Franchises to Face Increased Legal Pressure Under Proposed NLRB Rule

Federal labor regulators proposed a rule this week that would make it easier for workers and unions to hold companies legally liable for labor law violations by their contractors or franchisees, reported The New York Times.

The proposed rule by the National Labor Relations Board (NLRB) would treat companies, such as McDonald’s, as so-called “joint employers.” Under the proposal, the NLRB could hold a joint employer liable if a franchisee fires workers who try to unionize, despite only having indirect control over the workers.

During the Trump administration era, a rule was adopted that required the parent company to only be held liable for such labor law violations if it exerted direct control over the franchisee’s employees, such as controlling their pay and schedules. The new proposal would rescind that 2020 rule, which was favored by businesses.

Typically, employees and unions prefer to hold a parent company accountable for violations because they usually have more power than a franchisee or contractor to change policies.

“In an economy where employment relationships are increasingly complex, the board must ensure that its legal rules for deciding which employers should engage in collective bargaining serve the goals of the National Labor Relations Act,” Lauren McFerran, the chairwoman of the board, which has a Democratic majority, said in a statement.

Companies found to be joint employers would likely have to become more involved in implementing workplace policies and be forced to bargain with unions. This could further complicate collective bargaining, said Glenn Spencer, a senior vice president at the U.S. Chamber of Commerce.

He noted that the move would make it more difficult for unions to negotiate contracts with businesses and undermine the NLRB’s stated goal of strengthening workers' rights, Reuters reported. He also expects legal challenges to the rule once it is finalized.

Some critics of the rule also believe it will open the door to more employee claims against businesses and make it easier for workers to organize, according to a report from The Washington Times.

Chip Rogers, president and CEO of the American Hotel & Lodging Association, said the proposal “would have a chilling effect on the hotel industry & the entire U.S. franchising model.”

Meanwhile, labor attorney Charles Plumb of the McAfee & Taft law firm in Oklahoma wrote in a blog post: “Under this test, companies who exercise direct or indirect control over workers could be considered a joint employer with a staffing company, contractor or franchisor for purposes of the [National Labor Relations] Act. That means a company could be sued for labor law violations and could conceivably be required to recognize and bargain with unionized workers they use through a contracting or staffing business.”