Understanding the Joint Employer Issue

Franchising succeeds because of the unique franchise relationship – a franchisor who creates the brand and business concept, and a franchisee who licenses the right to run the business as its own independent operation.

IFA supports codifying a joint employer standard that requires direct control of narrowly defined essential terms and conditions of employment to ensure franchisees continue to receive franchisor support while they operate independently and that brand standards can be enforced to protect the equity each franchisee has built in their business.

In recent years, government regulators have tried to disrupt franchising by unnecessarily changing the joint employer standard – especially through the National Labor Relations Board’s (NLRB) 2023 joint employer rule, which sought to expand the definition of joint employer to an ambiguous and overly broad standard that threatened the viability of the entire franchise model.

IFA led the lawsuit that consummated with the March 2024 federal court rejection of the NLRB’s 2023 joint employer rule. The 2023 joint employer rule would have significantly and unnecessarily affected the viability of the franchise model by imposing an unclear and expansive definition of joint employment.

In striking down the 2023 rule, the federal court reinstated the NLRB’s 2020 joint employer rule, which is good for franchising as it provides for the long-standing precedent for joint employment liability that requires one entity to apply direct and immediate control of employment to be deemed a joint employer with a second entity under the National Labor Relations Act. The NLRB’s 2020 joint employer rule remains the current law of the land.

IFA also led advocacy that resulted in both houses of Congress rejecting the NLRB’s 2023 joint employer rule through a Congressional Review Act (CRA) joint resolution of disapproval; the U.S. House passed House Joint Resolution 98 in January 2024 and the U.S. Senate approved the measure in April 2024. President Biden vetoed the measure in May 2024.

IFA’s activism on the joint employer issue is due to the fundamental harm already caused by an expansive joint employer standard on the business-to-business relationship in franchising. When the NLRB put forth a similar joint employer standard in 2015, it led to years of operational and legal costs for franchisors and franchisees:

  • Cost to franchise businesses of $33 billion per year,
  • 376,000 franchise job opportunities never created, and
  • Nearly doubled litigation against franchises.

Naturally, franchisees overwhelmingly opposed the NLRB’s 2023 joint employer rule. According to a September 2023 survey on the rule:

  • 87% of franchisees said they would be concerned if their franchisor took more control over their operations as a consequence of the NLRB rule,
  • 82% said they would be concerned if their franchisor reduced operations and compliance support as a consequence of the NLRB rule,
  • Only 14% of franchisees said they would definitely still have opened a franchise business if this NLRB rule were in effect.

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