The Issue
What is the joint employer rule?
In the modern economy, there are many types of business-to-business relationships where one entity typically makes employment decisions (hiring, scheduling, and payment of employees) and the other benefits from this entity’s services. Such models include large businesses with various smaller entities that retain control of their individual employees; big brand corporations with small, local franchise owners who operate their own locations and make staffing decisions; or third party contractors who make their own employment decisions but provide work for another business entity. However, these relationships don’t necessarily require that both business entities exercise control of employees equally, or even share employment responsibilities at all.
A controversial 2015 NLRB decision, Browning-Ferris, has complicated these relationships, and threatened the autonomy and flexibility of employers and their workers. The Browning-Ferris decision categorized these business-to-business relationships as “joint employer” relationships, meaning both control and legal liability for employees goes to both the entity responsible for employment decisions and any other business entity that may be contractually connected for any reason.
This forced businesses to exert more direct control over affiliated entities’ employment decisions to avoid legal liability, limiting independence for small franchise owners and flexibility for independent contractors.
In 2020, this standard was clarified to ensure that two businesses may only be considered “joint” employers if they mutually have direct control over employees. This returned independence for small business owners such as franchisees and gig workers such as app-based drivers.
In September 2022, the NLRB proposed a new rule to repeal the 2020 criteria and return to a similar standard from the 2015 Brown-Ferris decision. Still the case as in 2015, this standard hurts small business ownership opportunities by eliminating independence of smaller business entities and independent contractors, and forcing direct corporate control of individual franchise businesses.
What makes the proposed joint employer rule harmful?
The current National Labor Relations Board proposal increases legal liability and risk for affiliated businesses, even if their relationship does not make both parties mutually responsible for making employment decisions. The added liability could cause larger brands to limit franchising opportunities for small business owners, complicate contract relationships between businesses and their vendors, and limit opportunities for independent contractors.
For example, in 2019, the International Franchise Association released a study showing that the BFI standard cost franchise businesses $33.3 billion per year, resulting in 376,000 lost job opportunities, and led to a 93% increase in lawsuits.
Opposition to this harmful joint employer standard comes from a vast, diverse group of businesses, trade associations, and advocacy organizations.
Center for Individual Freedom taxpayer coalition letter
Coalition letter from over 65 business organizations