GF Issue 54

INS IGHT Franchising fights back A new federal rule that makes franchisors accountable for franchisees’ labor practices is delayed due to strong industry opposition, but the threat it poses to U.S. franchising remains high he U.S. federal government has delayed a new rule thatwill have several detrimental implications for franchising, following a legal challenge from the International Franchise Association (IFA) and other business groups. The effective date of the National Labor Relations Board (NLRB) ‘joint employer’ rule is now February26, 2024, an extension of twomonths. The rule sets new standards for determiningwhen two companies should be considered“joint employers” in labor negotiations. Under the current NLRB rule, passed bya Republican-dominated board in 2020, a franchisor isn’t considered a joint employer of most of itsworkers since theyare directly employed by franchisees. However, the update to this rulewould expand that definition, saying companies may be considered joint employers if they can control — directly or indirectly — at least one condition of employment. Conditions include wages and benefits, hours and scheduling, the assignment of duties, work rules and hiring. Last November, the U.S. Chamber of Commerce and other business groups — including the AmericanHotel and Lodging Association, IFA, and the National Retail Federation— sued the NLRB in federal court inTexas to block the rule, saying it upends years of precedent and could make companies liable for workers they don’t employ at workplaces they don’t own. But the NLRB says the current legislation makes it too easy for companies to avoid their legal responsibility to bargain with workers. Global Franchise spoke to Colin Reed at the IFA for an update on the association’s efforts to overturn the newNLRB policy, a“dangerous” emerging situation that throws the U.S. franchising industry, and its unique relationship between franchisors and franchisees, into uncertainty. What is the NLRB and what’s behind it? The National Labor Relations Board (NLRB) is a federal agency empowered to enforce U.S. labor law in relation to collective bargaining and unfair labor practices. It is governed bya five- person board and a general counsel, all of whomare appointed by the presidentwith the consent of the Senate. What did the NLRB recently announce? OnOctober 26, bya 3-1 vote along party lines, the NLRB released a final rule expanding joint employer status under the National Labor Relations Act (NLRA). In a nutshell, the final rule repeals and replaces a 2020Trump-era rule and restores and expands the previous broadObama-era standard of joint employment. The rule changes the established legal precedent that a company could T “70% of franchisees expect increased litigation and costs due to the NLRB rule, while 66% believe the new standard will raise barriers to entry into the franchising sector” only be considered a joint employer if they have “direct and immediate” control over another business’s employees to “indirect” and “reserved” control over their workers. What do you consider will be the real effect of the expanded rule on franchisors and franchisees? Not surprisingly, new research conducted byOxford Economics underscores the urgencyof the situation. An alarming 70%of franchisees expect increased litigation and costs due to the NLRB rule, while 66%believe the new standardwill raise barriers to entry into the franchising sector. What are the main reasons why the IFA and other stakeholders are opposing the Bill? This rule would have a devastating impact on small businesses, contractors, and franchisees around the countrywhowill be held liable for potential NLRAviolations for 10 GLOBAL FRANCHISE | ISSUE 8.2