Some form of the Common Employer Rule has existed for years, but in 2023, the NLRB expanded it in a way that directly affected the franchise industry. The expanded rule will exclusivity of influence expanding the definition of joint employment, making it possible for franchisors to be responsible for employees they do not directly employ or manage.
Since last year, several groups have challenged the extended rule, mainly a coalition of business organizations led by International Franchise Association (IF ONE). entrepreneur spoke to the lawyer Jim Paretti of the labor relations law firm Littler Mendelson to find out the status of each challenge, what's next, and what the franchise industry might look like if this rule is finally implemented.
First, let's start with the Congressional Review Act. On May 3, President Biden vetoed bipartisan resolution.
I think the president's veto, Congressional Review Act the solution is effectively a dead issue at this point.
Then there is the lawsuit brought by the IFA coalition in the Eastern District of Texas. The coalition won that case first, didn't they?
Correct. From our point of view, it was one excellent decisionnot simply because we won, but it was a very reasoned point-by-point legal analysis detailed by the judge.
Now that the NLRB has appealed that decision to the Fifth Circuit Court of Appeals, what's next?
We'll cut it back and forth, and there will more than likely be oral arguments. then The fifth circuit will reach a decision upholding the lower court in whole, in part or not (upholding it).
Is the appeal heard by a single judge or by a panel?
It will be a panel with three judges. Then, generally, if you have a three-judge bench in the appeals court, the losing party can usually request that the full appeals court, which can be 17 or more judges, review the case on the bench. This is quite unusual, but always a possibility.
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After the final appeal decision is issued, does the losing party have any recourse?
The next step would be if someone wants to submit a petition to US Supreme Court seeking review of the Fifth Circuit's decision. And this is not a right, remember, this is a permission. This is only if the Supreme Court wants to grant the review.
Then there is the SEIU case that was filed in the appeals court in Washington, DC.
Yes, they deposited directly to District Court of Appeal for the DC circuit. The Coalition in the Texas case intervened, and we have moved to dismiss on the ground that the court of appeals lacks original jurisdiction over a challenge of this type. This is where the issue currently lies. The CJC Court of Appeal is trying to decide whether or not to dismiss the case for lack of jurisdiction.
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The expanded rule is clearly dangerous for the entire franchise industry. Who benefits from it?
Organized labor has long pushed for a very broad common employer standard. Regarding franchising, the point is, let's say you want to organize workers in Franchise X. If you want to organize site by country, this is not an easy process. It takes a lot to go franchise after franchise. What they would like is to have franchisor being a joint employer (and) having to sit down at the bargaining table and negotiate for a bunch of stores and reach an agreement with the national franchise. It is therefore a very high priority for trade unions.
Let's say the IFA coalition wins in the Eastern District of Texas and in DC Could the NLRB do this again at some point?
The short answer is that BOARD can continue to try to write a rule. They can go back to the drawing board, try again and write something tighter.
What does exclusivity look like if the extended rule applies?
If I am a national franchisor, I have two options. One is to fully withdraw as much as I can – which I really am the opposite of what you want from a franchisor – leaving franchisors in the lurch.
Or, alternatively, I'll come down with a hammer. If any amount of control is going to make me responsible, then I will exercise a lot of control over each franchise, and probably go into the day-to-day operation, which means suddenly franchise owner – the independent entrepreneurial business owner – goes from being their own boss to being, essentially, a glorified middle manager. This is not what anyone signed up for when they bought a franchise.
In uncertain times like these, what can franchisors do to protect themselves?
As a practical matter, every franchisor should consider whether they are exercising the necessary amount of control necessary to maintain the franchise without exercising too much control. Because even under (the Trump-era rule), which we think is a very good and reasonable rule, if a franchisor tries to run the day-to-day operations of a franchise, they can be considered a joint employer. So look to yours deal and examine your practices. Are you doing enough to ensure you're maintaining brand standards while not doing so much as to get bogged down in day-to-day scrutiny?