In the spring of 2020 the National Labor Relations Board (NLRB) changed the joint employer standard to be friendlier to the many small business owners who run their business under the franchise model. This was after a protracted battle with McDonalds.

The NLRB ruled that the corporate entities were not joint employers with the local franchises if they didn't have "direct and immediate control over one or more essential terms or conditions of employment, such as wages, hours of work, or discipline."

The NLRB is now looking to yank that back and changed the joint employer standard to have a much lower threshhold. They propose that two or more employees (for instance the corporate office and the franchise location) would be considered joint employees if they "share or codetermine" 

  • wages
  • benefits
  • other compensation
  • scheduling
  • hiring and firing
  • discipline
  • workplace health
  • workplace safety
  • supervision assignment
  • work rules

Sharing or co-determining is a much lower standard than direct and immediate control. And this is bad for the franchise model and quite possibly the cleaning company you hire to come in after hours. Do you want to be a joint employer with the cleaning company because you set rules around what they can and cannot do and insist on a certain minimum wage for the employees?

What sharing or co-determining means in practical terms.

One of the reasons for franchising is that it spreads out the risk and reward and the day to day management. But if this becomes the standard, then suddenly everyone has their hand in the management. If the corporate office is taking the risks of poor management by the franchiser, they will either cut the possible reward or change the game altogether. Why take risks over something you don't have "direct and immediate control over."

Employment attorney Jon Hyman, shareholder and director at Wickens Herzer Panza, explains:

If I'm McDonald's, for example, and I'm going to be liable for the sins of my franchisees just because I've reserved some indirect control in my franchise agreement, I'm giving serious thought as to whether franchises still make sense as a business model. I'd rather own the restaurants, directly employ the labor, and appropriately manage my risk than leaving it up to someone else to manage, screw up, and cost me money.

On the flip side, if you want to run your own business, why would you want to turn over that control to the corporate office? Then you cease, in practical terms, being a business owner and become a manager with high potential for loss. 

Serious Consequences?

Peter List founder of Logic Labor Relations, LLC sees it more harshly than Hyman does. He views this as one more step toward the end of free-market capitalism. He says that the proposed NLRB joint employer standard is another tool, along with things such as the PRO Act, which limits contractors and increases union power, toward government control over businesses.

While List might be a bit more dramatic, he has a point that the less control individual business owners have over what they do, the less we have a free market.

Kurt G. Larkin, a partner at the management-side firm Hunton Andrews Kurth, told Bloomberg Law that this could lead to the NLRB forcing companies to collectively bargain "with a union that doesn't represent the company's own employees, lose the protections against union picketing of neutral employers, and share in liability for labor and employment violations committed by another business."

Keep an eye on what the NLRB does. It doesn't just govern the relationship between employers and labor unions, and the decisions that don't seem to affect your business today may affect them tomorrow.

Clarification: This column has been updated to clarify the job of the National Labor Relations Board with respect to labor unions.