Franchise Anxiety

Labor lawyers, businesses hope for reversal of controversial Obama rules

A sign outside a San Francisco McDonald's
A sign outside a San Francisco McDonald's franchise / Getty Images

Franchise businesses and labor lawyers will have to wait until 2019 to see if the Trump administration overturns one of Obama's most controversial workplace policies.

The National Labor Relations Board has been weighing whether to use its rulemaking authority to overturn an Obama-era ruling that held franchise businesses and other companies liable for violations committed by franchisees or subcontractors. Many had expected the board, which oversees workplace disputes and union elections, to re-establish longstanding precedent that held actual violators, rather than parent companies, responsible before Dec. 31. The agency, however, announced a 30-day extension of the public comment period into 2019 and delaying any action until after the holidays.

The delay has stretched the patience of many in the industry. Matthew Haller, spokesman for the International Franchise Association, said union forces have intentionally slowed the attempt to unravel Obama's anti-franchising policies. His group wants to see the agency "move quickly to create certainty for American small businesses."

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"Labor advocates have been trying to gum up the works at the NLRB since the new Board majority was installed in 2017," he said. "The economic harm from an expanded joint employer standard includes lost jobs, regulatory instability, increased litigation, and additional compliance costs."

The NLRB's five-member board is partisan by design with three seats reserved for members of the president's party and two for the minority party. In 2017, President Trump gave Republicans their first majority on the board in a decade. The GOP-controlled board proceeded to overturn a number of Obama era decisions in the closing months of the year, including in a December ruling that re-established the old joint-employer standard. That decision, however, was later tossed after an agency ethics official controversially ruled that Trump-appointee William Emanuel should have recused himself from the case because his old law firm had argued in a joint employer-related case in the past.

Steve Bernstein, a veteran management-side labor attorney with Fisher Phillips, said the agency decision to cement the previous liability standard through rule making would allow the GOP to act more decisively than if it waited for another case to make its way through the NLRB pipeline. It would also make it harder for future Democratically controlled boards to return to the Obama-era—those appointees would have to create a rule of their own, rather than simply overturn a Trump-era board decision.

"Rulemaking gives them elbow room to paint on a canvas rather than being constrained by the facts of a particular case," he told the Washington Free Beacon. "It's a little harder to undo a rule."

The joint employer liability regime adopted by the Obama board has come under fire on Capitol Hill. Lawmakers and industry associates have criticized the approach for giving unions an advantage in representation battles. Once joint liability is established they can attempt to hold top-down organizing campaigns pressuring parent companies, rather than the store-by-store elections they currently use.

Republican lawmakers have drawn up congressional resolutions and new legislation to reverse board rulings during President Obama's second term, but failed to advance them into becoming law. The House of Representatives passed the Save Local Business Act in 2017, but the legislation remains at a standstill in the Senate. Bernstein said the Trump NLRB has been more effective than Congress in accomplishing these reversals.

"The world of administrative law has never been more politically charged than it is today," he said. "Given the gridlock, administrative rule making gives you a more potent avenue to take the lead where joint employer is concerned."

Bernstein expects any rule from the NLRB to return to the previous standard even if it comes one month later than previously expected. He is not the only one. A group of 83 lawmakers from both parties have submitted a letter to the NLRB calling for a quick resolution to the dispute over joint liability. They hope the board will accomplish what members of Congress could not.

"Given the vacuum created by uncertainty and a lack of legislative action, we support the NLRB's decision to step forward and fill the void," the Dec. 13 letter said. "This remains an important step toward providing clarity and restoring the support services needed by small, local businesses to enable them to flourish and create the jobs so sorely needed in their communities."

Interested parties will have until Jan. 14 to submit comments on the proposal.