Board Finalizes Rule Scaling Back Joint Employer Liability for Franchisees, Contractors

A U.S. labor board finalized a rule that will make it more difficult to hold companies liable for unlawful labor practices by franchisees and contractors, reversing a more worker-friendly Obama-era standard criticized by business groups.

The rule by the National Labor Relations Board (NLRB) requires that companies have direct control over the working conditions of franchise and contract workers to be considered their “joint employers.” The issue is important for franchisors like McDonald’s Corp. or Burger King Corp. and the many companies that utilize staffing agencies, because joint employers can be made to bargain with unions and found liable for violations of the U.S. law that governs union organizing.

In a 2015 decision, NLRB members appointed by President Barack Obama said indirect control over working conditions could create a joint-employment relationship.

Business groups have said that standard was too broad and would subject companies to liability even when they do not have the final say over employment-related decisions.

The International Franchise Association, a trade group, said in a statement that the Obama-era standard had cost the U.S. economy more than $30 billion per year and nearly doubled the number of lawsuits workers filed against franchise businesses.

Unions and other opponents of the new rule have said it will deprive workers, particularly in low-income industries, of the ability to improve working conditions through collective bargaining. The left-leaning Economic Policy Institute estimated workers will lose $1.3 billion in wages annually as a result of the rule. The U.S. Department of Labor last April proposed a rule that would make it more difficult to prove companies are joint employers under federal wage law. The proposal is pending.