THE SAVE LOCAL BUSINESSES ACT AND WHY IT IS GOOD NEWS FOR FRANCHISES
On July 27, 2017, H.R. 3441, entitled "The Save Local Businesses Act," was introduced in the House of Representatives. This proposed legislation is designed to provide clarity on the "joint employer" ambiguity that has been a significant issue for franchise systems in recent years.
Although the "joint employer" issue in labor and employment law is not unique to the franchise world, it is problematic for franchise systems because a franchisor that is found to be a "joint employer" of the employees of its franchisee can become jointly liable for labor and employment law violations of its franchisee.
Most notably, in 2015, the National Labor Relations Board ("NLRB"), an independent U.S. Government agency that enforces U.S. labor laws in the private sector, issued a decision in the Browning-Ferris case that significantly expanded "joint employer" standard.
Namely, the new standard in Browning-Ferris applies "joint employer" liability against a franchisor if the franchisor exercises "indirect control" over the employment conditions of a franchisee's employees. Additionally, the Browning-Ferris decision provided little guidance on what actions would constitute "indirect control" over a franchisee's employment policies, leaving many franchisors left wondering whether their current policies exposed them to potential "joint employer" liability.
This represented a major threat to the franchise business model, which is premised upon separate and independent ownership of the franchised businesses by franchisees who rely on the support of a franchise system provided by the franchisor.
The Save Local Businesses Act aims to overturn the Browning-Ferris decision by defining an employer as someone who "directly, actually and immediately exercises control of the essential terms and conditions of employment."
Again, this bill is merely proposed legislation, and would have to be approved by both houses of Congress and the President before becoming a law. Nevertheless, the bipartisan support for this bill is a good sign for franchisors and franchisees alike, and could provide some much needed clarification and uniformity regarding the "joint employer" standard.
