The Impact of the Joint-Employer Rule on Franchises and Small Businesses
Last week, the House of Representatives passed a resolution aimed at overturning the National Labor Relations Board’s (NLRB) joint employer rule. The revised NLRB rule, set to take effect on February 26, 2024, makes it easier for businesses to qualify as joint employers, holding both entities accountable for labor law violations. This development carries significant implications for franchisors and small businesses dependent on contract labor, prompting legal action by business groups to prevent the rule’s implementation. With the House resolution making progress in the Senate, business owners see potential legislative intervention as a possible solution.
What is the Joint-Employer Rule?
The NLRB revised the Joint-Employer Rule in October 2023, expanding the definition of joint employment for business entities. The rule streamlines the process for identifying a business as a joint employer when workers are directly employed by another entity. If entities have the power to affect or shape key employment terms and conditions, the NLRB will consider them as joint employers.
The criteria for establishing joint employer status include:
- Wages, benefits, and other compensation
- Hours of work and scheduling
- Assignment of duties and supervision
- Work rules, directions, and grounds for discipline
- Tenure of employment, including hiring and discharge
- Working conditions related to the safety and health
The standards used to determine joint-employer status have remained steady for over three decades before changes to the law began in 2015. Since then, business owners have been caught in a back-and-forth with five changes implemented over the last nine years, as government agencies and administrations try to accommodate the millions of employers and employees in small businesses nationwide.
Impacts on Franchises and Small Businesses
The new, expanded definition of joint employment introduced by the new rule, which broadens the definition of joint employment, has the potential to impact franchise businesses and small businesses who rely on contract labor.
One of the many benefits of opening or buying a franchise is the opportunity to become an entrepreneur using an established business model. Franchises may face increased liability as both franchisor and franchisee may be responsible for addressing a range of legal issues, such as employee compensation and disputes. To ensure compliance with the new standards, franchises may look to revise franchise agreements to provide clear guidelines.
Similarly, businesses who rely on contracted labor, such as temporary staffing agencies, may also experience consequences under the new Joint-Employer definition. Larger employers may look to bring more services in-house, potentially affecting small businesses that were previously outsourced to avoid labor law liability under the new ruling.
Outlook for Repealing the Joint-Employer Rule
The new rule will change the liability risks for businesses that work together, impacting not only the franchise industry but also sectors where employees may be contracted, such as healthcare, hospitality, retail, restaurants, and construction. Business groups, including the International Franchise Association (IFA), and organizations representing diverse sectors like hotels, construction, retail, and restaurants, have joined a lawsuit challenging the rule. With legal and legislative efforts underway and bipartisan support in Congress, business owners and franchisors are closely monitoring developments, recognizing the potential implications for their operations. The ongoing legal battle reflects the complex interplay between the needs of employers and employees in the dynamic landscape of small businesses, which constitute over 33 million businesses in the country.