Federal Court Strikes Down NLRB’s New Joint Employer Rule, Leaving 2020 Rule in Place for Now

The 2023 rule, which was set to take effect on March 11, would have expanded the joint employer test to include reserved and indirect control — potentially exposing franchisors to claims that their franchise agreements and brand standards make them joint employers of their franchisee’s employees for purposes of collective bargaining and labor disputes. The federal district court concluded that the 2023 rule is unlawful because it would expand joint employment beyond the outer limits set by the common-law definition of employment. Other courts are likely to weigh in. The NLRB may appeal to the Fifth Circuit. A parallel suit brought by the Service Employees International Union regarding the scope of the 2023 rule is currently pending before the D.C. Circuit. Either or both of those cases may ultimately go to the U.S. Supreme Court. We conclude with two relevant handouts that identify franchisors’ best practices.

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NLRB Tightens Standard for Joint Employer Status

A business is a joint employer of another employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, according to a recently unveiled and long-awaited final rule from the National Labor Relations Board (NLRB) that will take effect on April 27, 2020. By tightening the legal test the NLRB uses to determine whether workers are jointly employed by affiliate businesses, including franchisors and franchisees, the rule provides welcomed clarity for franchisors, and will allow them to provide more operational support and guidance to franchisees.

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