Kitchen Table Economics

Tug-of-War: Joint Employer Edition

Last week, the National Labor Relations Board (NLRB) reinstated the Obama-era definition of what constitutes an employer—a reversal of the reversal of the reversal of the original standard (yeah, you read that right). The one-eighty degree flip from the previous definition reclassifies the meaning of “joint employer” more broadly—which essentially means that umbrella companies that are set up as franchise structures can be held liable for actions taken by an independently run franchise.

In practical terms, franchises—such as McDonalds, Burger King, or Hardees restaurants—run and operate as independent small businesses. While they may borrow branding from the larger parent company, franchisees are largely responsible for hiring employees, distributing compensation, scheduling hours, and various other operational decisions of the business.

The recent decision reversal by the NLRB essentially broadens the scope of liability and allows parties that were harmed in some way by an independent franchise to also sue the parent company. This means the franchisor will begin to place restrictions on small business franchises in order to mitigate exposure to liability and suit—effectively taking control away from the small business operators.

Who would want to risk their own investment by starting a franchise if they have no power to manage it?

This view of the joint employer rule has the potential to destroy the franchise system and all of the jobs and opportunities it brings—which, according to the International Franchise Association, is roughly 10 percent of all nonfarm jobs.

Small business franchises need to be able to operate independently in order to serve their customers, employees, and communities best. The federal government shouldn’t get in the way of that.