A U.S. federal judge in Texas blocked the broadened National Labor Relations Board joint employer rule that was introduced in October and would have made franchisees and franchisors jointly liable for labor terms and conditions such as union contracts, pay, scheduling, and more. The rule, which was supposed to have gone into effect Monday, would have revived and updated an Obama-era rule that was limited in scope during the Trump Administration.
In his decision on Friday, U.S. District Court Judge J. Campbell Barker called the expanded joint employer rule “arbitrary and capricious,” and said that it would be “contrary to law.”
The proposed joint liability rule was widely condemned by most of the restaurant and franchising industries, with franchisees worried about the proposed increased franchisor control over their business, and franchisors critical about the added fiscal and legal resources needed to comply with the rule.
“This decision is a decisive win for franchise operators, the restaurant industry, and the Restaurant Law Center,” Angelo I. Amador, executive director of the Restaurant Law Center said in a statement. “By rescinding the 2023 Rule and reinstating the 2020 Rule, the court provides the clarity and certainty on how to determine joint employer status that thousands of small business restaurant owners and their employees need. It also restores the independence of entrepreneurship to thousands of franchisees across the country.”
- When the National Labor Relations Board initially passed the broadened rule last October, proponents of the joint employer rule would have made it easier for employees to unionize. Currently, very few franchised companies have unionized because franchised stores are individually owned and operated.
- Just two weeks after passing the rule, the first wave of lawsuits was filed to stop joint employer from going into effect, backed by The Restaurant Law Center and the Texas Restaurant Association, among others.
- In December 2023, Congress introduced a bill to overturn the joint employer rule as a Congressional Review Act resolution of disapproval.
- In January, the U.S. House of Representatives voted to overturn the joint employer rule, and it was supposed to go to the Senate next for a final vote. President Biden has said that if Congress votes to repeal the new joint employer rule, then he would veto the resolution.
The NLRB is likely to take the route of appealing the judge’s decision.
“The District Court’s decision to vacate the Board’s rule is a disappointing setback but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts,” Lauren McFerran, chairman of the NLRB, said in a statement.
There are currently still legal challenges to the joint employer rule being considered in the D.C. Circuit Court and the Senate is deliberating a Congressional Review Act resolution to overturn the 2023 Standard.
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