1851

In a landmark move that's set to reshape the franchise landscape, the National Labor Relations Board (NLRB) has issued&nbsp;<a href="https://www.nlrb.gov/news-outreach/news-story/national-labor-relations-board-issues-final-rule-to-restore-fair-and?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">a final rule</a> regarding joint employer status under&nbsp;<a href="https://www.nlrb.gov/guidance/key-reference-materials/national-labor-relations-act?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">the National Labor Relations Act</a>. This ruling, effective from December 26, significantly revises the criteria for determining joint employer relationships, with far-reaching consequences for both franchisors and franchisees.<h2>Key Aspects of the New Rule</h2>The National Labor Relations Board's new rule introduces a significant change in defining joint employer status. Initially, it posits that entities sharing or co-determining key employment terms can be deemed joint employers. Crucially, the rule extends beyond actual control of employment terms to the mere possession of such control authority, regardless of its use. This means that even potential or indirect control, possibly exercised through intermediaries, can qualify an entity as a joint employer.This expansive approach includes a broad range of employment aspects under the umbrella of "essential terms and conditions." These include wages, work hours, job duties, supervision, employment rules, and even workplace safety and health conditions. Consequently, an entity could be considered a joint employer if it holds authority over any of these areas, significantly widening the scope from the previous rule's focus.Previously, the 2020 rule emphasized direct and immediate control over employment terms to establish joint employer status. This allowed for more traditional business models, including franchising and third-party service agreements, without the risk of joint employer liability simply for having contractual rights to influence certain employment aspects. However, the latest rule marks a departure from this, placing many established business relationships under closer scrutiny and potentially altering the dynamics of joint ventures and franchise operations.<h2>Implications for the Franchise World</h2><ul><li>Increased Liability for Franchisors: Franchisors, now more than ever, risk being classified as joint employers. This expanded definition could mean increased bargaining obligations and potential liability for unfair labor practices, even in areas traditionally managed by franchisees.</li><li>Impact on Franchise Relationships: The blurring lines in the joint employer status could affect the autonomy of franchisees. Franchisors might need to reconsider their involvement in operational aspects to mitigate joint employer risks.</li><li>Contractual Agreements: Franchise agreements may require revisions to clearly delineate responsibilities and control aspects, ensuring compliance with the new NLRB standards.</li></ul><h2>The Long and Winding Evolution of the Joint Employer Rule</h2>Tracing back almost a decade, the joint employer rule has seen significant shifts with varying administrative stances. In 2015, the NLRB decided to&nbsp;<a href="https://www.nlrb.gov/?utm_source=1851franchise.com&amp%3Butm_medium=article&amp%3Butm_campaign=nlrbs-joint-employment-decision-what-franchisees-need-to-know-2714866&utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">broaden the interpretation of joint-employer status</a>, resulting in a threat to the franchised business model's mode of employment. During this period, franchises lost $33.3 billion each year, 376,000 jobs were lost and lawsuits increased by 93%.&nbsp;<a href="https://www.franchise.org/media-center/press-releases/international-franchise-association-sues-national-labor-relations-board?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">According to research conducted by Oxford Economics</a>, 70% of franchisees expect increased litigation and costs due to the NLRB rule, while 66% believe the new standard will raise barriers to entry into the franchising sector.In December of 2019, the NLRB began showing signs of moving toward reducing franchisors' responsibility over their operators' infractions.&nbsp;<a href="https://1851franchise.com/franchise-deep-dive-mcdonalds-franchise-costs-fees-profit-and-data-2720737">McDonald’s</a> — the largest fast food chain in the world —&nbsp;<a href="https://1851franchise.com/national-labor-relations-board-mcdonalds-is-not-a-joint-employer-2711854#stories">won an appeals case</a> 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.In February of 2020,&nbsp;<a href="https://1851franchise.com/nlrb-finalizes-ruling-to-reduce-joint-employer-liability-for-franchisors-2712391#stories">the NLRB updated its joint-employer regulations</a> once again, stating that franchisees could be considered a joint employer of an operator's employees only if the franchise maintained&nbsp;<a href="https://www.qsrmagazine.com/legal/nlrb-businesses-must-have-substantial-control-be-joint-employer?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">“substantial control”</a> over the workers' essential terms of employment. This assured franchisors that they wouldn’t be repeatedly dragged into court by employees looking to sue a big corporation for alleged violations of federal labor regulations. But, just a few months later, the ruling was overturned once again.&nbsp;&nbsp;This time around, the NLRB is already&nbsp;<a href="https://1851franchise.com/qsr-magazine-nlrb-hit-with-first-lawsuit-over-new-joint-employer-rule-2724232#stories">being sued</a> by a coalition of restaurant advocates over the new joint employer rule. The lawsuit claims the new rule is “overbroad” and says that it “threatens billions of dollars in liabilities and costs.” It also claims that the law rejects a limiting principle of the National Labor Relations Act, which is that a joint employer must “possess sufficient control over workers’ essential terms and conditions of employment to permit meaningful collective bargaining.”&nbsp;The&nbsp;<a href="https://www.franchise.org/media-center/press-releases/international-franchise-association-sues-national-labor-relations-board?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">IFA has also filed a lawsuit</a> against the NLRB alongside 12 other trade groups. The lawsuit takes aim at the NLRB for exceeding the scope of its authority and violating the Administrative Procedure Act (APA) by failing to respond to comments regarding the rule’s harmful economic consequences.<h2>Navigating the New Landscape</h2>Franchisors and franchisees must adapt to these changes proactively. This includes revisiting franchise agreements, re-evaluating operational controls and possibly seeking legal counsel to navigate the complexities of this new rule.&nbsp;“We all need to have great attorneys — if these go into place, attorneys will be our best friends,” said&nbsp;<a href="https://www.linkedin.com/in/jerry-akers-39599688?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">Jerry Akers</a>, franchisee of&nbsp;<a href="https://1851franchise.com/greatclips/info">Great Clips</a> and&nbsp;<a href="https://1851franchise.com/franchise-deep-dive-the-joint-chiropractics-franchise-costs-fees-profit-and-data-2721360">The Joint Chiropractic</a>, during a recent webinar with Franchise.org. “I did not get into franchising to share my responsibilities with corporate, I did it to use their systems and resources to succeed with my own business. That won’t be possible with this new ruling.”Overall, the NLRB's new joint employer rule is a game-changer for the franchise industry. It demands careful consideration and strategic adjustments from both franchisors and franchisees. As the franchise world adapts to this evolving legal landscape, staying informed and agile will be key to thriving under the new regulatory regime.“In order for us to get through this, franchisors need to educate everyone from top to bottom about what this means for them,” said&nbsp;<a href="https://www.linkedin.com/in/amy-cheng-771b663?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">Amy Cheng</a>, Partner at&nbsp;<a href="https://www.chengcohen.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising-2724321" target="_blank" rel="nofollow">Cheng Cohen LLC</a>, during the webinar. “Franchisees also have an obligation to educate their employees about joint employment. That is just as important. If we educate on both of those fronts, my hope is that together we will be able to educate the public and get through this.”Related Articles:&nbsp;<ul><li><a href="https://1851franchise.com/ifa-and-thousands-of-franchisees-push-back-on-proposed-joint-employer-standard-2720586#most-recent-stories">IFA and Thousands of Franchisees Push Back on Proposed Joint Employer Standard</a></li><li><a href="https://1851franchise.com/franchises-to-face-increased-legal-pressure-under-proposed-nlrb-rule-2719677#most-recent-stories">Franchises to Face Increased Legal Pressure Under Proposed NLRB Rule</a></li><li><a href="https://1851franchise.com/new-jersey-hospitality-bill-a-1958-passes-assembly-sparks-backlash-from-international-franchise-association-2722457#most-recent-stories">New Jersey Hospitality Bill A-1958 Passes Assembly, Sparks Backlash from International Franchise Association</a></li></ul>

