Franchise Workers Lose Some Power to Challenge Labor Practices

The National Labor Relations Board announced a new regulation on Tuesday that makes it harder to challenge companies over their labor practices, potentially affecting the rights of millions of workers.

The rule, which will take effect on April 27, scales back the responsibility of companies like McDonald’s for labor-law violations by their franchisees, such as firing workers in retaliation for attempts to unionize. The rule also applies to workers employed through contractors like staffing agencies or cleaning services.

That is a reversal of the doctrine that the board adopted late in the Obama administration, which had made it possible to deem a much wider range of parent companies to be so-called joint employers.

“This final rule gives our joint-employer standard the clarity, stability and predictability that is essential to any successful labor-management relationship and vital to our national economy,” John F. Ring, the board’s chairman, said in a statement.

The Obama-era standard, established in 2015, said a parent company could be considered a joint employer of workers at a franchisee or contractor even if it controlled those employees only indirectly. For example, a company could be a joint employer if it required franchisees to use software that imposed certain scheduling practices. The parent company could also be considered a joint employer if it had a right to control the franchisee’s employees even if it hadn’t exercised that right.

Under the new rule, the parent company will share liability for violations committed by contractors or franchisees only if the parent has substantial, direct and immediate control over the other companies’ employees — including their pay, benefits, hours, hiring, firing or supervision.

In the case of fast-food franchises, the parent company would probably have to directly determine scheduling practices, and perhaps other working conditions, to be considered a joint employer.

The new rule could also make it more difficult for employees of contractors and franchisees to unionize. A parent company that chooses to shut down a franchise when employees of that franchise are seeking to unionize is likely to face legal risk only if it is deemed a joint employer. Workers and union officials have sometimes accused parent companies of this tactic, though the companies and industry associations have denied that this happens.

A parent company that is considered a joint employer typically must also bargain with workers at a franchisee or contractor if they form a union, a requirement that the new rule will help many parent companies avoid.

In explaining the rationale for the new rule, the agency said in a statement that it sought to return to the joint-employer doctrine that prevailed for decades before 2015, except “with the greater precision, clarity and detail that rule-making allows.”

But the new rule could make it even less likely for companies to be deemed joint employers than before 2015 because it adds the word “substantial” to the words “direct and immediate” in describing the form of control that determines that status.

In January, the Labor Department announced a similar rule effectively making it more difficult to hold parent companies liable for minimum wage and overtime violations committed by franchisees.

The labor board, which gained a Republican majority in 2017, first sought to reverse the Obama-era standard in a ruling late that year. But the board voted to vacate that ruling after its inspector general found that a Republican board member had a potential conflict of interest and should not have taken part.

After that reversal, the board took a new tack. Instead of trying to change the Obama-era standard by deciding cases involving specific employees and employers, it decided to issue a regulation that would apply to all employees and employers in these kinds of work arrangements.

Philip A. Miscimarra, who was the board’s chairman during its first effort to reverse the Obama-era policy in 2017 and left soon after, said that it was appropriate for the agency to address the issue through a new regulation. “The board clearly has statutory authority to adopt regulations, and rule-making can provide more certainty in this important area for employees, unions and employers,” Mr. Miscimarra said in an email.

Critics of the board, however, argued that the agency was doing whatever it could to achieve a desired policy outcome.

“After getting caught violating ethics rules the first time, Republicans on the board are now ignoring these rules and barreling towards reaching the same anti-worker outcome another way,” Senator Elizabeth Warren, the Massachusetts Democrat who is running for president, said in a statement when the board proposed its new rule in September 2018.

Wilma B. Liebman, who served as chairwoman under President Barack Obama, said pro-worker groups were likely to challenge the new rule in court. She said they could argue that the “blatant effort to evade the same conflict of interest problem” that plagued the initial attempt to reverse the Obama-era approach could also undermine the new rule.

The board member who the inspector general said had a potential conflict in the adjudication, William J. Emanuel, also had a role in proposing the rule. Mr. Emanuel’s former law firm had represented a party in the case that led the Obama labor board to hand down its joint-employer ruling in 2015.

Ms. Liebman said opponents could also argue that the board had not seriously considered alternatives and objections, something required by law, and noted that the new rule defied a federal appeals court decision largely upholding the Obama-era doctrine.

The board rejected such allegations in material it included with the new rule, citing court precedent that it said made clear that Mr. Emanuel did not have to recuse himself, and saying it had revised its initial proposal in response to the nearly 29,000 public comments. “Throughout this rule-making process, the board has been willing to reconsider the preliminary views expressed,” the agency said.

Michael J. Lotito, a lawyer who represents employers at the firm Littler Mendelson, said the board had devised the rule with an eye toward accommodating the appeals court decision by allowing indirect control of workers to be a factor in determining joint employment, just not one that could trigger the status on its own. But Ms. Liebman questioned whether courts would accept that argument.

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