Talk all you want about stock investing, sustainable corporate growth with a long-term view baked in, and the continual quest for job creation and growing GDP. A true engine of brand growth in the United States can be found in the franchise model.

The many fast food restaurants that dot the landscape are just one illustration of a sector that commonly licenses out its name, brand recognition, and certain functionalities. Franchisees find a way to balance national standards and operating procedures with local hiring, permitting, and training.

In a 3-2 decision on Dec. 14, the National Labor Relations Board overruled its 2015 decision related to Browning-Ferris Industries, which could make joint-employer rules less onerous and complex. For franchise operations, this could be a real shot in the arm.

The NLRB declared Browning-Ferris Industries, a California-based recycling company, to be a “joint employer” with Leadpoint, a staffing services company. The decision, critics say, ignored more than 30 years of regulatory and legal precedent and retroactively adopted a far broader definition of “joint employer” than had ever been contemplated.

The ruling covers every company that contracts out for services rendered by those who are not the company’s own employees. The headquarters of a fast food chain, for example, could be held liable for the unfair labor practices of an otherwise independent franchisee.

Companies that may fall into a joint-employer trap will still need to be aware of the risks and challenges they face amid the ever-changing world of labor law and wage protections. For the first time in decades, however, there is now an incremental increase in certainty.

The latest twist on the labor law front involves a new NLRB finding that two entities, Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co.

In all future and pending cases, two or more entities will be deemed joint employers under the National Labor Relations Act if there is proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. 

Rick Warren and Henry Warnock, partners at labor and employment law firm FordHarrison, expounded upon the importance of the latest ruling in a client alert.

First, the BFI decision created uncertainty in standard business agreements between independent companies, including, “user-supplier, lessor-lessee, parent-subsidiary, contractor-sub-contractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships” under the NLRA.

Second, under the BFI standard, companies had to scrutinize their contracts with third parties to determine whether the terms provided that a company retained the right to control terms and conditions of employment, even if the company had never exercised that right in any way.

Under Hy-Brand, it is significantly less likely that the typical franchisor-franchisee relationship will result in such entities being considered joint employers, Warren and Warnock added.

Matt Haller, senior vice president of government relations for the International Franchise Association, called the NLRB’s retreat an early Christmas gift.

“The decision helps create certainty for franchisors and franchisees in the near term and highlights the need for long-term certainty in this area,” he said. “Clearly, the board majority agrees with a significant bipartisan majority of House members who voted last month to create a bright line joint-employer test in both the NLRA and FLSA by passing the Save Local Business Act.”

The Save Local Business Act, sponsored by Rep. Bradley Byrne (R-Ala.), seeks to better clarify what constitutes a “joint employer” under federal labor law.

Companies that may fall into a joint-employer trap will still need to be aware of the risks and challenges they face amid the ever-changing world of labor law and wage protections. For the first time in decades, however, there is now an incremental increase in certainty.