Some form of the Joint Employer Regulations have existed for years, but in 2023 the NLRB expanded them in a way that directly affected the franchise industry. The expanded rule would impact franchising by broadening the definition of joint employment, potentially making franchisors liable for employees they do in a roundabout way employ or manage.
Several groups have been difficult the expanded rules since last yr, mainly a coalition of business organizations led by them International Franchise Association (IF). Entrepreneur talked to a lawyer Jim Paretti labor law office Little Mendelson to search out out where each challenge stands, what’s next, and what the franchise industry might appear to be if this rule is ultimately implemented.
Let’s start with the Congressional Review Act. On May 3, President Biden vetoed the bipartisan resolution.
I think that with the president’s veto, the so-called Congressional Review Act the resolution is effectively a dead issue at this point.
There is also a lawsuit filed by the IFA Coalition in the Eastern District of Texas. The coalition initially won this case, right?
Normal. From our point of view, it was an excellent decision, not only because we won, but also because of the thoroughly reasoned, point by point and detailed legal evaluation carried out by the judge.
What happens now that the NLRB has appealed this decision to the Fifth Circuit Court of Appeals?
We will discuss this back and forth, and there’ll most probably be oral arguments. The Fifth Circuit will then make a decision that may uphold the lower court’s decision in whole or in part or not [upholding it].
Is the appeal heard by one judge or by a panel of judges?
It might be a panel of three judges. Then, generally speaking, if there are three judges in the appellate court, the losing party can normally ask the full appellate court, which can consist of 17 or more judges, to have the case reheard at the desk. This is quite unusual, but at all times possible.
Once the final appeal decision has been issued, does the losing party have any remedies?
The next step can be to file a petition with the U.S. Supreme Court asking it to review the Fifth Circuit’s decision. And it is not a law, remember, it’s a permit. That’s only if the Supreme Court desires to issue an opinion.
Then there is the SEIU case dropped at the Washington Court of Appeals.
Yes, they applied directly in District Court of Appeal for a DC circuit. The Texas Case Coalition intervened and we moved to dismiss the grievance on the grounds that the appellate court lacks original jurisdiction over these types of complaints. That’s where this case is. The D.C. Court of Appeals is trying to come to a decision whether to dismiss the case for lack of jurisdiction.
The prolonged rule is obviously dangerous for the entire franchise industry. Who advantages from this?
Organized employees have long been calling for the introduction of a very broad common employer standard. When it involves franchising, the problem is that permit’s say you need to organize employees in Franchise X. If you need to organize the business locally, it is not an easy process. Switching to a franchise takes a lot of effort. They would really like the franchisor to be a joint employer [and] they need to return to the bargaining table and negotiate for a plethora of stores and come to an agreement with the national franchise. That is why this is a priority for trade unions.
Let’s assume the IFA coalition wins the Eastern District of Texas and DC. Could the NLRB ever attempt to do this again?
The short answer is this board you’ll be able to keep trying to write down the rule. They can go back to the drafting board, try again, and write something more narrow.
What will franchising appear to be after the expanded rule is implemented?
If I’m a national franchisor, I have two options. One is to withdraw completely as much as possible – which is actually the opposite of what is expected of a franchisor – leaving franchisees out in the cold.
Or, alternatively, I’ll hit it with a hammer. If any control makes me liable, then I have a lot of control over each franchise and may get involved in the day-to-day operations, which suddenly means the franchise owner – the independent entrepreneurial business owner – goes from being his own boss to, in effect, a glorified middle manager level. That wasn’t what anyone was focusing on when they bought the franchise.
In uncertain times like these, what can franchisors do to guard themselves?
From a practical perspective, each franchisor should consider whether it has the vital control vital to take care of the franchise without exerting too much control. Because even under [Trump-era rule]which we consider is a superb and reasonable principle, if the franchisor seeks to administer the day-to-day operations of the franchise, it might be considered a joint employer. So take a look at your contracts and analyze your practices. Are you doing enough to make sure you are maintaining brand standards without doing too much to lapse into day-to-day scrutiny?