NLRB Finalizes Ruling to Reduce Joint Employer Liability for Franchisors

Today, the National Labor Relations Board (NLRB) published a final rule updating its joint-employer regulations today, according to an NLRB statement. The rule will be effective on April 27.

According to this new ruling, restaurants may be considered a joint employer of an operator's employees only if the restaurant maintains “substantial control” over the workers' essential terms of employment. The NLRB defines these essential terms exclusively as “wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.” 

Today’s ruling comes after years of concern over non-compliance following the board's decision to broaden the interpretation of joint-employer status in 2015. After the NLRB expanded the joint employer definition, joint employer lawsuits increased 93% and cost individual franchise businesses an average of $42,000, according to the International Franchise Association. In fact, many foodservice franchisors considered cutting back on or halting franchising entirely to avoid this increased liability.

In December of last year, the NLRB began showing signs of moving toward reducing franchisors' responsibility over their operators' infractions. McDonald’s—the largest fast food chain in the world—won an appeals case in which the NLRB ruled the brand was not considered a joint employer and therefore should not be subjected to penalties for labor violations alongside its franchisees.

Overall, the updated regulatory landscape will bring relief to established QSR and fast casual franchisors and independent restaurants that are looking to expand through franchising. Still, these updates could be discouraging to labor groups that have tried to hold corporate restaurants accountable for the bad actions of their operators.