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A D.C. Federal Court Declined to Rule on a Challenge to the Joint Employer Rule. Here's What This Update Means for the Franchise Industry. The U.S. Court of Appeals for the D.C. Circuit has postponed hearing a case on the National Labor Relations Board's expanded Joint Employer Rule. The court will wait for a Texas federal court to rule first.

By Carl Stoffers Edited by Jessica Thomas

Key Takeaways

  • The D.C. Circuit has postponed hearing a case in the legal battle over the NLRB's expanded Joint Employer Rule.
  • The IFA and the U.S. Chamber of Commerce have challenged the NLRB's attempt to expand the rule.
  • The expanded rule could make franchisors liable for employees they don't directly employ or manage, potentially jeopardizing the franchising model.

Last week, the U.S. Court of Appeals for the District of Columbia Circuit postponed hearing a case brought by the Service Employee's International Union (SEIU) over the National Labor Relations Board's expanded Joint Employer Rule. Instead, the D.C. court opted to wait for a Texas federal court's decision in another suit brought by a coalition led by the International Franchise Associaton (IFA) last year.

"Bipartisan majorities in Congress and the Eastern District of Texas agree: The 2020 joint employer standard is the appropriate version, and the NLRB's attempt to expand it last fall was too broad," Matthew Haller, president and CEO of the International Franchise Association, told Entrepreneur. "We are pleased that the SEIU's desperate attempt to move the lawsuit was halted."

Related: Considering franchise ownership? Get started now to find your personalized list of franchises that match your lifestyle, interests and budget.

Texas ruling and appeal

Last year, the NLRB tried to expand the Joint Employer Rule in a way that would classify workers at franchises (such as fast-food workers) as joint employees of the individual franchise as well as the corporate brand. Previously, a franchisor could be considered a joint employer only if they exercised direct and immediate control over a franchisee's employees. The new rule broadens this definition, potentially making franchisors liable for employees they don't directly employ or manage.

In response, the IFA, U.S. Chamber of Commerce and several other trade organizations filed a lawsuit challenging the legality of the expanded rule in the Eastern District of Texas last year. A federal judge ruled in the IFA's favor in March and struck down the expanded rule in what Haller called a "landmark win for franchising."

However, in April, the government appealed the decision. The D.C. Circuit Court has yielded to this case.

Separately, on May 3, President Biden vetoed a bipartisan attempt to use the Congressional Review Act to overturn the expanded rule.

Related: The NLRB's New Joint Employer Rule is So Extreme That Even California Rejected a State-Level Version of the Franchise-Killing Policy

D.C. Circuit

As the IFA coalition was fighting the expanded rule, the SEIU filed a suit in D.C. federal court in November, claiming that the rule was too narrow. Now that the D.C. Circuit has taken a step back, the outcome of the Texas appeal will likely decide what the Joint Employer Rule will look like in the future.

Regardless, those fighting the expanded rule see the D.C. decision as a positive for franchising.

"Franchising continues to power our economy and provide countless opportunities for so many," Haller told Entrepreneur, "especially those from underrepresented communities. But all this positive progress would be in jeopardy should the expanded joint employer [rule] ever move forward. Let's hope common sense continues to prevail."

Carl Stoffers

Entrepreneur Staff

Senior Business Editor

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