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This story is part of the Entrepreneur & # 39; s Campaign For Our Careers, an effort to raise awareness of the harmful effects of the PRO Act. You can find more information about the campaign here.
If someone is tending the cash register at a local McDonald's, who is employing that person? Is it the individual franchisee who owns the McDonald’s location or the McDonald’s group itself?
This may sound like a bizarre question, but it is at the heart of the legislation under scrutiny by Congress – and a proposed change could "seriously disrupt the franchise business model," according to a coalition of franchise industry groups. This change in the law could make franchising more difficult and expensive, and limit growth and opportunities.
For now, the answer to the question of who employs the cashier is largely simple: a single franchisee hires everyone who works in the company. This is how franchising has worked for a long time.
However, the Right to Organize Act (or PRO Act) includes a change to the language known as "Joint Employer" which means that in certain circumstances, both the franchisee and the franchisor are considered to be employers of the cashier can. The franchisor could be held legally liable for the mistakes of an individual franchisee or for mistakes made by the franchisee's employees, and may even force a change in the franchisee's own relationship with the franchisor.
The effects are significant. There are nearly 800,000 franchises in the US, including popular brands like McDonald’s, 7-Eleven, Ace Hardware, Marriott International and Re / Max. They could all be harmed, according to industry and legal experts.
The common employer standard of the PRO Act has a more recent history dating back to 2015. At that time, the Obama administration's National Labor Relations Board ruled on a case involving waste management company Browning-Ferris Industries.
The Browning-Ferris ruling found that franchisors with "indirect control" over a contractor's or franchisee's employees, or even the potential to exercise such control, could be held responsible for the acts of franchisees. The ruling stated that the franchisor – the national brand – could be held legally responsible if, for example, a franchisee did not pay an employee overtime even though the national brand had no knowledge of the franchise situation. The ruling also meant that the national brand could be forced to legally recognize and negotiate with the unions instead of the unions having to organize each franchise location individually.
At the time, union leaders like the AFL-CIO proclaimed the Browning-Ferris ruling as a "major victory". AFL-CIO President Richard Trumka said the decision could "very well signal the beginning of the end of obsolete laws that do not address an anti-working class economic structure."
The franchise industry saw it differently. The Browning-Ferris ruling marked the first time in decades that indirect control under the National Labor Relations Act was seen as the single most important determinant of a joint employer's relationship. The International Franchise Association described the decision and the indirect control standard as an "existential threat" to the entire industry.
According to the IFA, their fears have been confirmed. In the four years following the ruling, the IFA said litigation against franchises has nearly doubled – costing the industry $ 33 billion annually and preventing 376,000 jobs from being created.
At the end of the Trump administration in 2020, a new regulation for determining employee status was enacted. This rule restored the pre-Browning standard by stating that under the National Labor Relations Act, employee status applies only when a franchisor had “significant direct and immediate control” over a franchisee's employees.
But that didn't stop the matter. In fact, the situation only got more complicated.
Employer law firms celebrated the 2020 rule change, saying it reduced the risk of a franchisor finding a joint employer, reducing potential liability and making it clear that national brands don't have to negotiate with their franchisees' workers.
Trumka, speaking for the AFL-CIO, said the new rule would "allow companies to manipulate the system to restrict the freedom of working people to negotiate fair wages and benefits".
Attorneys-general in 18 states filed lawsuits to repeal the new rule, and a federal district court in New York backed them. A judge overturned a significant part of the new rule. An appeal is currently being made against this case.
Then a new government began in Washington. Shortly after President Biden took office in early 2021, the U.S. Department of Labor announced its intention to withdraw the common employer rule from the Trump era – signaling its intention to return to the Browning-Ferris standard of indirect control.
The IFA called the Biden government's decision "confusing" given the economic damage the indirect control standard had caused.
Now the common employer question is part of the PRO law, which is supported by the Biden administration. The bill would go further than the Department of Labor could and embed the indirect control standard into the National Labor Relations Act.
In practice, the PRO Act would put the franchise industry back in the same position that the Browning-Ferris decision created, according to leading employer lawyers like Michael Lotito of the Littler Workplace Policy Institute. IFA, the National Franchisee Association, and others wrote to Congress in March 2021, saying the PRO Act would "drastically change liability rules."
This letter indicated that this impact would cause disproportionate harm to minority communities because while only 18% of non-franchisees are minority owned, more than 30% of franchisees are minority owned.
For all of these reasons, if the PRO Act and its common employer standard became federal law, franchisors and franchisees would have serious cause for concern for a living.
How to contact your Senator and the US House Representative and ask them to vote no against the PRO Act. For more information on this topic from Entrepreneur, click here.