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NACS: New Labor Standards Jeopardize Franchise Model

WASHINGTON, D.C. — A decision by the National Labor Relations Board (NLRB) paves the way for employees at franchise businesses to unionize. However, the move could negatively affect the franchise business model, according to NACS, the Association for Convenience & Fuel Retailing.

"The National Labor Relations Board adopted a more expansive definition of 'joint employer' under the National Labor Relations Act. The new standard is expected to have significant impacts on the franchisor-franchisee relationship, potentially resulting in franchisors being held liable for the labor practices at its franchise locations," NACS reported.

The ruling, which stemmed from a case involving a waste management company and its staffing company, refines the board's standard for determining when parties can be identified as employers. 

The decision could have broader implications for unions that have struggled to organize workers at fast-food restaurants, which are often run by franchisees who consider themselves small-business owners, but pay fees and adhere to standards set by the companies, according to The Associated Press.

In articulating its new "joint employer" standard, the NLRB states that it "may find that two or more statutory employers are joint employers of the same statutory employees if they 'share or codetermine those matters governing the essential terms and conditions of employment,'" NACS explained.

In addition, the NLRB will no longer require that a joint employer possess and exercise the authority to control employees' terms and conditions of employment. Under the new standard, simply possessing the authority to control terms and conditions of employment is sufficient to be held as a joint employer, the association said.

"The NLRB may attempt to apply the expanded standard to the branded marketer model that is used by many in the retail motor fuel industry," NACS stated.

Further, the franchisor-franchisee model may be particularly affected. In a separate case brought against McDonald's Corp., the NLRB has charged that McDonald's should be held as a joint employer with many of its franchise locations. Under its case against McDonald's, the NLRB seeks to hold the parent corporation jointly responsible for labor violations at numerous franchise locations nationwide, the association added.
"If franchisors are held responsible for actions at its franchise locations, or if they are responsible for bargaining with franchise employees, they may not see the benefit in continuing the franchisor-franchisee business model. Rather than franchising store locations, they may choose to own and operate the location itself. Such a move could jeopardize the business model used by many in the retail motor fuel industry," NACS stated.

According to the association, the new standard set by the NLRB "will likely result in numerous legal challenges as additional labor complaints are brought against companies."

In addition, the change in the joint employer definition is expected to be highly controversial in Congress. Several congressional committees have held legislative hearings on this topic in the past, and Republicans may seek to override the NLRB's decision, according to NACS.

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