The NLRB's New Joint Employer Rule is so Extreme That Even California Rejected a State-Level Version of the Franchise-Killing Policy Bipartisan resistance is growing against the National Labor Relations Board's Joint Employer Rule, resulting in a delay in implementing the change — but the fight isn't over.

By Matthew Haller

Key Takeaways

  • The Rule, prioritized by labor unions and the Biden administration, aims to expand an Obama-era standard of joint employer liability.
  • The new Rule makes corporations responsible for employees of franchisees, significantly altering the traditional franchise business model.
  • California, known for its stringent regulations, retracted a similar state-level joint employer rule after strong backlash from business leaders.
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Inflation may be cooling from its painful highs, but America still doesn't feel good about our economic health. Public pessimism hit record highs this year, with nearly 7 in 10 holding negative views about the state of the economy, according to a survey from CNBC. Against that backdrop, the Biden Administration is pushing an economic regulation, known as the Joint Employer Rule, so extreme and misguided that even California walked back a similar state-level policy.

Related: The Joint Employer Rule Will Crush Franchising. Here's How to Protect Your Business

The Joint Employer Rule

The policy has long been a priority of labor unions like the Service Employees International Union that wield major influence in Democratic political circles and President Biden is fond of calling himself the "most pro-union president in history." In late October, his appointees at the National Labor Relations Board (NLRB) took a major step toward living up to that title by voting along party lines finalizing a regulation to restore and expand an Obama-era standard of joint employer that applies to every business in America, but uniquely harms those using a franchise model.

In 2015, the Obama Administration's meddling with joint employer cost 376,000 jobs and led to a 93 percent increase in litigation.

In 2015, the Obama Administration's meddling with joint employer cost 376,000 jobs and led to a 93 percent increase in litigation. These are not the antidotes to an economy still finding its post-pandemic footing. Franchising generates more than 8 million jobs and nearly $1 trillion ($825.4 billion) to the U.S. economy, and helps create business ownership opportunities that create generational wealth for important political constituencies that the Biden administration continually touts, such as minorities, women and veterans.

Related: Decoding the Massive Impact of the NLRB's Joint Employer Rule

What you need to know

Here's what you need to know about the danger of expanding joint employer to the franchise model. This rule fundamentally changes the relationship between the more than 3,000 franchisors, or brand companies (like a McDonald's, Anytime Fitness or Sir Speedy) and the 800,000 franchisees (the local small business owner who operates under the brand's playbook).

Suddenly, corporations are responsible for the eight million employees working for franchisees throughout the country.

Under the previous joint employer regulation, a franchisee runs the business and makes all the decisions about hiring, management and scheduling. That all changes overnight under the Biden administration's broader standard of joint employer. Suddenly, corporations are responsible for the eight million employees working for franchisees throughout the country. The franchisees are effectively reduced to middlemen and lose the ability to manage their own business and their employees.

If this new rule takes effect, there will be negative consequences for business owners and employees alike. Franchisors will significantly increase their oversight of these local businesses to reduce the likelihood of legal violations they are responsible for resolving. Or they will pull back entirely to evade litigation risk, withdrawing previous resources and support franchisees have paid for to support them as small business owners. Neither outcome is positive for franchisees or their employees.

Even California, regularly ranked as the state with the most unfriendly business climate, had no choice but to jettison a proposed joint employer standard amid backlash from small business owners.

The NLRB ignores the concerns of the small business owners who will be negatively impacted. According to data from Oxford Economics, a non-partisan think tank, 74% of franchisees were highly concerned with increased franchisor control. In fact, only 14% of franchisees would have opened their business in the first place.

Even California, regularly ranked as the state with the most unfriendly business climate, had no choice but to jettison a proposed joint employer standard amid backlash from small business owners. A policy scrapped by Governor Gavin Newsom in a deal brokered this summer, in a state who has sought to abolish gas cars, gas stoves and Skittles, should not be inflicted on the rest of the country.

Related: This New Rule Could Disrupt the $825 Billion Franchise System

What's being done

Thankfully, there are multiple efforts underway to halt the federal joint employer rule from taking effect. A bipartisan and bicameral group of lawmakers have introduced a congressional repeal, an effort that has earned the support of more than 70 organizations across the country. A diverse coalition of business groups have taken legal action.

America does not feel good about the health of the economy and destroying the franchise model will only make the situation worse. An expanded joint employer rule will imperil franchising and break a successful model that supports local economies and creates good jobs. Let's hope Congress and courts reject this attack on the franchise model, just like California did.

Matt Haller is President & CEO of the International Franchise Association

Matthew Haller

Entrepreneur Leadership Network® VIP

President and CEO of the International Franchise Association

Matthew Haller is President and CEO of the International Franchise Association, the world’s oldest and largest organization representing franchising worldwide.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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