QSR Magazine: NLRB Hit With First Lawsuit Over New Joint Employer Rule

The rule, which will take effect December 26, has been heavily criticized for how much it will cost franchise companies around the country and being “overbroad.”

By Victoria CampisiStaff Writer

Updated 3:15PM • 11/10/23

The National Labor Relations Board (NLRB) is being sued by a coalition of restaurant advocates over the new joint employer rule that would make it easier for franchisors to be held liable for legal violations at the franchisee level.

Per the new rule, a franchisee and franchisor may be considered joint employers if they both have an employment relationship with workers and they share or codetermine “essential terms and conditions of employment.” For example, this could include wages, benefits, hours of work, scheduling and working conditions. Franchisors may be considered a joint employer if they have authority over at least one of the essential terms and conditions. The updated rule will take effect on December 26.

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.”

The rule was previously slammed by the International Franchise Organization (IFA), which wrote that the rules would “wreak havoc on the franchise business model, its millions of employees and the consuming public.”

The coalition of restaurant advocates is arguing that the rule replaces a clear 2020 standard and that it “threatens chaos and indeterminacy in national labor relations across major industry sectors.” The new rule rescinds a rule adopted during the Trump administration era that required the parent company to only be held liable for such labor law violations if it exerted direct control over essential terms and conditions of employment.

The legal move wants the court to declare the rule unlawful and prevent it from being enforced by the NLRB. The lawsuit features the IFA, U.S. Chamber of Commerce, American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, Coalition for a Democratic Workplace, Longview Chamber of Commerce, National Retail Federation, National Association of Convenience Stores, Restaurant Law Center, Texas Association of Business, and Texas Restaurant Association.

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