Last Friday a federal judge struck down the National Labor Relations Board (NLRB) regulations expanding its control over the job terms and conditions it uses to determine whether two employers are in fact one for the purposes of labor law application. The Joint Employer rule was supposed to take effect Monday (March 11^th) from a previous court stay, but the Texas federal judge hearing the case vacated that decision and held the regulations were too far reaching in their scope for a federal agency to have authority to issue.

The joint employer regulations “posed an existential threat to the franchise business model” and would impact “hundreds of thousands of franchise owners” by changing the rules of the franchise game. In effect, it would turn franchisees from business owners into middle management in their own businesses – so stated Michael Layman, Sr. Vice President of the International Franchise Associations (IFA).

This federal district court decision only provides some breathing room because the NLRB will appeal this decision to the federal appeals court. In a jurisdictional concern, the NRLB is reported to want the DC Appeals Court to hear the case because the U.S. Chamber of Commerce located in Washington DC brought the case; however, the federal district judge that made the decision to stay the rules denied that motion in effect saying the case should stay in the 5^th Circuit Court of Appeals where his ruling was made.

The federal court ruling states:

“It is declared that enforcement against plaintiffs or their members of the rule issued by the National Labor Relations Board on October 27, 2023, entitled Standard for Determining Joint Employer Status, 88 Fed. Reg. 73,946, would be contrary to law as to the rule’s addition of a new 29 C.F.R. § 103.40 and arbitrary and capricious as to its removal of the existing 29 C.F.R. § 103.40 (2020). In both respects, the rule is hereby vacated.”

The Joint Employer rules were published by the NLRB last October and defined how two business entities are determined to be joint employers. The biggest target of these rules was the franchise industry. Franchise businesses are typically a joint venture between say an original business (franchisor) that in turns sells the right to use its name and idea to another business (franchisee) to sell and original business’ good or services under an existing model or trademark.” (Google definitions)

The NLRB’s Joint Employer rule specified that two entities in the franchise relationship can be considered a joint employer (one company) “if they share or codetermine essential terms and conditions of employment.” What are essential terms and conditions of employment? Those are “wages, benefits and other compensation; hours of work and scheduling; assignment of duties; supervision and performance of duties; work rules and directions governing the manner, means and methods of performance, as well as ground for discipline; tenure of employment; and working conditions related to safety and health of employees.” A franchisor contract that stated certain personnel criteria to follow in the franchisee’s store could meet this requirement.

The NLRB Joint Employer Rules would provide the NLRB control over both franchisee and franchisor when determining unfair labor practices and seeking to allow union organizing within a franchise operation. This in turn gives the NLRB more control over a franchise employer’s operation during organizing because the original business (franchisor) can be held responsible for the acts of its independent business operators (franchisees) – arguably one major thing that the franchise business model was created to avoid.

And do not forget, the Department of Labor’s Independent Contractor rules were also recently released. These rules are the Joint Employer rule’s evil brother and would extend control to the U.S. Department of Labor (DOL) over millions of independent businesses operators. Up to 64 million plus persons that make their livelihoods from providing goods and services to other businesses as independent businesses would be impacted. These new labor classification rules seek to eliminate independent contractors as a workforce and to put them under the control of other businesses as employees – no longer their own business but under the control of another business. Why? Well again, control is a big concern. If these small independent businesses now have to be employees of another business, it is so much easier to collect payroll taxes and hold one entity (vs. millions) responsible for tax collection as well as other government compliance.

ASE will continue to monitor the legal battle around these two broad regulatory initiatives as they make their way through the court system.

Sources: Labor Union News. NLRB’s Joint Employer Rule Struck Down By Federal Judge for Now (38/2024); HR Dive. Dive Brief. Texas Judge Vacates Joint Employer Rule. (3/9/2024)