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How the New Joint-Venture Rule Impacts Franchises

On Sept. 6, 2022, the National Labor Relations Board released a Notice of Proposed Rulemaking (NPRM), which addresses the standard for determining joint-venture status under the National Labor Relations Act. The NPRM proposes to replace the joint-employer rule that took effect on April 27, 2020. The proposed changes are intended to ground the joint-employer standard in established common-law agency principles, consistent with Board precedent and guidance that the Board has received from the U.S. Court of Appeals for the DC Circuit.

Under the proposed rule, two or more employers would be considered joint employers if they “share or codetermine those matters governing employees’ essential terms and conditions of employment,” these include: wages, benefits and other compensation, work and scheduling, hiring and discharge, discipline, workplace health and safety, supervision, assignment, and work rules. The Board proposes to consider both direct evidence of control and evidence of reserved and/or indirect control over these essential terms and conditions of employment when analyzing joint-employer status.

“In an economy where employment relationships are increasingly complex, the Board must ensure that its legal rules for deciding which employers should engage in collective bargaining serve the goals of the National Labor Relations Act,” said Chairman Lauren McFerran, in press materials. “Part of that task is providing a clear standard for defining joint employment that is consistent with controlling law. Unfortunately, the Board’s joint employer standard has been subject to a great deal of uncertainty and litigation in recent years. Rulemaking on this issue allows for valuable input from members of the public that will help the Board in its effort to bring clarity and certainty to these significant questions.”

Impact for Franchisers

The updated rule will provide new guidelines and clarity for the relationship between franchisors and franchisees. This relationship usually comes with points that dictate specific terms on trainings and materials that will be provided to employees, branding, and marketing, as well as reservations of control such as where the franchisor has leeway to proceed with certain avenues if the franchisee does not comply with the agreement.

The new rule now clarifies that the contractually reserved rights of the franchisors can be respected without the franchisor being responsible for unanticipated liability. In addition, for franchisors with franchisees who bring on services from third-party companies such as janitorial or security services, the analysis is even simpler now. Defining whether a franchisor is a joint employer of a franchisee, clarifies who can be held responsible for a worker’s rights. This differs from the initial question of whether a worker was an employee of the franchisee.

On the other hand, for franchisees, the situation will be dependent on their relationship with each franchisor. The new clarification on this rule removes the uncertainty for this relationship, which can be a positive outcome for parties on both sides of the franchise alliance.

Comments Welcomed

Public comments are invited on all aspects of the proposed rule and should be submitted to, or by mail to Roxanne Rothschild, executive secretary, National Labor Relations Board, 1015 Half Street S. E. Washington, D.C. 20570-0001. Comments on this proposed rule must be received on or before Nov. 7, 2022.

If you are still confused or unsure on how this new rule impacts your business as a franchisee, then turn to the experienced attorneys at Trembly Law Firm for guidance on how this new alteration to the rule can impact you and your business.

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