Understanding the NLRB's Joint Employer Rule and Its Impact on Franchising

1851 Franchise

Many experts fear this ruling, effective December 26, could disrupt the nature of franchisor-franchisee arrangements and undermine businesses that rely on third-party staffing agencies.

understanding-the-nlrbs-joint-employer-rule-and-its-impact-on-franchising

The Cleaning Authority

Franchise Journal Magazine: The Cleaning Authority Sets the Standard in Residential Cleaning

cleaning-authority-franchise-journal-feature

TruBlue Home Service Ally

Build a Business That Supports Your Lifestyle Goals With TruBlue Home Service Ally Franchise

 trublue-home-service-ally-lifestyle-franchise-success

Layne's Chicken Fingers

Photo of Layne's Chicken Fingers restaurant with "Now Open" inflatable on roof

Layne’s Chicken Fingers Opening Blueprint Drives Success From Day One

franchise-opening-playbook

Right at Home

Veterans, Army, Navy, Right at Home franchisees, Veterans Day

Veterans Excel as Right at Home Franchisees: Here's Why

veterans-in-franchising-right-at-home-success

Why This Corporate McDonald’s Rep Decided To Open His Own Franchise With The Cleaning Authority

kent-lewis-franchise-success

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

houses, Why Top Franchises of 2025 Outperform Independent Businesses

Why the Top Franchises of 2025 Outperform Independent Businesses

how-franchises-outperform-independent-business-2025-tech-data

Photo of Happinest Brands teams standing together in front of branded vehicles

Happinest Brands Continues Strong 2025 Trajectory With Major Q3 Growth and Strategic Wins

happinest-brands-q3-franchise-growth

Franchise Owners Step Up To Support Communities During Government Shutdown - 1851 Franchise

Franchise Owners Step Up To Support Communities During Government Shutdown

franchise-community-support-shutdown

Slim Chickens Opens R&D Center at World Headquarters To Drive Menu Innovation

slim-chickens-rd-center-fayetteville

Nearly 40% of Americans Are Eating Out Less as High Prices Redefine Dining Habits

nearly-40-of-americans-are-eating-out-less-as-high-prices-redefine-dining-habits

image of jerome hanway from right at home Las Cruces, New Mexico 1851 franchise franchisee spotlight

Jerome Hanway Is Building His Right at Home Franchise Around His Mission To Serve

right-at-home-franchise-las-cruces-jerome-hanway

A Practical Playbook: Who To Call First When Franchising Your Business

franchising-your-business-who-to-call-first

Photo of group of dogs standing together in day care facility

Top Pet Boarding and Day Care Franchise Opportunities for 2025

top-pet-boarding-daycare-franchises

image of franchise deep dive from 1851 franchise on doody calls franchise authority brands

DoodyCalls Franchise Costs, Fees, Profit and Data for 2025

doodycalls-franchise-deep-dive

1851 Franchisee Spotlight graphic with photo of Waleed Liaqat and Paris Baguette logo

How a Chance Visit Inspired Waleed Liaqat to Bring Paris Baguette to East Plano

paris-baguette-waleed-liaqat-plano-franchisee

graphic image of an 1851 franchisee spotlight brayden and johnny steven of teriyaki madness

Father-and-Daughter Team Bring Teriyaki Madness to Wichita, Kansas, With Big Expansion Plans

johnny-brayden-steven-teriyaki-madness-wichita

Understanding the NLRB's Joint Employer Rule and Its Impact on Franchising

MORE STORIES LIKE THIS