Joint Employer Rule Changes: Radical Expansion of Liability

The National Labor Relations Board (NLRB) has released its final joint employer rule, broadening the conditions under which two businesses might be considered jointly liable for legal issues or organizing campaigns. This rule does not only impact the franchise restaurant model but will also impact all restaurants that contract for services like cleaning or lawn care.  The National Restaurant Association and the Wisconsin Restaurant Association strongly oppose the NLRB’s final rule.

NOTE: In late November, the effective date was changed from December 26, 2023 to February 26, 2024. Click here for more info on the date change.  

History Revisited
Previously, joint employer status was largely contingent on an entity's “direct and immediate control” over the key terms of another organization's employees. The 2020 Final Rule provided clear boundaries, granting certainty to industry participants.
 
What’s New
The NLRB's latest update expands the joint employer standard. Now, entities can be jointly classified by "sharing or co-determining" essential aspects of employment terms. This change encompasses both indirect influences and reserved controls. Entities identified as joint employers are obligated to participate in collective bargaining with the union representing their shared employees. Furthermore, they're potentially liable for each other's unfair labor practices and become vulnerable to union pressures in the event of labor disputes.
 
Expanding the Scope
The implications of the rule aren't confined to explicit, direct relationships. Circumstances where an entity impacts another’s employees through intermediaries or merely possesses (but does not exercise) control over employment conditions can now indicate a joint employer dynamic.
 
Who’s Affected?
The franchise business model is squarely in the crosshairs. While the 2020 Final Rule, under the "direct and immediate" standard, provided a conducive environment for the industry to flourish, the current iteration neglects the industry's concerns. In the National Restaurant Association and Restaurant Law Center’s (RLC) comments to the proposed rule, they emphasized that, at the very least, the rule should clarify that it does not encompass franchise agreements or other clauses tied to legitimate business reasons, such as brand maintenance and product quality. Regrettably, our suggestions weren't heeded.
 
Bigger Picture
This is not just a minor regulatory adjustment; it's a foundational change. The rule's lack of clarity could spur extensive legal challenges and increased liability risks. Amid these unprecedented challenges, the National Restaurant Association and RLC are exploring all avenues, including potential legislative and legal actions, to restore a practical standard.
 
More Information
Littler-Mendelsohn Assessment of Final Rule
​National Restaurant Association Statement on the 2023 Joint Employer Final Rule
NLRB Final Rule: Standard for Determining Joint Employer Status
NLRB FACT SHEET Joint-Employer Standard Final Rule