As expected, the National Labor Relations Board (NLRB) has appealed the Eastern District of Texas’ decision striking down the expanded Joint Employer Rule. This is not good news, particularly given President Biden’s May 3 veto of a bipartisan resolution that would have killed the expanded rule (and limited the NLRB’s ability to make drastic rule changes in the future). However, the franchise-destroying expanded version of the rule is still not in effect, and the International Franchise Association continues to oppose it.
“The courts have made clear that the Joint Employer Rule exceeds the scope of the NLRB’s authority and should not stand,” said Michael Layman, IFA senior vice president of government affairs. “IFA will not stop fighting to protect franchises from the harm brought by the NLRB’s overreach so that franchising can continue to be one of the best opportunities for business ownership and job creation.”
Related: Are you considering owning a franchise? Start now to find your personalized franchise list that fits your lifestyle, interests and budget.
“Landmark victory”
In addition to the legislative pressure that led to the now-rejected bipartisan resolution, an IFA-led coalition that included 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 IFA’s favor in March and struck down the expanded rule, in what Matthew Haller, IFA president and CEO, called a “landmark victory for franchising.”
Related: NLRB’s New Joint Employer Rule Is So Extreme That Even California Rejected a State Version of the Franchise Killing Policy
NLRB appeal
The NLRB has now appealed the Eastern District of Texas’ decision. This means that while the expanded rule is not yet in effect, it will be reviewed again, this time by the 5th U.S. Circuit Court of Appeals. That court could reverse the Eastern District’s decision and reinstate the expanded rule or affirm the decision.
Meanwhile, in Washington, DC, the Service Employees International Union (SEIU) is also challenging the regulation in court on the grounds that it is too narrow. The same coalition from the Texas case, led by IFA, intervened in the DC lawsuit, and the court is currently considering a motion to dismiss.
Related: How the NLRB’s New Joint Employer Rule Will Impact Franchisees and Franchisors and Redefine Franchise Relationships
Protect your business
There are a few simple things franchisors can do today to protect their businesses and prepare for a revitalized, expanded Joint Employer Rule, according to Alex MacDonald, an attorney at labor relations firm Littler Mendelson. MacDonald spoke during the April 23 IFA webinar on “Joint Employers: Are Franchises in the Clear?”
First, MacDonald recommended thoroughly reviewing all contracts (with suppliers, franchisees, etc.) for indirect or reserved control specifications, such as:
- Direct training requirements
- Right to exclude employees
- Background Check Requirements
- Minimum Qualifications
- Specific staffing and coverage requirements
Entrepreneurs can counteract these risks by clearly transferring responsibility for as many key terms and conditions as possible to the employer.
Next, review your business agreements: emphasize brand standards over individual employee standards if you require service requirements in contracts or internal reports and inspections. Minimize your involvement in recruiting, time tracking, accounting, payroll policies, and other operations.
If a franchisor needs to inspect a location, MacDonald again recommended focusing on brand standards rather than the standards of individual employees. “You should pay attention to things like cleanliness,” he said. “Is the brand label in the right place? Is it made clear that it is a franchisee? Are the products in stock? Instead of focusing on how many employees are working at a desk and how those employees behave. Things like this can start. “It should look like oversight and not like protecting your brand standards.”
Additionally, reduce your reliance on non-essential vendors—particularly if they must be on-site—and train your supervisors on how to interact with vendors. Above all, MacDonald said: “Choose reliable partners. If you end up contracting with a provider that operates on the border, these rules increase the likelihood that you will be responsible for that provider’s misconduct or errors.”