On a normal day, you might stop at Dunkin' Donuts for coffee, drop off a package at the UPS Store, get a late lunch at McDonald's, make a quick phone call to Kumon to check on your child's latest test scores, get your hair cut at Great Clips, and get your oil changed at Midas. What do all of these companies have in common? They just breathed a collective sigh of relief today at the National Labor Relations Board's announcement of a new joint-employer standard.

Every one of these businesses operates as franchises. That is, instead of having one corporate office that owns all the stores, the company sells the rights to open a store with its name. The list of businesses that operate as franchises is almost endless

Under an Obama-era ruling, the joint-employer standard was changed to make it more likely that the corporate office is equally liable for managing employees. That means if the person who owns the McDonald's franchise in your neighborhood fails to pay overtime, the corporate entity is also responsible. The new proposed rule would take things back to how they were pre-2015.

An employer may be considered a joint employer of another employer's employees only if it possesses and exercises substantial, direct, and immediate control over the essential terms and conditions of employment in a manner that is not limited and routine. Indirect influence and contractual reservations of authority will no longer be sufficient to establish a joint-employer relationship.  The new rule, if adopted, will restore Board law to the traditional standard for determining joint-employer status under the NLRA.

In plain text, that means the corporate office is only jointly liable if it has control over the employees of a franchise in a "substantial, direct, and immediate" way. So, if the corporate office has no say in who is hired, who writes the schedule, and when people are sent home early on a slow evening, it's much less likely that it will be held accountable for unpaid overtime.

To be clear, the law on overtime isn't changing--it's just the liability. Franchises will still have to comply with all federal, local, and state labor laws (as do the corporate entities), but you can no longer sue McDonald's HQ for something it had no say in.

This is a huge win for franchise-based businesses. People who purchase a franchise are taking financial risks and don't want excessive oversight from the corporate office. Corporate offices want to step away from the day-to-day operations. An Obama-era ruling forced them to be involved with each other.

The rule will be officially published today and then begins a 60-day comment period, so if you have an opinion regarding this rule, make sure to get your voice heard. 

Published on: Sep 14, 2018