In the spring of 2020, the National Labor Relations Board (NLRB) amended the joint employer standard to make it more user-friendly for the many small business owners who run their business under the franchise model. This was after a long battle with McDonalds.
The NLRB ruled that corporations were not joint employers with local franchises if they did not have “direct and immediate control over a or more essential terms or conditions of employment, such as wages, hours of work or discipline.”
The NLRB is now looking to go back and change the joint employer standard to have a much lower threshold. They propose that two or more employees (e.g. head office and franchise location) would be considered co-employees if they “share or co-determine”
- other compensation
- hiring and firing
- Health at work
- workplace safety
- supervisory mission
- working rules
Sharing or co-management is a far lower standard than direct and immediate control. And that’s bad for the franchise model and most likely the cleaning company you hire after hours. Do you want to be a joint employer with the cleaning company because you set rules on what they can and cannot do and insist on a certain minimum wage for employees?
What sharing or co-determining means concretely.
One of the reasons for franchising is that it spreads out the risks and rewards and day-to-day management. But if it becomes the norm, suddenly everyone has their hand in management. If the head office takes the risk of mismanagement by the franchisor, it will reduce the possible reward or be a game-changer altogether. Why take chances on something you don’t have “direct and immediate control”.
Labor attorney Jon Hyman, shareholder and director of Wickens Herzer Panza, explains:
If I’m McDonald’s, for example, and I’m going to be liable for the sins of my franchisees simply because I reserved indirect control in my franchise agreement, I seriously think about whether franchises still make sense as a business model. I’d rather own the restaurants, employ the workforce directly, and manage my risks appropriately than have someone else manage it, screw it up, and cost me money.
On the other hand, if you want to run your own business, why would you want to hand that control over to head office? You then concretely cease to be an entrepreneur and become a manager with a high potential for loss.
Peter List, founder of Logic Labor Relations, LLC, sees it more harshly than Hyman. He sees this as one more step towards the end of free market capitalism. He says the Joint Employer Standard proposed by the NLRB is another tool, along with things like the PRO Act, which limits contractors and increases the power of unions, towards government control over businesses.
Although List might be a bit more dramatic, he argues that the less control individual business owners have over what they do, the less free market we have.
Kurt G. Larkin, a partner at management firm Hunton Andrews Kurth, told Bloomberg Law that this could lead the NLRB to force companies to bargain collectively “with a union that does not represent the company’s own employees, lose protections against union picketing by neutral employers, and share responsibility for labor violations and of employment committed by another company.”
Keep an eye on what the NLRB is up to. It doesn’t just govern unions, and decisions that don’t seem to affect your business today may affect them tomorrow.