Franchise Industry Calamity Averted, For Now

Fox Rothschild LLP

Fox Rothschild LLP

In recent blogs, we identified serious threats to the franchise industry – the Protect the Right to Organize (“PRO”) Act, joint employer standards, state ABC laws, and the new Biden Administration guard at the Department of Labor and the National Labor Relations Board (which looks suspiciously like the old Obama Administration guard. A combination of these changes, we warned, could spell disaster to the future of the franchise industry.

For now, we’re walking back from the ledge; the apocalypse has been averted. The Democratic logjam in Congress has resulted in a watered down legislative agenda for the Biden administration, David Weil’s confirmation at the DOL is stalled, and a few courts are trimming the effects of state ABC laws. So, we move back from the ledge, albeit cautiously.

The franchise industry may experience a reversion to the Obama-era of joint employment headaches, but will it be worse? Passage of the PRO Act is unlikely, meaning that the deep structural changes to the relationship between employers and employees will remain a fond progressive hope, rather than law. As mentioned in our PRO Act blog, some of the provisions of that Act may become the subject of executive orders or a rulemaking process. Rumblings of increased fines for employers who violate the NLRA, up to $50,000 per employee, have already reached the rumor mill. Both the NLRB and the DOL could adopt either an Obama-era or an ABC joint employment standard, but which will it be and how broadly will it extend?

Our very cloudy crystal ball suggests that the two most likely scenarios are:

  • PRO Act fails; NLRB and DOL adopt ABC joint employment standard.
  • PRO Act fails; NLRB and DOL adopt economic reality standard, broadly stated (back to the Obama-era).

But of course, we could hope for just a little more breathing room with the following scenario:

  • PRO Act fails. DOL and NLRB adopt economic reality standard, including the requirement that a potential joint employer must possess and actually exercise direct control over at least one essential term or condition of employment.

Coming Soon: What steps we think franchisors should take now to protect themselves in the event the headwinds return.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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