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 October 2023, the NLRB finalized 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. In March 2024, U.S. District Judge J. Campbell Barker of the Eastern District of Texas vacated the NLRB’s new rule and the Board’s rescission of the 2020 joint employer rule.

What makes the new joint employer rule harmful?

The new NLRB joint employer rule 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 will 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.

“The NLRB is intentionally taking a wrecking ball to one of America’s great economic engines – the franchise model – and jeopardizing millions of small business jobs.”

American Hotel and Lodging Association

“Under the proposed standard, the NLRB would take away the benefits of independent business ownership and harm entrepreneurial opportunity. Not only would the broad and restrictive standard, if enacted, eviscerate the dynamic franchise model in the U.S. – of which a third of business owners say they would not be a business owner without this important model – small businesses across critical sectors are in jeopardy of losing independence, along with the financial investment and sweat equity they put into their businesses.”

Small Business and Entrepreneurship Council

““Franchise owners are independent operators, and the NLRB’s joint employment rule proposes to take away their independence. Franchising has provided hundreds of thousands of people from all walks of life the opportunity to own their own business, and this proposal stands to take that away in favor of special interests. This rule is yet another example of government officials stacking the deck against franchising, with small business owners and their employees paying the price.”

International Franchise Association

“If implemented, the rule would undermine the franchise model upon which so many small businesses rely.”

American Hotel and Lodging Association

“The partisan NLRB proposes to greatly expand joint-employer liability under the NLRA, which will cause confusion and impose unnecessary barriers to and burdens on contractor and subcontractor relationships throughout the construction industry. As a result, contractors may be vulnerable to increased liability, making them less likely to hire subcontractors, most of whom are small businesses.”

Associated Builders and Contractors

“The proposed joint employer rule could not come at a worse time for hotel owners. AAHOA Members were severely economically impacted by COVID and are still facing various hurdles as their businesses struggle to be profitable once again.”

Asian American Hotel Owners Association

“The proposed rule places barriers to entrepreneurial and business development and lack of control over their own business. Black entrepreneurs face greater risks under the proposed rule than ever before, especially if they plan to utilize contract models, contract workers, or temporary workers and vendors to fulfill the day-to-day operations of their firms.”

U.S. Black Chambers

“Under the existing model, women are increasingly turning to franchising in an entrepreneurial pursuit, where they are able to make their own employment decisions and have a significant amount of autonomy over their stores’ operations. The rule in its current form would diminish the controls of franchisees and impede the pathway to ownership ultimately driving women away from franchising.”

Association of Women’s Business Chambers

“Advocacy is concerned that this proposed rule would violate a new federal mandate to bolster the ranks of underserved small business federal contractors, including women-owned, Black-owned, Latino-owned, and other minority owned small businesses. Roundtable participants commented that this proposal may create a barrier to entry for small businesses new to federal contracting.”

U.S. Small Business Administration Office of Advocacy

“It’s grossly unfair and illogical for the Biden Administration to extend federal labor requirements to businesses that do not hire, fire, set wages or supervise employees, and it jeopardizes thousands of businesses and potentially millions of American jobs.”

Center for Individual Freedom taxpayer coalition letter

“In these circumstances, small business owners will bear the negative repercussions of this policy change, and the American dream of business ownership will be far more difficult to achieve.”

Coalition letter from over 65 business organizations