Regardless of President Biden The veto of May 3 after Congress attempted to overturn National Labor Relations Board (NLRB) expansion of the Common Employer Rule, the expanded rule remains dead — for now. Legal action is still pending over the rule, and serious questions remain about what it could mean for the individual franchise businesses. More importantly, how can franchisors best protect their businesses from government action like this moving forward?
“The only thing I can say for sure is what we have now is not the last word on this subject,” said Jim Paretti, an attorney for the employment and labor relations law firm. Littler Mendelsonduring the International Franchise Association (IFA) webinar on April 23, “Joint Employer: Are Exclusive Companies Clear?The webinar also featured Michael Layman, the IFA's senior deputy for government affairs, and solicitor Alex MacDonald, also of Littler Mendelson.
Extended rule
Expanded Common employer rule expands the definition of joint employment, making it possible for franchisors to be liable for employees they do not directly employ or manage. It would have hurt both of them Franchises and franchisors. Franchisors would “be in a position where they can't be responsible for what somebody else is doing,” Paretti said, “so maybe they won't franchise anymore. The franchise model just goes away and the franchisees are left holding the bag .”
Paretti also explained that if the courts revived the rule, he would wait franchisors begin to exercise unprecedented control so that franchisees “begin to look less like independent business people and more like middle managers who are not in business for themselves (or) making decisions on a daily basis . Everything comes from above.”
Biden's veto
After the Senate and House of Representatives passed Congressional Review Act Resolution SJ Res. 49, the only remaining question was whether President Biden would sign it, an act that IF ONE said it would “tie the hands of future NLRBs from setting broad common employer standards and provide long-term certainty for the franchise.”
As advocates on the webinar predicted, President Biden vetoed legislation on May 3, 2024. Furthermore, Paretti noted that he did not think he had the two-thirds of support needed to override the president.
In the end #NationalSmallBusinessWeek, @POTUS vetoed bipartisan legislation that would have overturned the common employer rule, turning its back on #franchise & thousands of small businesses. While he claims to support small businesses, his actions speak louder than words pic.twitter.com/rdztAaG5We
— Matt Haller (@matthewhaller) May 3, 2024
“President Biden claims to be a champion for small business, but today he turned his back on franchising, a business model that has done more to disenfranchise countless Americans from small business ownership, especially for traditionally underrepresented minorities. , women and veterans,” said Matthew Haller. , president and CEO of IFA. “The administration has strengthened its position that it cares more about special interests than small business owners and their employees, who face an almost daily onslaught of costs and uncertainties from the Biden Administration's regulatory onslaught.”
ACTIONS
The IFA led a coalition that included American Chamber of Commerce, American Hotel and Lodging Association AND National Retail Federationwhich won a lawsuit challenging the expanded rule in Texas in March.
“We got a good win in Texas,” MacDonald said. “A lot of people are breathing a sigh of relief, but we can't breathe a sigh of relief because there's ongoing litigation and, frankly, these rules could be reversed.”
of NLRB has until the end of this month to appeal the Texas decision, which Paretti thinks is likely.
Meanwhile, in Washington, DC, Service Employees International Union (SEIU) is also challenging the rule in court, arguing that it is too narrow. The same coalition from the Texas case, led by IFA, intervened in the DC lawsuit, and the court is considering a motion to dismiss. However, Paretti sees a longer road to that suit.
“I suspect as long as this goes through the court system, this will end up in the Supreme Court in some shape or form,” Paretti said. “I just don't see a way for it not to happen.”
What should franchisors do?
There are some simple and straightforward things franchisors can do today to start protecting and preparing their business for a revived and expanded Common Employer Rule.
First, MacDonald recommended a full review of everyone CONTRACTS (with vendors, franchisees, etc.) for indirect or reserved control specifications, such as direct training requirements, the right to fire workers, background check requirements, minimum qualifications and specific staffing and coverage level requirements. Against these risks by clearly assigning responsibility for as many essential terms and conditions as possible to the employer.
Next, review your business agreements: Emphasize brand standards over individual employee standards when you need service requirements in contracts or in home reporting and inspections. Minimize your involvement in recruiting, time keeping, record keeping, payroll policies and other operations.
If a franchisor must inspect a location, MacDonald again recommended focusing on brand standards, not individual worker standards. “You want to be careful about things like cleanliness,” he said. “Does the brand tag appear in the right place? Do they clearly communicate that they are exclusive? Are they products equipped? Instead of how many employees are working at the desk and how those employees are doing. These kinds of things can start to look like oversight as opposed to protecting your brand standards.”
Additionally, reduce your reliance on non-essential vendors—especially if they must be on-site—and train your supervisors on how to interact with retailers. But above all, MacDonald said, “Choose reliable partners. If you end up contracting a vendor that operates on the borderline, then these rules make it more likely that you will be liable for that vendor's conduct or mistakes.”