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National Restaurant Association - Is the NLRB targeting franchises?

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Is the NLRB targeting franchises?

Recent moves by the National Labor Relations Board suggest the board wants to throw a wrench into the franchise business model by holding franchisors responsible for labor practices at stores solely operated by franchisees.

At issue is the NLRB’s apparent desire to change its definition of “joint employer,” or how it determines whether an individual is employed by two independent companies. The NLRB's current standard requires that both employers have responsibility for matters directly related to employment of an individual, such as hiring, firing, supervision and discipline, said Angelo Amador, National Restaurant Association vice president, labor and workforce policy.

A redefinition could result in an erosion of the franchise business model by causing franchisors to exercise control over wages, hiring and other aspects of employment at franchisee-operated restaurants. This would limit the flexibility of franchisees in hiring and making other decisions regarding employment that are essential to operating a successful franchise, Amador explained.

“If the standard is changed, companies could be held liable for violations committed by entities completely outside of their control, such as staffing agencies," Amador said.

The NLRB is expected to issue internal guidance soon on whether it will consider McDonalds, USA, LLC as a joint employer in a group of current unfair labor practice complaints against individual franchisees, despite the fact that labor relations in the stores are solely the responsibility of the franchisees.

Unfair labor practice complaints are first considered by an administrative law judge. If the administrative law judge’s decision is appealed by either party, the complaint goes before the NLRB. If the NLRB’s decision is appealed, the complaint is sent to the court of appeals in the district in which it was filed.

The NLRB has also made the joint employer standard a focus in a current unfair labor practice complaint the board is hearing against Browning Ferris Industries. The board has asked interested parties to submit briefs on whether the board should continue to adhere to its current standard or adopt a new standard, as well as what should be included in a new standard if one is adopted. The National Restaurant Association joined other industry groups in filing a brief urging the NLRB not to change its joint employer standard.

The NLRB’s push to change the joint employer definition was a focus of a hearing this week by a House subcommittee. Andrew Puzder, CEO of CKE Restaurants, testified on the damage the change could inflict not only on franchisors, but also on entrepreneurship and the economy.

“If franchisors are considered joint employers with their franchisees, the cost of increased staff and increased risk will most likely translate into franchisors charging higher royalty rates and fees, perhaps significantly higher,” Puzder testified. “Franchisor control over a franchisee’s labor force, and the risk and higher royalty fees associated with it, have the potential to chill the desire of franchisors to acquire a franchise or develop new units, at a time when the country desperately needs economic growth.”

The NRA endorsed Puzder’s testimony in a letter to subcommittee Chairman Rep. Phil Roe (R-Tenn.), reaffirming its position that holding franchisors accountable for franchisees’ labor practices would “extinguish the joint employer standard that has helped this economy create millions of restaurant jobs through the franchisor/franchisee model.”

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