We need a multi-faceted, comprehensive campaign so that every member of Congress can hear about this issue.”
The congressional play is related to another effort happening on Capitol Hill to rescind the new rule. Both the NRA and IFA are backing a resolution from U.S. Senators Dr. Bill Cassidy, R-LA, and Joe Manchin, D-WV, which would utilize the Congressional Review Act. The CRA allows Congress to overturn an agency’s rule.
“Every piece of research I’ve done reads that the public and members of Congress don’t want to hear from us about how we think these issues impact you,” Haller said. “They want to hear from you, the operators, CEOs, franchisees and suppliers. That is my ask of you, play a role in standing up for the business you own or invest in.”
Haller said there is the possibility that President Joe Biden vetoes a CRA resolution from Congress. However, even if this happens, the action can still have some effect.
“The CRA has an important atmospheric consideration,” Haller said. “We’ve seen other instances where a CRA challenge has been sighted in federal courts, including the Supreme Court, as an example of Congress exercising its right to set policy, and not a federal agency. So, it can have a material impact in the environment for this joint employer issue.”
“It’s tempting to think that this is just an issue for the franchisor,” Korsmo said. “As franchisees, it seems like some liability is taken off your shoulders, and that seems great. But let’s talk about the reality of what happens. If you don’t have the liability, you don’t have the control. And, the cost of doing business will go up, so the franchisor will have to take out more from the franchise agreement to pay for that liability.”
A win in California
Both Haller and Korsmo were also asked about their California legislative fight that began in 2022. That year, the California legislature passed the Fast-Food Accountability and Standards Recovery, or FAST, Act. The law would have raised the minimum wage to $22 an hour and established a council with the authority to make decisions related to pay, benefits and working conditions.
In late 2022, the IFA and NRA pushed for the law to go to a referendum, allowing Californians the ability to vote on the matter in 2024. In response, the SEIU supported the funding of a dormant labor commission with similar authority to the council, and announced it would be seeking a joint liability standard at the state level.
The action brought industry and labor to the negotiating table and the result was new legislation with a minimum wage increase to $20 and a council with less authority. Additionally, the state agreed to not fund the Industrial Welfare Commission and the SEIU backed off joint liability.
IFA President and CEO Matt Haller
“This was very challenging, and I think we did the best we could,” Haller said. “I think people forget that it wasn’t going to $20 in 2023, it was going to $22. Additionally, the IWC would have had unlimited authority to do the same things that the FAST Act council could have done, including imposing joint employer liability on the franchise relationship. We negotiated the wage, joint employer liability and the future existence of this commission. We reduced the wage, eliminated joint employer and forever eliminated the ability for the commission to be created.”
While focus has now shifted to the national stage with the NLRB rule, Haller said it’s important to remain active at the state level, too.
“There are some potential copycat types of legislation around the country,” Haller said. “We need to get our message out, tell our story and build friends and allies in places where we need them. In places like Minnesota and California, where we know we need friends and allies, because we know these are places the SEIU has been targeting for actions like the FAST Act.”
“We’ll do the legwork, getting the right people on the right legislation, making sure the details are worked out and getting lawsuits filed in the right direction,” Korsmo said. “That’s the logistic work we’re going to do. The relationship work is going to have to come from the operators, so I can’t encourage you enough to get involved with your associations at the state and national level.”