Joint Employer

Will This Decision Force Franchises to Reconsider Their Business Models?

3 min read

McDonald's business model may soon need to change.

On Thursday, the National Labor Relations Board refined its standard for determining joint-employer status. Now, a franchisor can be considered an employer if it influences or controls the "essential terms and conditions of employment," not only directly but also indirectly.

That means franchisors, who have long skirted issues of minimum wage and employee treatment by claiming responsibility rests solely in the hands of franchisees, can now be held legally accountable by workers. Because of this, employees are a big step closer to being able to bargain with franchises collectively on issues of pay and alleged mistreatment, as opposed to dealing with individual franchisees.

Related: New York Moves Closer to a $15 Minimum Wage for Fast-Food Employees

The NLRB's new definition springs from a decision involving Browning-Ferris Industries (BFI), in which the board found BFI to be a joint employer with subcontractor Leadpoint, due to both direct and indirect control exerted. However, the decision promises to influence the entire franchise industry, especially big names in fast-food such as McDonald's. 

"Today’s NLRB decision is a seismic shift in the Board’s employer definition and, without any Congressional or court action could significantly alter the face of American business as we know it" International Franchise Association (IFA) President Steve Caldeira said in a statement. "If allowed to go into effect, the impact of this new joint-employer rule would be sweeping and widespread, create havoc for the franchise industry and, ultimately, would inflict serious damage to our nation’s economy."

The IFA is currently working to encourage Congress to support legislation that will codify the long-held, narrower definition of what constitutes a joint employer. Additionally, BFI may appeal the decision to either the 9th Circuit of the D.C. Circuit Court.

Related: In Tennessee, Only Franchisees Can Be Held Accountable for Employees

If BFI and the IFA does not succeed in convincing Congress to pass legislation that will oppose the NLRB's decision, franchises are going to have to examine their business model and see where they fit under the expanded definition. Many companies will either have to take responsibility to ensure employees' well-being or, alternatively, diminish direct and indirect control over franchisees, such as in the forms of hiring practices and corporate instruction related to employees.

McDonald's is already in the midst of an attempt to escape the label of joint employer. Last July, the NLRB deemed McDonald's a joint employer and a responsible party in labor cases, a decision the company is still fighting, with a final decision expected in 2016.

However, not every franchise necessarily needs to worry. In April, the NLRB concluded that healthy fast-casual chain Freshii is not a joint employer, even when considering both the direct and indirect power of the franchisor in terms of hiring, firing and discipline.  

Related: Why the NLRB Says This Franchise Isn't a Joint Employer, But McDonald's Is

More from Entrepreneur

Kim's expertise can help you become a strong leader, pitch VCs for capital, and develop a growth strategy.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.