New NLRB Labor Rules Negatively Impact U.S. Franchises

Revised federal rules from the National Labor Relations Board that give employees more leverage in settling workplace disputes are negatively impacting franchisors and franchisees, leaving them with higher costs and forcing them to scale back plans for future expansion.


The new policy adopted by the National Labor Relations Board (NLRB) broadens the circumstances in which two businesses can be deemed as employers of the same pool of workers. This means trouble for fast-food, construction and other industries reliant on contract workers and employees of franchisees, who will now be exposed to increased labor disputes before the NLRB, which adjudicates workplace disputes and oversees union-organizing.

The intention behind the NLRB’s revision is to ensure workers can unionize and collectively bargain with businesses that help control their fates.  As things stand now, the NLRB will review “test cases” in the franchising industry to further define what critics have called a vague and overly-broad standard, but it appears that the NLRB will, to some extent, hold some businesses that have an active involvement in determining the terms and conditions of a person’s employment and the work performed responsible for workers’ grievances and disputes – even if the business is not the worker’s direct employer.

The same would apply for franchise workers and union laborers, among others.  For example, a fast-food employee trained under the guidance of the franchiser but paid by the franchise could potentially bring labor claims against both businesses.  The effects of these new rules also go beyond the franchise market.  Commercial property owners that hire building management companies may be responsible for a person hired by that company who becomes injured due to an unsafe working condition, even if the building owner does not sign his/her check.

What does this mean for franchises? It means that franchisors may be pulled into labor disputes involving workers employed by franchisees, and may have to pay back wages to workers fired for, among other things, protesting low pay or trying to join a union.

Franchisers could also be swept into collective-bargaining talks alongside store owners, even though the franchisees retain total control over the workers at the stores.  This also mean that franchisees could lose their independence to hire, fire and manage workers.  Or, the opposite may apply, as franchis0rs may scale back on worker training and other guidance out of fear of exposure to these new rules.

It’s a regulatory no-man’s-land because no one yet knows what would determine who is in “control” of a worker’s employment.  Stay tuned for further developments.

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