The New Rule

The National Labor Relations Board (NLRB) issued a groundbreaking joint-employer rule on Oct. 26, 2023. This rule, slated to redefine joint-employer relationships, carries substantial implications for franchisors.

The new rule, effective February 26, 2024, changes the definition of a joint employer. Previously, joint employer status was established when an entity had  direct and immediate control over employment terms.  Under the new rule, joint employer status can also be established when an entity has the mere ability to control employment terms, regardless of whether it uses the ability. This means that the potential to control, whether through intermediaries or a franchise agreement, can establish an entity as a joint employer. Relevant employment terms include wages, work hours, job duties, supervision, employment rules, workplace safety, and health conditions.

If deemed a joint employer under the new rule, franchisors could face increased bargaining obligations, such as collective bargaining with unions, and potential liability for unfair labor practices, even in areas historically managed by franchisees.

What to Do Now

It is imperative that franchisors review current contracts and practices to best adapt to the new rule.  Here are a few tips for franchisors to use moving forward:

  • Where possible certify and only train managers/owners folks and not employees.  Alternatively, if this is not possible, ensure that a manager/owner is present if employees will be trained/certified.  In that case, direct and teach the owners/managers the rules to disperse to employees where possible and make clear that the employees do not work for you.
  • Require that franchisees have their employees sign an acknowledgement that they work for the franchisee’s entity and not for the franchisor.
  • Don’t get involved in employment decisions such as hiring or firing.  Similarly, make sure your franchisees are clearly managing all HR matters at their franchised locations.
  • Review software such as POS software that you provide to ensure that it does not get involved in labor matters.
  • Make sure the franchisees are holding the business out as an independently owned and operated franchised location.
  • Require franchisees post something in break rooms saying that they are employees of the franchisee and are not employed by the franchisor entity.
  • Make sure franchisees don’t do paychecks that say the franchise name (i.e., “McDonald’s”) – instead have them use their business entity names (i.e., “ABC Co”).
  • Review materials in handbooks and operations manuals to ensure compliance.
  • Don’t supply employee handbooks to franchisees or, if you feel compelled to do so, ensure they are sample forms that the franchisees must complete and take responsibility for.

We will continue to monitor this new rule and provide updates on our blog as necessary.  If you have any questions, please feel free to reach out!