How To Protect Your Franchise In The Mercurial (And Risky), Post-Trump Age Of Joint Employer
May 15, 2023
Unless you live underneath a rock, you already know that franchisors (Zors) are currently fighting like hell to protect their brands and businesses from political perspectives that tend to take issue with the traditional model of franchising.
Note: This blog is not intended to provide legal advice, and the author is not a licensed attorney. Readers are encouraged to consult with a qualified legal professional for personalized advice and guidance.
It shouldn’t be this difficult to operate any business and my goal here is to acknowledge the situation, risks and offer a solution for dealing with some of the most critical joint employer pressures facing brands.
According to the International Franchise Association (IFA), the period prior to the 2020 Trump-era guidelines for the US National Labor Relations Board (NLRB), which limited the scope of the joint employer definition, produced a 93% increase in lawsuits. The litigation and efforts to comply with the broad definition cost the franchise community more than $33 billion in revenue and slashed 376,000 jobs.
Unfortunately, the current NLRB is signaling a likely return to the broader and unclear definition of joint employer, which, if history serves us well, will lead to a new wave of legal liability, lower revenues and lost jobs.
In a Notice of Proposed Rulemaking (NPRM) addressing the standard for determining joint-employer status under the National Labor Relations Act, the NLRB stated two or more employers would be considered joint if they “share or codetermine those matters governing employees’ essential terms and conditions of employment.”
When the Multi-Unit Franchising Conference took place in Las Vegas in April 2023, the IFA released a statement celebrating the introduction of the Save Local Business Act, legislation that seeks to clarify the joint employer standard and protect the independence of local franchise businesses.
Matthew Haller, President and CEO of the International Franchise Association, provide me with the following comment, “An expanded joint employer standard is one of the greatest threats to the franchise business model. The current proposal from the (NLRB) is so extreme it has the potential to upend the business model and close the door to opportunity for hundreds of thousands of entrepreneurs. Franchisors should not fear providing their franchisees with essential services like training and support related to optimizing operating costs for fear of being held jointly liability – and this proposal would do just that – hurting consumers, businesses, and employees alike.”
He’s not alone. For the majority of us in franchising, the message to the NLRB is clear, “You’re going the wrong way!”
The Risks (A Legal Perspective)
According to Jonathan Barber, Esq., Managing Attorney at Franchise.Law, the overturning of the Trump-era guidelines, while alarming, is unlikely to have a major impact on franchising. “It was nice for the NLRB to clarify its definition of a joint employer; however, the real test is whether a franchisor has too much involvement in its franchisees’ human resource practices,” he said. “If a franchisor prescribes a minimum number of employees and basic qualifications for them, they shouldn’t be afraid of being labeled a joint employer.”
But Barber added a meaningful caveat that if a Zor directly interviews each of its franchisees’ (Zee) prospective employees, conducts background checks and trains the employees and otherwise participates in the overall management of those employees, they run the risk of being snarled in the joint employer trap.
That’s a problem.
The Franchisor Conundrum
Reading between the lines of Barber’s legal opinion exposes a conundrum:
As a Zor, in adherence to the NLRB’s directive, you must rely on your Zees to comply with all required checks, including criminal background checks, insurance, professional license verification and employment verification required by law that vary by state.
However, in multiple lawsuits (some are listed below), the Zor has been expected to have ensured a Zee properly vetted prospective employees and re-checked existing ones.
So, which is it?
- In 2023, a woman filed a lawsuit against a massage therapy company in San Mateo County, alleging a male therapist sexually assaulted her in 2017. The lawsuit seeks damages for emotional distress and negligence on the part of the massage therapy company.
- Accusations of abuse at a national childcare franchise triggered a lawsuit in 2019, holding the Zor liable for the Zee’s actions.
- In 2017, a former children’s gym franchise employee sued the Zee and Zor as joint employers jointly liable for wage and hour violations.
And while all Zors operate in an increasingly litigious world, those in the children’s services, massage, waxing, hair, aesthetics, fitness, stretch, home services, health services (chiropractic, IV, hormone therapy, home health, etc.) and hotels are particularly vulnerable due to compliance requirements in their respective categories.
Confronting Joint Employeer Liability For Employee Checks
One recent solution for verifying backgrounds is automated employee checks — a system that:
- Automates all required inspections for Zees without manual (i.e., human dependent), managerial supervision.
- Provides Zors with visibility into the status of employee checks without showing personally identifiable information (PII) of the employee or directly involving them in the screening process.
- Ensures compliance and reduces risks while streamlining operational efficiency.
By automating the background screening process, Zees can ensure the timely completion of all required checks and avoid costly mistakes, such as hiring an employee with a criminal record or expired license and ensuring re-checks happen on time. Let’s face it, leaving a responsibility this important to every manager to manually remember and execute has proven to create legal issues.
Some states and cities have passed Ban the Box legislation, which prohibits employers from asking about an applicant’s criminal history on job applications. Automated employee checks can help franchise operators comply with these and other legal requirements by providing a standardized, automated process for conducting background and other required inspections.
Automated background checks provide a layer of protection for businesses of any size because they give employers peace of mind that a background check will be ordered and faster turnaround times (i.e., operational efficiency), all of which help build a stronger brand and business.
Finally, an automated solution that provides Zors with the non-PII revealing employee check status, allowing a Zor to communicate with a Zee about known gaps without directly managing the prospect or employee, is the safety net required to protect Zors from joint employer liability in 2023 and for the foreseeable future.
Where Does It All Lead?
But, like I said, a long list of organizations, franchisors and franchisees are fighting like hell to keep the incredibly valuable model of franchising from becoming dysfunctional.
The Asian American Hotel Owners Association hosted FTC Chairwoman Lina Khan on a public video call recently to discuss reforms to franchising, due to the FTCs partnership with the NLRB on the subject.
The IFA continues to fight all reform battles, big and small, including California’s Assembly Bill 1228. The bill, which seeks to establish joint liability for quick-service restaurants with more than 100 locations nationwide, has passed out of the Assembly Labor and Judiciary Committees and has until June 2 (2023) to pass the full Assembly.
In the meantime, franchise operations should seek solutions that help protect everyone involved from the uncertainty facing the industry.
Matt Goebel is the founder and CEO of Woven, an IFA Supplier Forum member, a multi-unit franchisee and a software consultancy owner responsible for building custom software solutions for franchise groups for more than a decade. Woven is a SaaS platform custom-built for franchise operations and the day-to-day management of workers, locations and operations. Woven’s integrations helps franchisors implement programs that automate and simplify the background screening process for their franchisees, helping franchisors and franchisees navigate joint employer liability.