NLRB Action Threatens Franchise Businesses

Date: August 28, 2015

On August 27, 2015 the National Labor Relations Board
(NLRB) finally issued its ruling concerning the relationship between
employers, franchise arrangements and independent contractors. The labor union
stacked agency issued a radical reconstruction of the “joint employer rule”
which has been settled law for decades. In its ruling the NLRB expanded the
definition to include both indirect, direct, and even potential, unexercised
control over employees in a joint employer determination.

The bottom line is that the NLRB actions in expanding the
definition of a joint employer to include a franchisee’s national brand will
destroy the franchise model leading to industry consolidation, store closures,
a loss of jobs and economic activity and entrepreneurial investment. For the
labor unions and the Obama administration that sought this result, it will make
it easier for big labor unions to strike and organize franchise business
employees and small independent contractors.

The previous joint employer standard had been in place since
1984. Under that standard, an entity was a joint employer if it exercised
direct and immediate control over another business’s employees, including
having the ability to hire, fire, discipline, supervise or direct an
individual. Entities were joint employers only when they share that direct
control over the terms and conditions of employment for the same employees. Previously,
most franchisors, franchisees (independent businesses), and subcontractors were
treated as separate businesses.

Now the NLRB has expanded the joint employer standard to
include indirect control or potential, unexercised control over another
business’s employees and employment decisions. Therefore, a franchisor could
have control over a franchisee’s employment decisions, and a business hiring a
subcontractor could essentially be taking on all of the subcontractor’s
employees as their own. They could no longer be treated as separate businesses.

The NLRB’s decision broadened the joint employer definition
and dramatically expanded contractor responsibilities. It also makes them more
liable for a subcontractor’s actions. For non-franchise businesses, any
business relationship could be susceptible to a joint employer finding.

The National Federation of Independent Business (NFIB) Small
Business Legal Center will pursue the reversal of this ruling in the courts and
NFIB will also seek legislation in Congress to overturn the actions of the

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