NLRB finalizes ruling that reduces joint employer liability for franchisers

Dive Brief:

The National Labor Relations Board (NLRB) will publish a final rule updating its joint employer regulations Wednesday, according to an NLRB statement on Tuesday. The rule will be effective on April 27.
Under the final ruling, restaurants may be considered a joint employer of an operator's employees only if the restaurant possesses and exercises direct and immediate control over the workers' essential terms of employment. The NLRB defines essential terms exclusively as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.
“Today the National Labor Relations Board enacted vital and long-overdue regulations to provide clarity and certainty for thousands of small- and family-owned businesses, especially restaurants," Shannon Meade, vice president of public policy for the National Restaurant Association, said in a statement emailed to Restaurant Dive. "By overturning the controversial and convoluted Browning-Ferris decision, the National Labor Relations Board has enacted a clear, actionable, and predictable approach to joint employment based on a thorough and transparent rule-making process.”

Dive Insight:

The NLRB's finalized rule comes after years of anxiety over non-compliance following the board's decision to broaden the interpretation of joint employer status in 2015. The move stoked so much fear in the restaurant industry that franchisers considered cutting back on or halting franchising entirely to avoid the increased liability.

“For five years, these independent businesses, many of which are single-unit franchises, have faced serious threats of regulatory non-compliance and legal action that have restricted capital investment and stifled growth and job creation," Meade said.

After the NLRB expanded the joint employer definition, joint employer lawsuits spiked 93% and cost individual franchise businesses an average of $42,000, according to the International Franchise Association.

But this new definition should give restaurants more clarity. The NLRB already signaled that it was moving toward reducing franchisers' responsibility over their operators' infractions when it absolved McDonald's as a joint employer from being on the hook for its franchisees' past labor violations in December.

The NLRB's finalized ruling also follows the DOL's decision to narrow joint employer liability under the Fair Labor Standards Act in January. The fact that two federal agencies have now reduced joint employer liability is promising for restaurants, but the Equal Employment Opportunity Commission (EEOC) has yet to adopt an updated definition, though it plans to issue regulations overseeing joint employment in the near future. This will be the first time that the EEOC will address joint employment standards.

Regardless of when the EEOC moves forward with updates to joint employment liability, the current regulatory landscape is much more welcoming to both legacy franchisers and independent restaurants that are looking to expand through a franchising model. Still, chains should be wary that these updates could be discouraging to labor groups that have tried to hold corporate restaurants accountable for the bad actions of their operators, and be careful to support employee welfare and ensure workers have proper channels to voice their complaints.