Franchisers Seize GOP Sweep as Opportunity on Joint Employer

Businesses lobbyists are trying to capitalize on Republican’s power trifecta in Washington by reigniting a legislative push to settle the issue of joint employment once and for all.

With Republican control of Congress and the White House, the International Franchise Association is pressing lawmakers to codify a standard that would require an employer have “direct” control over aspects of the work relationship to be considered a joint employer, an approach that would largely limit employers’ liability.

“Franchise business people are extraordinarily optimistic about the new administration and the hopes for clarity on burdensome regulations is a big reason why,” said Michael Layman, IFA’s chief advocacy officer. “The new administration promises at least temporary relief and clarity on the joint employer issue. But we are hopeful that the administration and Congress will see an even greater need now to enact some longer lasting clarity on the issue as well.”

A joint employment finding could mean a parent company has to bargain with representatives of a subcontractors’ union, or is liable for the unpaid wages or overtime of one of its franchisees. For fast food giants like McDonalds and Burger King, tech companies behind the gig-economy like Uber and Lyft, and other large chains and corporations throughout nearly every sector of the economy, that could be costly.

The business lobbying group wants the GOP-led Congress to pass the Save Local Business Act, which would clarify under both the Fair Labor Standards Act and the National Labor Relations Act that an entity can only be considered a joint employer if they “directly, actually, and immediately (and not in a limited and routine manner)” exercise “significant control” over the terms of employment.

Rep. James Comer (R-Ky.), lead sponsor of the legislation last Congress, plans to reintroduce the bill, his office told Bloomberg Law.

Past efforts to reduce joint employer liability, particularly under the previous Trump administration, have drawn criticism from Democrats and labor groups. They argued that parent companies have increasingly used franchise and subcontracting arrangements to avoid liability for workplace issues.

A coalition of Democratic states successfully sued the Trump administration over its previous efforts to regulate on joint employment at the US Department of Labor in 2020, arguing it allowed companies to “offload their employment responsibilities to smaller, less-sophisticated companies with fewer resources to track hours, keep payroll records, and train managers.”

“This is another perennial effort by ideologically driven lobbying groups like the IFA that every time they raise this issue, they can’t point to any cases where a franchise has been held jointly liable with the franchisee, because there aren’t any,” said Catherine Ruckelshaus, general counsel and legal director at the National Employment Law Project.

Flip-Flop

Major franchise brands and companies that rely on contractors as part of their business model have faced vacillating approaches to “joint employment” under federal labor laws, a legal standard used to determine whether a parent company should share liability for violations committed by its franchisees or subcontractors.

The standard changed between administrations and involves two regulatory agencies, the DOL and the National Labor Relations Board, creating whiplash for workers and companies trying to trace legal responsibilities in their working relationships.

The most recent change to joint employment standards in the labor sphere was attempted by the NLRB during the Biden administration—a standard that was later rejected by Congress and the courts.

The rule issued by the board in 2023 clarified that a business’ indirect and unexercised control over conditions can establish a joint employment relationship, broadening the instances where a business could have shared liability over a worker.

That rule was invalidated by a federal court in March, and the NLRB eventually withdrew its appeal of the decision, saying it wanted to consider other options.

Over at the DOL, the Biden administration rescinded a rule in 2021 that required “actual” control over certain employment factors to implicate joint employer status. The canceled rule, issued during Trump’s first term, generally limited the instances where employers could be found liable as a joint employer.

Biden officials said the agency would instead use a broader totality-of-the-circumstances economic realities approach to joint employment, but never issued guidance to clarify the positions.

Trump 2.0

IFA and management-side attorneys say any effort on joint employer should start with Congress, otherwise it wouldn’t be a permanent fix.

“Regardless of where you sit on the ideological spectrum, or whether you believe in a broader standard or a narrower standard, it is indisputable that there has been excessive policy gyration on this issue,” said Alexander T. MacDonald, a member of the government relations and public policy arm of the management-side law firm Littler. “You need a little bit more stability, and that’s where a statute would come in. It’s not good for anybody to live in an environment of regulatory uncertainty.”

MacDonald added that it makes it harder for employers to plan, as well as structure their business relationships and supply chains if their legal obligations are going to change with the next election.

But if Congress decides it doesn’t weigh in on joint employment, the Trump-led DOL and the NLRB could simply regulate on the issue again.

James Crowley, counsel at Akin Gump Strauss Hauer & Feld LLP, said any rule from the Trump DOL would have to operate around a 2020 federal court ruling that struck down major parts of the joint employer regulation issued during Trump’s first term.

In that case, which was brought by the coalition of Democratic-led states, the US District Court for the Southern District of New York found Trump’s joint employment test was too narrow and that other factors should be considered beyond control.

The question for the Trump administration, Crowley said, will be how to promulgate a rule that “reconciles the economic realities test with principles around control while at the same time taking into account the economic realities of the relationship between all the entities involved.”