The NLRB Joint-Employer Standard Shuffle: Which Businesses Are Most At Risk?

by | Oct 30, 2023 | Labor Relations Ink, Labor Relations Insight, Legal, NLRB, Union Organizing

It’s a rough road out there for employers. High-profile union contract negotiations and major strikes are adding fuel to economic headwinds, and the NLRB continues to make unionization an all-around easier process, including with their recent Cemex decision.

Now, the board has once again expanded the definition of “joint employer” to apply a broader meaning for labor relations purposes. This will also make it easier for unions to target franchises. As a result, an umbrella corporation that is found to be a joint employer must collectively bargain with a union that represents a franchise location. That’s not the only downside of the new standard taking effect on Dec. 26, so businesses will want to be prepared for what’s next.

What is next? Hold on tight.

Say goodbye to 2020 and the hard-and-fast view of limiting joint-liability status to terms or conditions of employment where a business has “direct and immediate control.” The board’s new final rule (see also the fact sheet) holds that businesses can be considered joint employers if they co-determine or both have the contractual ability to control any essential job terms, i.e., compensating, supervising, hiring, firing, supervising, scheduling, and otherwise managing workers. 

A key qualifier, as well, is the right to control these terms, even if the employer never exercises that right.

Crucially, umbrella corporations will now face increased liability, and franchisors can be held responsible for a franchisee’s unfair labor practices. It’s no wonder McDonald’s warned that this rule could collapse its entire franchise model.

The rule’s full effects will also reach further than franchises, including staffing firms and businesses that employ contract workers. An array of industries – food service, retail, manufacturing, construction, hospitality, transportation, tech, and so on  – will be impacted. 

What can employers do? We’re sitting in gray territory ahead of potential challenges to the rule, but a few strategies could be useful:

  • Every business: Company A will want to use a fine-tooth comb to consider every outside business or agent that directly or indirectly has the right to control essential employment terms of Company A’s workers. If this seems like too much, you ain’t seen anything yet…
  • Franchisors: Businesses must review franchise agreements for instances where reserved rights of control exist. Franchisors should also not attempt to control any of these areas of employment other than to recommend standards that are necessary to maintain brand reputation. Direction on these areas should only be discussed with managerial employees. None of this guarantees, however, that franchisors won’t still be held liable for franchisee actions.

U.S. lawmakers have vowed to overturn the rule (the effort is a bipartisan one) for its hostile approach to small business, although even if that effort passes both chambers of Congress, it will be overturned by Biden.

Yet all is not lost. The U.S. Chamber of Commerce is considering litigation and argued that “it defies common sense” how a business can be liable for actions in “workplaces they don’t own or control.” As well the International Franchise Association called the rule “overreaching and unworkable.” 

In other words, expect businesses and trade organizations to challenge the rule but do not expect a quick resolution.

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