Hobbit Business Review

The Rule That Would’ve Crushed Franchising Was Just Struck Down — But the Fight Isn’t Over.

For months, the franchise industry has been on edge — concerned that a new federal rule could undercut the very model of franchising. Now, some are breathing a tentative sigh of relief. On Friday evening, a federal judge in Texas struck down the rule. “This is a landmark victory for franchising,” the International Franchise Association (IFA) said in a statement to its members.

The Joint Employer Rule

The federal rule is known as “Joint Employer.” Some form of the rule has existed for years, but in 2023, the National Labor Relations Board expanded it in a way that directly impacted franchising. Under the new version of the rule, two companies — say, a McDonald’s and a McDonald’s franchisee — could more easily be considered “joint employers” of the same employees.

That would, for example, make McDonald’s legally liable for any labor violation committed by one of its franchisees, even though McDonald’s itself did not hire and does not manage that employee, and therefore could complicate the relationship between franchisees and franchisors.

‘Fundamentally upend’ franchising

The expanded rule would “fundamentally upend the franchise business model,” the IFA said at the time. “The rule would reduce the independence of franchise business owners, diminish franchisees’ equity in their businesses, and force franchisors to offer less support.” The expanded rule would also make it easier for employees to unionize.

The IFA was one of many organizations — including the U.S. Chamber of Commerce, the American Hotel and Lodging Association and the National Retail Federation — to sue to block the rule in November

The rule’s implementation had been pushed back as the litigation continued. Although the rule will now no longer go into effect, the issue is not fully resolved. The National Labor Relations Board can appeal the ruling, although it has not yet said if it will. The NLRB could also revise the joint employer rule.

 

Congressional resolution

A more lasting resolution may come through Congress. In January, the House passed a resolution to reject the NLRB’s joint employer rule. Advocates are now urging the Senate to pass the measure and send it to President Biden to sign. According to the IFA, this “would tie the hands of future NLRBs from instituting expansive joint employer standards and provide long-term certainty to franchising.”

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