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The NLRB's Joint Employer Rule Faces a Barrage of Challenges, Fueling a High-Stakes Battle Over the Future of Franchising The NLRB has delayed implementing the controversial rule until February 2024, giving more time for opponents, including the International Franchise Association and U.S. Chamber of Commerce, to legally challenge the rule.

By Carl Stoffers Edited by Jessica Thomas

Key Takeaways

  • The NLRB's Joint Employer Rule significantly expands the criteria for determining joint employer status, potentially making franchisors liable for the labor practices of their franchisees.
  • The rule was originally slated to take effect on December 26, 2023, but the revised rollout date is now in February.
  • The rule has encountered substantial resistance from business groups, including the International Franchise Association and the U.S. Chamber of Commerce.

The National Labor Relations Board (NLRB) has delayed the implementation of its new "Joint Employer Rule" (JER). Originally slated to take effect on December 26, 2023, the revised rollout date is now set for February 26, 2024. This move comes amidst a flurry of legal challenges and political scrutiny, highlighting the complexities and contentious nature of the rule. The delay grants additional time for businesses to understand and adapt to the new regulations while legal and political debates continue to shape its final form.

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

The Joint Employer Rule's provisions

The NLRB's updated rule broadens the definition of a joint employer, making franchisors jointly responsible for the labor practices of their franchisees. In contrast, previously, the franchisees were responsible for compliance with labor laws related to their employees. Under this new regulation, an entity could be deemed a joint employer if it controls just one of seven essential employment terms and conditions. This is a departure from previous narrower interpretations, potentially expanding the number of businesses affected. Experts say this change could redefine employer-employee relationships across various industries, not just in franchising.

The rule threatens the very nature of the $825 billion franchise system and will lead to increased legal costs and franchisor oversight. It directly impacts franchise operations and businesses with subcontracting arrangements, influencing labor practices and contractual agreements. Franchisors may need to reassess their business models and contractual agreements to mitigate potential liabilities and ensure compliance.

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Legal and political challenges

Since its announcement, the rule has faced intense opposition. The International Franchise Association, for instance, has vehemently opposed it, and the U.S. Chamber of Commerce, along with the American Hospital Association and various business groups, filed a lawsuit challenging the rule's legitimacy. They argue that it is not only arbitrary but also exceeds the NLRB's statutory authority.

Additionally, political challenges have emerged, including a Senate resolution aimed at overturning the rule. This opposition reflects the broader debate over the balance between worker rights and business autonomy in the U.S. economy.

Related: Start Your Own Business or Buy a Franchise: Which Is Right For You?

Congressional involvement

Adding to the rule's uncertain future, H.J. Res. 98 was introduced in Congress as a Congressional Review Act resolution of disapproval. Supported by organizations like the National Restaurant Association, this resolution, if passed, could nullify the rule.

The resolution emphasizes the perceived negative impact on franchising and the potential for increased liability and operational complexity for franchise operators.

Related: Franchise vs. Independent Business? 12 Experts Weigh the Options

The historical context of the JER

The joint employer rule has a tumultuous history, with its interpretation swinging between administrations. The Obama administration's Browning-Ferris Industries decision in 2015 broadened the scope of joint employer liability, which was then narrowed during the Trump administration. The current rule under the Biden administration seeks to find a middle ground, though it leans more towards the broader interpretation of the Obama era.

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Implications for businesses

Given the rule's potential impact, businesses, especially those in franchising or using subcontractors, are advised to review their agreements and labor practices. The rule's broadening scope could significantly change how businesses manage their workforce and contractual relationships. Legal experts advise businesses to closely monitor developments and seek legal counsel to navigate the changing regulatory environment.

Related: How to Find a Good Franchise Lawyer

What's next?

As the NLRB's joint employer rule faces a dynamic and challenging path ahead, businesses are in a state of anticipation. With legal battles and potential congressional intervention, the final outcome and effective date of this rule remain uncertain. However, the delay in implementation offers businesses additional time to prepare for any eventualities, underscoring the need for proactive planning and adaptation in a rapidly evolving labor landscape.

Related: The 6 Key Metrics Successful Franchise Restaurants Use to Measure Potential

Carl Stoffers

Entrepreneur Staff

Senior Business Editor

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