Franchise businesses received a significant boost from the Trump administration on Friday as labor regulators began to unravel one of the Obama administration’s most controversial employment policies.
The National Labor Relations Board is considering a proposal to reinstate the long-standing interpretation of the joint-employer standard, which maintains that parent or umbrella companies are not liable for labor violations committed solely by franchisees or subcontractors. The Obama administration had scrapped the traditional standard in an effort to hold parent companies accountable even if they played no direct role in the workplace violation, giving labor unions a foot in the door for bargaining with national companies like McDonald’s rather than with locally owned franchisees.
“Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship,” the agency said in an announcement. “The National Labor Relations Act’s intent is best supported by a joint-employer doctrine that does not draw third parties, who have not played an active role in deciding wages, benefits, or other essential terms and conditions of employment, into a collective-bargaining relationship for another employer’s employees.”
The agency’s three Republican board members, all of whom are Trump appointees, supported the new proposal, while the board’s lone Democrat dissented. Board chairman John F. Ring said in a release that the new proposal would “promulgate a final rule that clarifies the joint-employer standard in a way that promotes meaningful collective bargaining and advances the purposes of the Act.” The Trump board had previously tried to overturn Obama’s joint-employer standard in the 2017 Hy-Brand case, but the agency scrapped that decision after an ethics official declared that board member William Emanuel should have recused himself because his former law firm was involved in joint-employer cases.
Industry groups praised the Trump board for using rulemaking to reassert the old joint-employer standard. The International Franchise Association called the proposal “good news” for workers and employers alike, saying it would clarify hiring and workplace policies.
“Franchise owners have been confused about the vague and uncertain legal minefield created by the NLRB joint-employer standard since it was expanded in 2015,” IFA president and CEO Robert Cresanti said in a release. “Rulemaking is an important step to address the concerns of local business owners by providing the clear lines in the determination of joint-employer status.”
Sen. Lamar Alexander (R., Tenn.), chairman of the Senate Committee on Health, Education, Labor, and Pensions, also welcomed the new rule. He said the Obama era interpretation threatened the livelihoods of hundreds of thousands of workers and small business owners, as increased liability could lead parent companies to assert central control of local franchises. Alexander sponsored legislation designed to reassert the old standard, but those bills never came to a floor vote.
“The Obama administration’s expansion of the ‘joint employer’ standard threatened to destroy the American Dream for owners of a franchise business,” he said in a statement. “The NLRB’s new proposed rule would return to the earlier joint employer standard and restore a path to the middle class for small businessmen and women across the country. This is good news for all Americans who value the opportunity to work hard and climb the ladder of success.”
The proposed rule was published in the Federal Register on Friday, beginning a 60-day public comment period in which labor attorneys, employers, unions, and other interested parties can submit recommendations about the policy.