After much anticipation and apparently justified trepidation, the National Labor Relations Board (NLRB), released its 2023 final rule regarding a new standard for determining joint-employer liability for alleged violations of the National Labor Relations Act (NLRA). While the Coalition of Franchise Associations (CFA) agrees that a franchisor can legitimately be determined to be a joint employer of its franchisees’ employees in certain egregious cases, we believe that this new rule wrongly and needlessly goes far beyond such rare and identifiable situations.

The new standard set forth by the NLRB is far more encompassing, intrusive and unnecessary if its goal truly is to protect employees and allow small businesses to exist in their local communities independent of their franchisor. If the rule is implemented as stated, it will have unintended, and perhaps intended, consequences that will severely damage the franchisor/franchisee relationship. By requiring unprecedented franchisor oversight, in order to avoid joint employer liability, this rule could potentially reduce the number of opportunities for Americans to create small businesses, the jobs that come with them, and act to further suppress the wages of employees nationwide. Financial resources, that would otherwise be dedicated to training and wages, will instead be siphoned off to trial lawyers and litigation. Moreover, the new rule will negatively impact currently healthy franchise and employment relationships and exacerbate those that are already strained and/or dysfunctional affiliations.

The CFA has many concerns regarding this new rule and seeks immediate clarification from the NLRB that definitively states what does, and does not, constitute joint-employer liability within the inherently unique franchisor/franchisee relationship. Without such clarity, a case-by-case determination can ONLY lead to expensive, extortive and business-destroying litigation. Specifically, CFA requests clarification on acceptable methods regarding development, maintaining and enforcement of brand standards that will not trigger joint-employment liability. In addition, policies involving equipment, fixtures, training, uniforms and store hour requirements as set forth by a franchisor in any franchise agreement, operating manual and/or Franchisor Disclosure Document must be addressed with specificity so as to alleviate threats of joint liability for both franchisors and franchisee. It is simply irresponsible to leave parties with their life savings fully invested to a “I’ll know it when I see it litigated” mandate.

The CFA thanks the NLRB for its attention to the franchise industry, but we believe that it has unnecessarily created more confusion and angst in the franchise community through the muddied language of this final rule. Ironically, the rule makes it much more likely that franchisees’ workers will eventually become the direct employees of its franchisor – a separate conglomerate that has no knowledge of an employee’s identity or individual concerns – rendering them faceless minions in an out of state profit center with no flexibility or desire to address the employees’ needs. They will become faceless and replaceable numbers, not people known to a local franchise owner. The additional costs associated with compliance and implementation of this rule will, undoubtedly, harm the well-being, financial prospects and legal standing of all parties involved. The CFA firmly believes that implementation of the new rule as it presently exists will work to eliminate the local businesses that drive our industry and, instead, transfer that economic potential into large, publicly traded conglomerates that have little stake in the day-to-day operations and no vested interest in local community involvement that is the cornerstone of the franchise model.