An appeals court has ruled that an Obama-era National Labor Relations Board rule that threatened franchises by allowing unions to negotiate directly with corporate headquarters rather than with individual stores was written too broadly. The rule also made corporations responsible for labor violations of their individual franchises.
The National Labor Relations Board (NLRB) ruled in 2015 that companies and franchisers with “indirect and direct control” of employees could be held liable for labor violations committed by contractors or franchisees. The D.C. Circuit Court of Appeals ruled 2-1 that the board did not sufficiently define “indirect” control and sent the 2015 decision back to the board for a more restricted explanation.
The 2015 NLRB ruling overturned more than two decades of precedent while placing businesses at increased risk of violating labor laws. The ruling also empowered unions to negotiate directly with a franchise’s corporate headquarters if franchise employees sought to unionize.
Franchisers, companies and pro-business groups have sought to have the ruling overturned. An attempt by President Donald Trump’s NLRB fell flat after Republican board member William Emanuel was forced to retroactively recuse himself from ruling in a case that would affect the 2015 decision.
The NLRB proposed a new definition of the “joint employer standard” in September that would restrict the responsibility of employer labor violations to companies that have “direct control” of employees. The board is expected to pass a final rule by June.
The rule threatened the franchise business model. Corporate headquarters gives a lot of support to individual franchises, including counseling on how to run a business and employee relations. After the 2015 ruling, many headquarters pulled back that support, afraid that it would constitute “indirect control.”
The NLRB rule showed that despite small numbers of workers being unionized, labor still has an enormous influence on policy thanks to the half-billion dollars in direct and indirect campaign contributions they make every election cycle.