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Franchisors enjoy more protection under final joint-employee ruling

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February 25, 2020

Suing parent companies whose franchisees are involved in labor law violations just got harder. The National Labor Relations Board Tuesday reversed the Obama Administration's 2015 ruling that had considered parent companies "joint employers," often holding them responsible when workers accused companies' franchisees of violating worker rights. The rule, which goes into effect April 27, applies to workers employed through contractors as well.

"This final rule gives our joint-employer standard the clarity, stability and predictability that is essential to any successful labor-management relationship and vital to our national economy," John F. Ring, the board's chairman, said in a statement. "With the completion of today's rule, employers will now have certainty in structuring their business relationships, employees will have a better understanding of their employment circumstances, and unions will have clarity regarding with whom they have a collective-bargaining relationship."

The Obama ruling, known as the Browning-Ferris decision, described a parent company as a joint employer of workers at a franchisee or contractor even if the parent company controlled those employees only indirectly. Tuesday's ruling holds the parent company responsible only if it has "substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees." That includes pay, benefits, scheduling and hiring.

The National Restaurant Association called the ruling a long-overdue regulation to provide clarity and certainty for thousands of small- and family-owned businesses, especially restaurants.

"For five years, these independent businesses, many of which are single-unit franchises, have faced serious threats of regulatory non-compliance and legal action that have restricted capital investment and stifled growth and job creation," Shannon Meade,VP of of Public Policy. "By overturning the controversial and convoluted Browning-Ferris decision, the National Labor Relations Board has enacted a clear, actionable, and predictable approach to joint employment based on a thorough and transparent rule-making process."

Not everyone agrees, however.  Adam Chotiner, chair of the Labor and Employment Practice Group at Shapiro, Blasi, Wasserman & Hermann, in Boca Raton, Florida,said last year that if passed, the ruling would trample joint employer obligations into oblivion putting all the responsibility on the franchisee. Whether they one store or 1,000, they would legally be considered the complaining employee's sole employer, thus the only party liable or necessary in collective bargaining. 

"It (would) make it harder for the NLRB to hold franchisors responsible for anything, whether that's requiring bargaining if a union is certified (or) going after the franchisor for unfair labor practice issues," he said. "... And it makes it impossible for unions to picket the franchisor. Those are the real-world implications."

In September of 2018, the NLRB issued a request for public comments regarding the joint-employer issue. It said Tuesday that it received and considered nearly 29,000 comments.