Legal Guide

Parent Companies Will Now be Responsible for Labor Violations of their Franchisors

In 2020, the National Labor Relations Board (NLRB) proposed a new rule that would hold parent companies responsible for labor violations committed by 3rd party franchises they work with. Companies with franchises formerly assumed their reserved or indirect control over employees working in their franchises. Therefore, any decision concerning employees made by franchise owners or contractors was considered independent of the larger parent company. However, this new rule adjusts these limitations to extend legal liabilities to parent companies. Now, parent companies will be held responsible.

Why this Ruling is Important

A vital employee right in the United States is the right to organize and unionize. Employees who form unions for their respective industries tend to negotiate with the parent company when fighting for better workplace policies or environments. However, previous laws did not hold parent companies responsible for the employees under the direct control of contractors or franchisees. As such, most employees of franchises or contractors could prevent their employees from unionizing. The new regulation ensures employee rights are protected. One limit to the Joint Employer Status, as defined in the National Labor Relations Act, is that it does not specify how employees employed by two statutory employees should go about self-organization or approach collective bargaining. 

Setting the Stage

Several legal cases have set the stage for the new rule. In Boire v. Greyhound Corp, for example, the court found that Greyhound was a joint employer of employees whose employee was directly overseen by a cleaning contractor. While indirectly associated with its employees, the court determined that Greyhound had sufficient control over the working environments and employee policies governing the employment terms and conditions.

Recent Changes in Joint-Employer Relationship Laws

The law around joint-employer relationships has changed in recent years. In 2015, a democrat-led labor board changed the standard to indirect control. Indirect control standards exclude responsibilities like setting minimal hiring and performance standards, codes of conduct, and even establishing operating hours. However, the final rule stipulates that more than the indirect rule is required to show joint-employer status. The final rule states that the essential terms of employment should be limited to hiring, firing, discipline, supervision, direction, wages, benefits, and work hours. A 2017 ruling reverted the 2015 decision stating that joint employer status can be held even if the employer does not possess and exercise authority.

The final rule goes back to the 2015 ruling, where an entity can be considered a joint employer if it exerts direct and immediate control over its employees. This rule inadvertently puts employers at a disadvantage. The bargaining power workers enjoy through intermediary organizations like unions will be limited. The employing entity contracting for employee services determines the working hours, wages, and conditions more than the contractor. Therefore, the final rule undermines the ability of employees to negotiate with the employing entity.


The changes in the joint-employer status and standards can still be made. The last decade has seen these standards change with changes in the political views of board members. “In the meantime, workers should consult knowledgeable attorneys to assist them in understanding how the final rule will affect their work life,” says Jason W. Power of Franchise.Law.

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