A federal judge just delayed the implementation of sweeping new regulations on businesses nationwide.

As part of a war on franchising, the Biden Administration is seeking to ramp up micromanagement of business operations in a way that will make it more difficult for franchises to keep their business model. The consequence will be a loss of entrepreneurial opportunities for regular Americans.

What Happened

Late last year, the National Labor Relations Board finalized a rule that significantly expands when businesses will be deemed joint employers under the National Labor Relations Act. 

As we previously explained, this new rule sets a new standard to classify companies as an employer if they control basic conditions of work (even if it is indirect or not exercised) such as pay, scheduling, hiring, firing, and supervision for their franchises and contractors. It replaces a more favorable standard set during the Trump Administration.

The new joint employer rule could have wide-reaching impacts on well-known franchise brands. Think of the businesses you patron: Smoothie Cafe, McDonald’s, Domino’s, The HoneyBaked Ham Company, Kiddie Academy, Celebree Schools, and JiffyLube.

Large businesses with franchises or subcontractors risk increased lawsuits because they could be liable for the actions of those contractors and franchisees. Franchisees would face an avalanche of new paperwork and compliance costs.

IWF filed comments in opposition to the proposed rule in 2022. We highlighted the harmful impacts it would have on small businesses especially those which are women-owned. According to the International Franchising Association, 30.6% of franchisee businesses are owned by women. 

The new rule had been scheduled to go into effect today, February 26, 2024. However, late last week, a Texas federal judge issued a two-week stay order pushing back the effective date until March 11, 2024, while he considers a lawsuit to permanently block the rule.  

What’s Next

Congress is busy at work pushing back on this rule. The U.S. House of Representatives passed a Congressional Review Act (CRA) resolution to rescind the joint employer rule. The Senate is expected to vote on a CRA measure soon as well. However, President Biden has vowed to veto the CRA, setting up a battle.

Senators Joe Manchin (D-WV) and Mike Braun (R-IN) have also asked the NLRB to further delay the joint employer rule’s effective date:

… as previously stated, this rule places significant burdens on small businesses, particularly those who are a part of the franchise business model. Complying with its complex and ambiguous standards will require costly legal consultations, operational adjustments, and administrative changes. Delaying the rule’s implementation will provide small businesses with much-needed time to prepare and mitigate potential disruptions.

In addition to the Texas lawsuit, a separate lawsuit challenging the NLRB’s joint employer rule is pending in a Washington, D.C., federal court.

Bottom Line

Franchising provides a path to the American Dream for tens of thousands of women, minorities, veterans, and immigrants. The joint-employer rule (like other Biden labor regulations) will be a loss of opportunity and a loss to free enterprise.