A proposed rule change could imperil the future of franchise businesses in America. The Democrat-controlled National Labor Relations Board (NLRB) issued a Notice of Proposed Rule Making (NPRM) to expand the definition of a “joint-employer” under the Fair Labor Standards Act. If implemented, this rule change would make it harder for corporations to partner with individuals who desire to operate a franchise.

The NPRM says the new rule “would revise the standard for determining whether two employers, as defined in section 2(2) of the National Labor Relations Act (NLRA or Act), are joint employers of particular employees within the meaning of section 2(3) of the Act.” 

Bloomberg Law claims the definition expansion would “loosen” standards established by the previous administration by establishing a joint employment relationship to “include indirect and unexercised control over the terms and conditions of a job.” In essence, franchisors would be on the hook for employment-related decisions made by individual franchisees.

Companies like McDonald’s, Marriott International, and 7-Eleven Inc, if enacted, would be joint employers in the eyes of the NLRB if they “co-determine essential terms and conditions of employment,” such as scheduling, wages, and benefits.” 

Feedback from the business community has been strongly against the NLRB’s actions. The International Franchise Association (IFA) strongly rebuked the proposed rule change as an attack on independent operators who comprise the freelance economy.

“Franchise owners are independent operators, and the NLRB’s joint employment rule proposes to take away their independence,” said Michael Layman, IRA Senior Vice President for Government Relations and Public Affairs. “Franchising has provided hundreds of thousands of people from all walks of life the opportunity to own their own business, and this proposal stands to take that away in favor special interests. This rule is yet another example of government officials stacking the deck against franchising, with small business owners and their employees paying the price.”

The existing franchise model is based on contractual relationships between a franchisor (like McDonald’s) and a franchisee. Under this framework, the latter are free to decide employment decisions independently of corporations. 

The IRA worries reimagining the joint employer rule to make franchisors liable for decisions made by individual franchisees would undermine this model. As the Society of Human Resource Management (SHRM) explains, “If two entities are joint employers under the National Labor Relations Act (NLRA), both must bargain with the union that represents the jointly employed workers, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other economic pressure if there is a labor dispute.”

The trade association is right about changes to the joint-employer rule. During the Obama administration, former Department of Labor Wage & Hour Division administration David Weil—who was rejected by the Senate for his old job—issued an Administrator’s Interpretation (AI) in 2016 that made franchise companies liable for actions carried out by independent franchisee employees. 

The effects of this AI had ruinous effects on franchise businesses and their workers. 

As I noted at National Review earlier this year, the 2016 AI required franchise businesses to pay “between $33.3 billion a year in costs” between 2016 to 2018. This rule change also resulted in 376,000 jobs lost and a 93%spike in joint-employer lawsuits filed against them. 

The NLRB would be wise to not regulate 750,000 franchise businesses employing eight million people—especially those in the food service industry—out of existence. Instead, it should maintain and uphold the existing, clearly-defined “joint employer” rule.