Groundhog Day Comes Early: What’s going on with joint employment now?! And what to do about it.

If only we had our own Punxsutawney Phil for where the standard for joint employment would land. Instead, it looks like we are in for four more weeks of limbo (at least) while Congress works through a joint resolution that might overturn the NLRB’s expanded joint employer definition.

What’s happened so far?

In October of 2023, the National Labor Relations Board (NLRB) issued a new rule which expanded the definition of joint employment under the National Labor Relations Act. That rule looks at whether a party 1) exercises the power to directly or indirectly control or 2) possesses the direct or indirect authority to control an essential term and condition of employment. You can read our full write up about the new NLRB Rule from October here.

What’s going on now?

Right now, the NLRB Rule—and its expanded look at indirect control— is set to go into effect on February 26, 2024.

However, Congress is exercising oversight authority (through a Congressional Review Act resolution). There are several hurdles, including the possibility of a Presidential veto, but it is possible that the NLRB Rule will be immediately prohibited from going into effect if the resolution is signed into law or Congress overrides a Presidential veto.

How can my company minimize risk that it will be found a joint employer?

Whether the groundhog sees his proverbial shadow or not, there are a few things franchised brands can do to minimize risk that they will be found a “joint employer.” Here are some highlights:

• Review documents that are likely to grant direct control. Take a look at franchise agreements, ops manuals, and other contracts to make sure the direct control your company is exercising is necessary to a business interest and not needlessly increasing your risk of liability. For example:
  • Ensure that the ops manual explains the difference between requirements and recommendations.
  • Evaluate whether system requirements contained in the ops manual are truly necessary or merely a suggestion.
  • Avoid prescribing a form employee handbook to be used by franchisees.

• Review documents for reserved rights or indirect control. Rights that are reserved, but not exercised, may not actually be important to your business. Can those be removed or parred back to limit exposure to joint employer concerns? For example:
  • Review form franchise agreements to avoid retaining any authority over matters which could be interpreted to fall under the new NLRB test.

• Review company practices. Reviewing practices for direct and indirect control can be a bit trickier, but key places that harbor potential for indirect control are franchisee training and field visits. Franchisors may consider reviewing the actual practices of their training and field ops teams and then training them to avoid actions that might be used to argue that the company has indirect or direct control over the franchisee’s employees. For example,
  • Train to avoid enforcing standards which are only recommended.
  • Avoid getting involved in franchisees’ HR-related matters, such as hiring, firing, disciplining, or supervising franchisees’ employees.
  • Allow franchisees to set and monitor employee safety rules and standards.
  • Ensure that pre-opening training programs deal primarily with unit operations, not employment matters.

Whether the new NLRB Rule is here to stay or not, joint employer liability risk under federal and state law isn’t going anywhere. Franchisors should be aware that making a one-time adjustment won’t cut it. Because ops manuals and field reps continue to evolve, minimizing joint employer liability needs to become part of a franchisor’s ongoing practices.