The business world has been buzzing since the National Labor Relations Board (NLRB) introduced its 2023 joint-employer rule in October. This new regulation, which revisits the broader 2015 Browning-Ferris standard, could have significant implications for franchises across the U.S.

For franchise businesses, understanding this rule is crucial. The revised rule could reshape the relationships between franchisors and franchisees, especially in terms of legal responsibilities. Here’s a clear breakdown of what the change means and how it could affect your franchise operations.

1. From Tight to Broad: A Rule Rewind

Under the Trump administration’s 2020 joint-employer rule, businesses were considered joint employers only if they had “substantial direct and immediate control” over key employment terms, such as hiring, wages, or work schedules. This stricter rule largely protected franchisors from being held liable for how franchisees managed their employees.

The 2023 revision flips this standard. Now, franchisors can be classified as joint employers even if they don’t exercise direct control over employment conditions but have the ability to influence or indirectly shape them. This could open the door to franchise liability in areas such as wage disputes, employee relations, and more.

2. How Does This Impact Franchises?

Let’s explore a few examples that demonstrate how the new joint-employer rule could affect franchise businesses:

• Example 1: Scheduling Software
  A franchisor requires all franchisees to use its proprietary scheduling software, which suggests employee shifts. If the system has indirect control over employee work hours—despite franchisee approval—the franchisor could now be considered a joint employer.
  
• Example 2: Training Manuals
  A franchisor mandates that all franchise locations follow specific customer service protocols outlined in a training manual. If these rules impact working conditions (e.g., break policies or performance evaluations), it could be seen as indirect control, potentially classifying the franchisor as a joint employer.
  

3. What Are the Stakes for Franchises?

Being classified as a joint employer could expose franchisors to a range of legal and operational risks, including:

• Employee disputes: Franchisors could become responsible for wage complaints, wrongful termination cases, or other employee grievances.
  
• Union negotiations: In unionized settings, franchisors may be required to engage in labor negotiations with franchisee employees.

For smaller franchise brands, these added responsibilities could result in higher operational costs and legal risks. Larger franchisors may choose to revise their contracts to limit liability, but this could reduce their ability to maintain brand consistency across franchises.

4. Legal Challenges Ahead

The 2023 joint-employer rule has faced significant opposition. Unions, like the SEIU, are advocating for an even broader interpretation to increase worker protections. On the other hand, business groups argue that the rule is overly broad and burdensome for franchisors.

Pending lawsuits, including one filed by the U.S. Chamber of Commerce, could influence the final implementation of the rule and potentially lead to further revisions.

5. What Should Franchisors Do Now?

Given the uncertainty and potential legal implications of the new joint-employer rule, franchisors must take proactive steps to mitigate risk and ensure compliance. Here are a few strategies:

1. Review Franchise Agreements: Carefully assess franchise contracts to clarify roles and responsibilities for employment-related matters, ensuring that the language reflects the new rules and limits potential liabilities.
   
2. Train Franchisees: It’s essential to educate franchisees on the 2023 joint-employer rule and ensure they understand how to stay compliant with labor laws. Regular training on employment practices can help avoid unintentional liabilities.
   
3. Reassess Franchisee Oversight: Franchisors should limit unnecessary involvement in franchisee employment decisions to reduce the risk of being classified as a joint employer. Focus on providing guidance rather than direct control.

6. Conclusion: Adapt to a Changing Regulatory Landscape

The 2023 joint-employer rule represents a significant shift toward increased worker protections, but it also creates uncertainty for businesses, especially franchise operations. For franchise owners, this is a call to revisit legal strategies and adapt to the evolving regulatory environment. Staying proactive and making the necessary adjustments could prevent costly litigation and ensure smoother operations as this rule is enforced across the country.