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The franchising industry has been nervous for months, worried that new federal rules could undermine the very franchising model. Some people are sighing now. On Friday night, a federal judge in Texas struck down the rule. “This is a landmark victory for franchising,” the International Franchise Association (IFA) said in a statement to its members.
Related: Considering franchise ownership? Get started today and take this quiz to find a personalized list of franchises that fit your lifestyle, interests, and budget.
Joint employer rules
The federal regulations are known as “joint employers.” Some form of the rule has existed for years, but in 2023 the National Labor Relations Board expanded the rule in a way that directly impacts franchising. Under the new rules, two companies, such as McDonald’s and a McDonald’s franchisee, could more easily be considered “joint employers” of the same employees.
This could, for example, make McDonald’s legally liable for labor violations committed by one of its franchisees, even though McDonald’s itself does not employ or manage that employee, and therefore The relationship between the company and the franchisor may become complicated.
RELATED: This new rule will destroy the franchise as we know it
“Fundamentally overturning” franchising
The IFA said at the time that the expansion of the rules would “fundamentally change the business model of franchising”. “This rule would reduce the independence of franchise owners, reduce the franchisee’s equity in the business, and force them to reduce the support they provide to franchisors.” It will also be easier to form.
IFA was one of a number of groups, including the U.S. Chamber of Commerce, the American Hotel and Lodging Association, and the National Retail Federation, to file a lawsuit in November seeking to block the rule.
Enforcement of the rule had been delayed while litigation continued. Although this rule will no longer take effect, the issue is not completely resolved. The National Labor Relations Board can appeal the ruling, but has not yet announced whether it will appeal. The NLRB may also revise the joint employer rules.
Related: This new government rule threatens to disrupt the $825 billion U.S. franchise system
parliamentary resolution
A more permanent resolution could be introduced through Congress. In January, the House passed a resolution rejecting the NLRB’s joint employer rule. Supporters are now urging the Senate to pass the bill and send it to President Biden for his signature. According to the IFA, this would “prevent future NLRBs from enacting broad joint employer standards and provide long-term certainty for franchising.”
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