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Study Says Joint Employer Policy Costs Over $33 Billion a Year

Franchises are hard hit by unions and tort lawyers trying to use the law against them.

The Obama-era National Labor Relations Board (NLRB) expansion of the joint employer standard in 2015 has cost the American economy $33.3 billion per year, led to 376,000 fewer job opportunities and resulted in a 93% increase in lawsuits against franchise businesses, a recent study found.

The findings are included in an economic impact study the International Franchise Association (IFA) filed with the current Republican-majority NLRB as part of its joint employer rulemaking expected to be finalized early this year to reverse the policy. IFA says the study, conducted with the assistance of the U.S. Chamber of Commerce, vividly demonstrates the economic harm caused by the expanded joint employer standard to franchise businesses and to the overall economy.

“This groundbreaking research demonstrates what businesses have long said: An expanded joint employer standard hampers their growth, hinders their operations and halts their hiring,” says Robert Cresanti, president of the IFA. “Its harms on the economy are clear, and regulators and elected officials should move quickly to return to a narrow, clearly-defined joint employer standard.”

In a 2015 decision called Browning-Ferris, the previous Democrat-dominated board abruptly reversed a policy holding that two companies can be considered joint employers if one has indirect control or rights of control over the other firm’s employees—even if those rights are never exercised. Typically, joint employer status involves defining the legal responsibility of staff leasing companies and franchisees to apply also to their corporate clients and parent companies.

The change made by the Obama-era board was seen as an attempt to give a boost to ongoing union organizing campaigns that have targeted large-scale franchisors, such as McDonald’s and other fast food chains. At the time, industry associations and other employer groups strongly objected to the change, which reversed three decades of the previous policy, and the NLRB ruling was challenged in court.

The IFA research found that between mid-2014 (when the proposed change first surfaced at the NLRB) and mid-2018 there was a more than 93% increase in charges and petitions filed with the NLRB claiming joint employer status in regard to franchise operations. During the same period, there was a 50% increase for non-franchise employers.

The impact has not been limited to actions before the NLRB. Nearly all of the franchisors surveyed say that since Browning-Ferris, they have experienced a significant increase in joint employer claims across all spectrums of the law, including wage and hour claims, personal injury tort lawsuits, and harassment or discrimination claims.

“Very few of the franchisors interviewed were named as parties to joint employer complaints prior to Browning-Ferris,” IFA points out. “Plaintiff’s [tort] attorneys have since utilized the broadened joint employer doctrine to target franchisors, which are typically viewed as having ‘deeper pockets’ than franchisees.”

Another result of the 2015 NLRB decision is that franchisors who had successfully defended against joint employer allegations prior to Browning-Ferris have found that courts and other agencies are much less inclined to dismiss joint employer allegations since new policy was adopted. 

Another direct result was that many franchisors have chosen to be more selective in regard to the franchisees with which they can or choose to do business with. “Those franchisors are less inclined to work with newer franchisees or economically disadvantaged franchisees given the heightened risk of joint employer liability,” IFA says.

In addition to the economic impacts, the IFA research found that 92% of surveyed franchise brands and franchise business owners say that the expanded joint employer standard has led them to provide much less support to franchisees from their brands.

“This fear of joint employer liability under the new doctrine has caused franchise brands to distance themselves from franchisee owners by curtailing guidance regarding compliance with labor and employment laws, limiting training programs, withdrawing assistance with marketing and cost control practices, and eliminating other previously-provided services,” IFA points out.

One franchisor compared this to sending a new franchisee into a boxing match with his hands tied behind his back. Another franchisor, which has over 20% of its franchisees from economically-disadvantaged backgrounds, has ceased expanding relationships with such franchisees unless they can demonstrate greater economic long-term stability.

It also is not unusual for franchisors to cease providing training for franchisees’ employees out of concern that to do so could be misinterpreted as exerting the kind of control that would cause it to be defined as a joint employer. 

Other franchisors have elected to offer training through third parties, which then provide such training without any input or direction from the franchisors. However, doing so comes at a cost. One franchisor estimated that its training costs increased 300-400% due to its decision to outsource the training because of joint employer concerns.

As part of conducting this research, IFA along with U.S. Chamber economist Dr. Ronald Bird, held more than 75 hour-long interviews with franchise brand executives and franchise owners to determine the economic impact of the joint employer model. IFA says this research project is the first to interview franchise businesses in a statistically significant and economically sound way on the joint employer standard.

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