'Joint Employer' threat to franchising is back

COVID-19 , Industry News , Legal ,

Source: Restaurant Business

Restaurant franchisors could once again be sued for the employment practices and policies of their franchisees as the result of a federal judge’s decision today to overturn the Trump Administration’s redefinition of “joint employer,” a legal standard the franchise community had struggled for years to temper because of fears it would virtually halt chains’ expansion.

They seemed to prevail when the Department of Labor rewrote the standard early this year to narrow the instances where a franchisor qualified legally as a joint employer of a franchisee’s staff. The apparent victory assured restaurant chains and other franchisors that they wouldn’t be constantly dragged into court by line-level employees looking to sue a deep-pocketed party for alleged violations of federal labor regulations. Franchisees also expressed relief that they could continue to shoulder the responsibility of recruiting and maintaining a staff, instead of having to involve a franchisor that might have no familiarity with the local labor market.

But U.S. District Court Judge Gregory Woods struck down the redefinition late Tuesday,  saying Labor failed to explain adequately why its interpretation of “joint employer” had changed. The opinion also asserted that the new standard is not consistent with the Fair Labor Standards Act, the nearly 100-year-old piece of legislation that set up such protections for workers as a federal minimum wage, a limitation on weekly hours and the National Labor Relations Board.

As a result, Woods wrote, the new definition is “arbitrary and capricious.”

His ruling is sure to roil the franchise community, which has seen a more-favorable joint employer standard be adopted and then rescinded multiple times, for reasons ranging from an alleged conflict of interest among regulators to varied interpretations by courts applying the concept. The International Franchise Association (IFA) and other groups have pushed to stop the whipsawing back and forth by having Congress set a definition as law. That remedy would also prevent a rewrite of the definition every time control of the White House should shift from one political party to another, as happened when Donald Trump succeeded Barack Obama as president.  

“This decision will harm small businesses and their employees across the country,” Matt Haller, the IFA SVP of government relations and public affairs, said in a statement provided to Restaurant Business. “It’s unfortunate that, in the middle of a pandemic, this ruling has thrown a wrench into small businesses’ economic recovery. IFA is reviewing all possible options as we consider our next steps to defend the franchise business model.”

Woods ruled on a case that had been brought by 18 states against Eugene Scalia, the sitting Secretary of Labor. The plaintiffs argued that the new definition denied workers a chance to push back on unfair operational policies that were handed down to franchisees by their franchisorssome instances, opponents of the new definition have argued, those standards have an impact on staffs’ duties and responsibilities.

The states also contended that state-level protections adopted to offset the weakness of the federal standard foisted a significant financial responsibility on the local jurisdictions.

Woods’ decision extended to 62 pages.