Get All Access for $5/mo

The Rule That Would've Crushed Franchising Was Just Struck Down — But the Fight Isn't Over. Although this court decision provides temporary relief to franchisors and franchisees, the issue remains unresolved.

By Jason Feifer Edited by Carl Stoffers

Key Takeaways

  • A significant legal battle unfolded around the expansion of the Joint Employer Rule.
  • This rule posed significant challenges for the franchise model by potentially increasing the legal liability for franchisors.
  • Although the rule will not go into effect, the issue is not completely resolved.

For months, the franchise industry has been on edge — concerned that a new federal rule could undercut the very model of franchising. Now, some are breathing a tentative sigh of relief. On Friday evening, a federal judge in Texas struck down the rule. "This is a landmark victory for franchising," the International Franchise Association (IFA) said in a statement to its members.

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

The Joint Employer Rule

The federal rule is known as "Joint Employer." Some form of the rule has existed for years, but in 2023, the National Labor Relations Board expanded it in a way that directly impacted franchising. Under the new version of the rule, two companies — say, a McDonald's and a McDonald's franchisee — could more easily be considered "joint employers" of the same employees.

That would, for example, make McDonald's legally liable for any labor violation committed by one of its franchisees, even though McDonald's itself did not hire and does not manage that employee, and therefore could complicate the relationship between franchisees and franchisors.

Related: This New Rule Will Crush Franchising As We Know It

'Fundamentally upend' franchising

The expanded rule would "fundamentally upend the franchise business model," the IFA said at the time. "The rule would reduce the independence of franchise business owners, diminish franchisees' equity in their businesses, and force franchisors to offer less support." The expanded rule would also make it easier for employees to unionize.

The IFA was one of many organizations — including the U.S. Chamber of Commerce, the American Hotel and Lodging Association and the National Retail Federation — to sue to block the rule in November.

The rule's implementation had been pushed back as the litigation continued. Although the rule will now no longer go into effect, the issue is not fully resolved. The National Labor Relations Board can appeal the ruling, although it has not yet said if it will. The NLRB could also revise the joint employer rule.

Related: This New Government Rule Threatens to Disrupt the $825 Billion U.S. Franchise System

Congressional resolution

A more lasting resolution may come through Congress. In January, the House passed a resolution to reject the NLRB's joint employer rule. Advocates are now urging the Senate to pass the measure and send it to President Biden to sign. According to the IFA, this "would tie the hands of future NLRBs from instituting expansive joint employer standards and provide long-term certainty to franchising."

Jason Feifer

Entrepreneur Staff

Editor in Chief

Jason Feifer is the editor in chief of Entrepreneur magazine and host of the podcast Problem Solvers. Outside of Entrepreneur, he is the author of the book Build For Tomorrow, which helps readers find new opportunities in times of change, and co-hosts the podcast Help Wanted, where he helps solve listeners' work problems. He also writes a newsletter called One Thing Better, which each week gives you one better way to build a career or company you love.

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

Editor's Pick

Science & Technology

5 Automation Strategies Every Small Business Should Follow

It's time we make IT automation work for us: streamline processes, boost efficiency and drive growth with the right tools and strategy.

Business News

Former Steve Jobs Intern Says This Is How He Would Have Approached AI

The former intern is now the CEO of AI and data company DataStax.

Business Process

How CEOs Can Take Control of Their Emails and Achieve Inbox Zero

Although there are many methodologies that leaders can use to manage their emails effectively, a consistent and thought-through process is the most effective way to systemize and respond to emails and is a step of stewardship for the effective leader.

Side Hustle

'Hustling Every Day': These Friends Started a Side Hustle With $2,500 Each — It 'Snowballed' to Over $500,000 and Became a Multimillion-Dollar Brand

Paris Emily Nicholson and Saskia Teje Jenkins had a 2020 brainstorm session that led to a lucrative business.

Leadership

Visionaries or Vague Promises? Why Companies Fail Without Leaders Who See Beyond the Bottom Line

Visionary leaders turn bold ideas into lasting impact by building resilience, clarity and future-ready teams.

Marketing

5 Critical Mistakes to Avoid When Giving a Presentation

Are you tired of enduring dull presentations? Over the years, I have compiled a list of common presentation mistakes and how to avoid them. Here are my top five tips.