Just two weeks after the National Labor Relations Board announced the new version of the joint employer rule — a controversial decision that would make franchisors liable for employees of their franchisees — the first lawsuits have been filed to try and stop the new rule from going into effect. On Thursday, the Restaurant Law Center and the Texas Restaurant Association announced that they have joined several organizations led by the U.S. Chamber of Commerce in filing a lawsuit against the NLRB to have the new standard rescinded.
“The NLRB issued this new joint employer standard arbitrarily and capriciously just three years after codifying the 2020 standard,” Angelo I. Amador, executive director of the Restaurant Law Center said in a statement. “The new joint employer standard is already raising a plethora of legal questions across the restaurant industry. While the National Restaurant Association attempts to educate operators on the vague, confusing, and sometimes contradictory new standards, the Restaurant Law Center will fight to restore the workable joint employer standard.”
Although the Restaurant Law Center states that the joint employer rule has been in place for 30 years “based on the direct and immediate control of employees” before this new rule upended three decades of precedent there have been several changes to the joint employer rule in recent years.
- In 2015, during the Obama Administration, the joint employer standard was changed to include employers like franchisors that had “reserved and indirect control” over employees, even if the franchisor never exercised those rights. The rule was created as a result of the Browning-Ferris industries decision, which held the company jointly responsible for employees with its staffing company. The case became known as the BFI standard.
- In 2017, after the country shifted to a new Presidential Administration, this controversial rule was overturned, after the D.C. Circuit court criticized the rule’s lack of clear standards.
- In 2020, under the Trump administration, the NLRB replaced the 2015 rule with a new one, which stripped the previous language that had previously held franchisors responsible for franchisees’ labor rules and regulations. The 2020 rule only held employers responsible that had “actual and substantial direct and immediate control” over their employees.
“The 2015 rule was a very short-lived one because we had a presidential election, but it was the one employers became most familiar with,” Mark Kisicki, an employer-side labor and employment attorney and shareholder with Ogletree Deakins law firm, who testified during the hearings of the original 2015 joint employer rule, told NRN. “The essence of the current rule is just the BFI decision with some parameters to attempt to respond to the D.C. circuit's criticism that the NLRB has not identified what the essential terms and conditions of employment were or provided clarity to make sure the control potential would be sufficient and not simply sweep in the types of control inherent to ordinary contracting relations.”
Kisicki said that while the NLRB did try to rectify the confusion from the 2015 case by providing a list of what constitutes employment terms and conditions that the BFI decision did not.
“The expansive terms…relate to any working conditions of the health and safety of employees and it’s not an overstatement to say that pretty much anything relates to the health and safety of employees, certainly where one entity owns the land on which work is being done,” Kisicki said. “The franchisor has the authority to affect working conditions that relate to health and safety because it sets certain standards to protect its brand.”
Kisicki predicts that given the unclear nature of this new rule, and the fact that a similar rule has already been overturned in recent years, that this new rule could be subject to lengthy court arguments within lawsuits and countersuits for years before it ever goes into effect. This is the reason, he said, why the National Labor Relations Act has not been substantially changed for 50 years.
If, however, the NLRB final joint employer rule stands (and survives the next presidential administration), franchisors should begin preparations, as they will be legally liable for any labor issues brought up by the employees of their franchisees. Franchise expert and keynote speaker Scott Greenberg said that although franchisors have been reluctant to address HR issues with their franchisees, they should be prepared to get much more involved in the employee management side of the business if this rule does survive its legal challenges.
“Franchisors will need to act more as partners than as authority figures,” he said. “They may have to set up or extend HR services to franchisees and their employees. They’ll undoubtedly have to teach franchisees and their managers how to lead their people (and stay out of trouble). They’ll also have to monitor franchisees and managers more closely to ensure compliance with regulations. There will be costs associated with these changes that will be passed on to franchisees, and ultimately, their customers….As they work to protect their brand, they must assure franchisees that they’re also protecting them and their team members.”