What the Joint Employer Rule Will Mean for Franchise Restaurants

"Scott, just to clarify, WE are not the employer. The franchisees are. Please make sure everyone understands that and don’t suggest otherwise."

I give a lot of keynote presentations to restaurant brands, and most of them are franchises. These brands promise to provide franchisees with the complete playbook for business success. They give them the tools. They teach them the systems. They advise them on how to market their restaurant. But when it comes to offering HR support, many steer clear. Lawyers have spooked them into avoiding conversations about managing employees for fear of taking on the liability of being joint employers. (And I do occasionally get admonishments like the one above before my presentations.) Consequently, many people with little or no management experience are suddenly responsible for hiring, training, and managing employees without the involvement of their franchisor.

That may be about to change. Recently, the National Labor Relations Board redefined what it means to be an employer, and their definition includes franchisors. A corporate franchise institution headquartered in Chicago, IL will be liable for what happens at an independently owned and operated location in Tallahassee, FL even though they didn’t hire, train, manage, pay, or even meet those employees.

The franchise industry, along with many members of Congress, is pushing back on the Joint Employer Rule. The Restaurant Law Center and the Texas Restaurant Association joined a coalition of business groups, led by the U.S. Chamber of Commerce, to sue the National Labor Relations Board (NLRB) over its new Joint Employer Standard. The lawsuit seeks to have the standard rescinded because the NLRB violated the National Labor Relations Act and acted arbitrarily and capriciously in issuing the new rule.

“The NLRB issued this new joint employer standard arbitrarily and capriciously just three years after codifying the 2020 standard,” said Angelo I. Amador, executive director of the Restaurant Law Center. “The new Joint Employer Standard is already raising a plethora of legal questions across the restaurant industry. While the National Restaurant Association attempts to educate operators on the vague, confusing, and sometimes contradictory new standards, the Restaurant Law Center will fight to restore the workable joint employer standard that has existed for nearly 30 years based on the direct and immediate control of employees.”

In addition to the Restaurant Law Center, the Texas Restaurant Association, and the U.S. Chamber of Commerce, other groups in the complaint include the American Hotel and Lodging Association, Associated Builders and Contractors, Associated General Contractors of America, Coalition for a Democratic Workplace, International Franchise Association, Longview Chamber of Commerce, National Retail Federation, National Association of Convenience Stores, and the Texas Association of Business.

The full complaint can be viewed here.

The National Restaurant Association and the Restaurant Law Center (RLC) strongly oppose the definition of Joint Employer outlined in this final rule and submitted extensive comments opposing proposed changes included in the final rule.

Sean Kennedy, executive vice president for Public Affairs at the National Restaurant Association issued the following statement in response:

“This new definition of Joint Employer will create chaos and legal questions across the restaurant industry. The National Restaurant Association and the Restaurant Law Center will work to help franchisors and franchisees understand their responsibilities while we fight to restore a workable joint employer standard based on the direct and immediate control of their employees.” 

If the ruling stands, it will mean at least four things for franchise restaurants:

Franchisors Will Have More Liability

The intent behind the Joint Employer Rule is to force larger (or perceived larger) organizations to take more responsibility for workers, regardless of whether those organizations directly pay or manage those workers. Franchisors will be considered the deep pockets of the brand, making them tempting targets for lawsuits. And just as franchisee associations commonly form among larger brands, the new rule may also lead to a rise in hourly employee unionization, as we're already seeing in other sectors. Franchisors will have to be more aware and responsive to what’s happening among employees in the field.

Franchisees Will Have Less Autonomy

Franchisors will necessarily get more involved in the operations of their independent owners. With so much liability, they’ll have to monitor franchisees and managers closely to ensure compliance with labor regulations. They may expand their HR departments to oversee staffing at the store level and penalize franchisees who deviate from corporate standards. Some owners may welcome the added support, while others will resent feeling like middle managers.

Franchisors Will Have to Provide More Management Training

It won’t be enough to teach franchisees the operation. Franchisors will need to show franchisees and their managers how to recruit, conduct interviews (including what can and can’t be asked), train, motivate, build culture, discipline, and all the other skills needed to manage hourly personnel and keep them happy. They may also need to refine their process for selecting prospective franchisees to ensure those they bring into the system have adequate people skills and avoid those who might invite trouble.

Costs Will Increase

All the added legal fees, oversight, and training will cost money. Franchisors will likely increase franchise fees and royalties in a sector that already fights to maintain unit-level profitability. Unions will demand higher wages and better working conditions. We can expect those costs to be passed onto guests in the form of higher prices.

Whether or not the Joint Employer Rule turns out to be good for employees remains to be seen. For the franchise industry, however, it’ll be highly disruptive. Franchising as we know it will never be the same. But should challenges to the rule prevail, and franchisors are once and for all shielded from the mishaps of independent owners, it’ll still be wise to invest in better management training. It’ll lead to a better employee experience, which leads to a better guest experience. And it’ll help franchisees with what most agree is the most difficult part of running a restaurant.