How the NLRB's New Joint-Employer Rule Will Affect Franchisees and Franchisors and Redefine Franchise Relations Discover the pivotal changes in the NLRB's Joint-Employer Rule and how they could reshape the dynamics of franchising.

By Clarissa Buch Zilberman

Key Takeaways

  • The new rule has profound implications for the franchising industry.
  • It simplifies the process of identifying workers as jointly employed, which is particularly relevant for franchisees and franchisors.
  • This rule means that both parties in a franchising agreement could potentially be held accountable for various labor law obligations, such as workers' compensation.

October was a big month for the National Labor Relations Board (NLRB), as they published a final rule to address the Standard for Determining Joint-Employer Status. But if you're not an employment lawyer, you may be asking: So what?

In short, the rule defines how to determine if someone is a joint-employer or a worker. In this article, we're breaking down what it means to be a joint-employer, what the rule entails, and how it may affect the world of franchising.

Related: Franchise Legalese Defined — A Deep Dive Into Franchising Definitions

What is a co-employment and joint-employment?

If an employee has two or more employers (or employing entities) and both employers are legally responsible for the employee, then that employee is jointly employed. This differs from co-employment, where two entities have rights and responsibilities as an employer, but only one party makes labor-related decisions.

For example, let's say Company A has an agreement with Company B to offload HR tasks. This is co-employment because Company A has full control over management decisions, like who to hire and which benefits will be offered. Contrarily, in the case of joint-employment, both companies would have managerial input on the same employees.

What does the Joint-Employer rule say?

According to the Joint-Employer Standard Final Rule fact sheet: "The final rule establishes that, under the National Labor Relations Act, two or more entities may be considered joint employers of a group of employees if each entity has an employment relationship with the employees, and if the entities share or codetermine one or more of the employee's essential terms and conditions of employment.

The essential terms and conditions of employment are defined as:

  1. Wages, benefits, and other compensation;
  2. Hours of work and scheduling;
  3. The assignment of duties to be performed;
  4. The supervision of the performance of duties;
  5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
  6. The tenure of employment, including hiring and discharge;
  7. Working conditions related to the safety and health of employees.

The joint-employer standard is only implicated if an entity employs the workers at issue and has the authority to control at least one of these terms or conditions. Authority over other matters is not sufficient."

Related: Become a Franchise Owner in 5 Easy Steps

What does this mean for franchising?

"The NLRB's recent implementation of the rew rule holds significant implications for both labor relations and legal obligations," explains Sheila Davis, Senior Vice President of Area Operations at Always Best Care. "The revised criteria under this rule streamlines the process for categorizing workers as jointly employed, a factor of particular importance for franchisees and franchisors deeply rooted in the franchise industry."

In essence, the franchisor and franchisee could be considered joint-employers and both be liable for a location's employees in various ways, such as workers' compensation and other labor laws.

What should franchisees and franchisors do?

"It's highly advisable for franchisees and franchisors to adopt a proactive stance," explains Davis. "A thorough review of existing relationships is imperative to assess their alignment with the updated joint employer standards."

But keep in mind that this is not just for franchises. "This imperative extends beyond the franchise sector, prompting employers at large to conduct a meticulous review and evaluation of their associations with external vendors, independent contractors and other third-party entities," says Davis. "The primary objective of this examination is to determine whether these relationships could potentially be classified as joint employers in accordance with the guidelines outlined in the new rule."

Related: The 19 Covenants of a Standard Franchise Agreement

Be vigilant and informed to reduce risk

"Staying well-informed about potential legal challenges and remaining vigilant regarding any subsequent developments resulting from the enforcement of the new rule is crucial," says Davis. "By taking these proactive measures, stakeholders within the franchise industry and beyond can not only mitigate potential risks associated with joint-employer status but also ensure compliance with the evolving regulatory framework."

Clarissa Buch Zilberman

Entrepreneur Staff

Freelance Writer, Editor & Content Marketing Consultant

Clarissa Buch Zilberman is a writer and editor based in Miami. Specializing in lifestyle, business, and travel, her work has appeared in Food & Wine, Realtor.com, Travel + Leisure, and Bon Appétit, among other print and digital titles. Through her content marketing consultancy, By Clarissa, she leverages her extensive editorial background and unique industry insights to support enterprise organizations and global creative agencies with their B2B, B2C, and B2E content initiatives. 

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