Joint Employer Status: A Legal Update for Franchisors and Franchisees

In the ever-evolving landscape of franchising, staying aware of legal developments is essential for both franchisors and franchisees to ensure compliance and mitigate risks. One recent legal decision that has significant implications for the franchising industry is Chamber of Commerce of the United States of America, et al., v. NLRB, et al.

On March 8, 2024, a federal judge entered summary judgment in favor of the U.S. Chamber of Commerce, thereby vacating the National Labor Relations Board’s (NLRB) new joint employer rule. This decision overturned the NLRB’s expansion of the joint employer concept, reverting to the prior common law definition. According to the common law definition, a joint employer is one who actually possesses and exercises substantial, direct, and immediate control over the terms and conditions of employment.

Implications for Franchisors and Franchisees This court decision has several implications for both franchisors and franchisees:

1. Review Franchise Agreements: Franchisors should carefully review their franchise agreements to ensure they do not inadvertently assert excessive control over employment-related matters at franchise locations. Provisions that grant the franchisor significant authority over hiring, training, or termination decisions could increase the risk of being deemed a joint employer.
2. Clarify Brand Standards: While maintaining brand consistency is important, franchisors should clarify brand standards to ensure they do not inadvertently dictate employment practices. Balancing brand uniformity with franchisee autonomy in staffing and employee management is crucial.
3. Provide Guidance, Not Control: Franchisors should focus on providing guidance and support to franchisees rather than imposing strict mandates. Offering training programs, resources, and best practices can empower franchisees to manage their own workforce effectively while upholding brand standards.

For Franchisees:

1. Understand Franchise Agreements: Franchisees should carefully review their franchise agreements to understand the extent of the franchisor’s involvement in employment-related matters. Seek clarification on any ambiguous or concerning provisions before signing.
2. Adhere to Brand Standards: While franchisees have operational autonomy, it’s important to adhere to brand standards established by the franchisor. Consistent adherence to these standards enhances the brand’s integrity and customer experience.
3. Seek Support: Franchisees should leverage resources and support provided by the franchisor, including training programs and operational guidance. Establishing a strong relationship with the franchisor can help navigate employment challenges effectively.

Moving Forward: Collaboration and Compliance

The Chamber of Commerce v. NLRB decision underscores the importance of collaboration and compliance in the franchising industry. By understanding their roles and responsibilities, both franchisors and franchisees can navigate legal challenges effectively while fostering positive relationships.

As always, seeking guidance from legal professionals experienced in franchising law can provide invaluable support in navigating complex legal issues. By staying informed and proactive, franchisors and franchisees can mitigate risks and ensure the long-term success of their businesses.