A proposed rule change could jeopardize the future of franchise businesses in America. The Democratic-controlled National Labor Relations Board (NLRB) has issued a Notice of Proposed Rulemaking (NPRM) to expand the definition of a “co-employer” under the Fair Labor Standards Act. If implemented, this rule change would make it harder for companies to partner with people who want to operate a franchise.
The NPRM says the new rule would “revise the standard for determining whether two employers, as defined in section 2(2) of the National Labor Relations Act (NLRA or Act), are joint employers of employees individuals within the meaning of section 2(3) of the Act.
Bloomberg Law says expanding the definition would “loosen” the standards set by the previous administration in establishing a joint employment relationship to “include indirect and unexercised control over the terms and conditions of an employment.” Essentially, franchisors would be responsible for employment-related decisions made by individual franchisees.
Companies like McDonald’s, Marriott International and 7-Eleven Inc, if enacted, would be joint employers in the eyes of the NLRB if they “co-determine essential terms of employment”, such as hours, wages and benefits .
Comments from the business community have strongly opposed the NLRB’s actions. The International Franchise Association (IFA) strongly chastised the proposed rule change as an attack on the independent operators that make up the independent economy.
“Franchise owners are independent operators, and the NLRB’s joint employment rule proposes to strip them of their independence,” said Michael Layman, the IRA’s senior vice president for government relations and public affairs. “Franchising has provided hundreds of thousands of people from all walks of life with the opportunity to own their own business, and this proposal seeks to remove that in favor of special interests. This rule is another example of government officials who oppose franchising, with small business owners and their employees paying the price.
The existing franchise model is based on contractual relationships between a franchisor (like McDonald’s) and a franchisee. Within this framework, the latter are free to make employment decisions independently of the companies.
The IRA fears that reinventing the joint employer rule to make franchisors liable for decisions made by individual franchisees would undermine this model. As the Society of Human Resource Management (SHRM) explains, “If two entities are joint employers under the National Labor Relations Act (NLRA), both must negotiate with the union that represents the jointly employed workers. , both are potentially responsible for unfair labor practices. committed by the other, and both are subject to union picketing or other economic pressures in the event of a labor dispute.
The professional association is right about the changes to the co-employer rule. Under the Obama administration, former director of the Department of Labor’s wage and hour division, David Weil — who was dismissed by the Senate for his former job — released an Administrator’s Interpretation (IA) in 2016 which made franchise companies liable for actions taken by independent franchise employees. .
The effects of this AI have had disastrous effects on franchise businesses and their employees.
As I noted during the National Review earlier this year, the 2016 IA required franchise businesses to pay “between $33.3 billion per year in costs” between 2016 and 2018. This rule change also resulted in the loss of 376,000 jobs and a 93% increase in co-employers. lawsuits filed against them.
The NLRB would be wise not to regulate 750,000 franchise businesses employing eight million people, especially those in the restaurant industry. Instead, it should maintain and enforce the existing, clearly defined “co-employer” rule.