NLRB Aims to Roll Back Obama-Era Rules That Left Franchisers Open to Labor Lawsuits

September 17, 2018 Updated: October 5, 2018

Federal regulators have proposed nixing a set of rules that made it possible for employees of franchise holders to go after the companies issuing the franchises for labor violations.

The amended rules would help companies such as McDonald’s, which outsources most of its restaurants as franchises. It would also help companies that use contract workers or agencies that supply temporary workers.

Under the new rules, if a company like McDonald’s issues a franchise, it can’t be sued for unfair labor practices if it only indirectly controls “essential terms and conditions of employment” at the franchisee’s restaurant, such as by requiring certain opening hours.

If the franchiser was to dictate essential terms, such as requiring the franchisee to offer certain pension or health plans, it could still be deemed a joint-employer. That would open the franchiser to labor suits and force it to negotiate with unions representing the franchisee’s employees, among other issues.

The National Labor Relations Board (NLRB) proposed the amended rules on Sept. 14. The rules would only consider two companies a “joint-employer” if they “share or co-determine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.”

“An employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine,” the proposal states.

President Donald Trump has appointed the majority of the five-member NLRB.

Current Rules

The current rules determine the joint-employers more broadly, also considering “whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.” They were enacted in 2015 by a then-NLRB majority appointed by then-President Barack Obama.

Trump’s NLRB majority has deemed the Obama-era rules too vague, making companies unsure when they could be sued and when not.

The amended rules are open to a 60-day public comment period in which interested parties can submit recommendations.

Industry Applauds

“Franchise owners have been frustrated about the vague and uncertain legal minefield created by the NLRB joint employer standard since it was expanded in 2015,” said Robert Cresanti, president and chief executive of the International Franchise Association, in a Sept. 13 release.

The Competitive Enterprise Institute (CEI), a libertarian-leaning think tank, concurred.

“The proposed new standard will create greater certainty for businesses, which will allow employers to plan for the future and be confident in knowing what kinds of business-to-business relationship will establish a joint-employer relationship,” CEI labor policy analyst Trey Kovacs said in a Sept. 13 statement.

Hit to Unions

The Service Employees International Union (SEIU) has been attempting to unionize franchise workers for years, but that would require bargaining a contract with each of the thousands of franchisees. The Obama-era NLRB rules opened a way for it to have the franchisers marked as joint-employers, thus forcing them to negotiate with the SEIU and potentially force a single union contract on all their franchisees from the top.

A labor lawsuit against McDonald’s that hinges on the issue of joint-employer designation has gone on since 2012, but the NLRB moved earlier this year to settle it—without designating McDonald’s a joint-employer.

The SEIU didn’t respond to a request by The Epoch Times for comment. The National Employment Law Project, a pro-union advocacy group, also didn’t respond to a request for a comment.

Trump and Unions

The president has had a mixed relationship with unions. Some are sympathetic, like those in law enforcement. Some, like the International Brotherhood of Teamsters, favor his tough stance against the use of cheap labor from Mexico. Others fight him, like the teachers’ unions, which face the risk of losing members with Trump’s support for vouchers, charter schools, and homeschooling.

Public-sector unions seem to have especially rocky relationship with the president. In June, the Supreme Court ruled that public-sector union fees as a condition of employment violate workers’ First Amendment rights. The ruling opened a path for government workers to sue the unions for more than $100 million in forced union fees stretching back decades, according to the right-leaning Work Legal Defense Foundation.

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