Will This Decision Force Franchises to Reconsider Their Business Models? The National Labor Relations Board's latest move means franchisors can be held legally accountable by workers.

By Kate Taylor

Opinions expressed by Entrepreneur contributors are their own.

McDonald's business model may soon need to change.

On Thursday, the National Labor Relations Board refined its standard for determining joint-employer status. Now, a franchisor can be considered an employer if it influences or controls the "essential terms and conditions of employment," not only directly but also indirectly.

That means franchisors, who have long skirted issues of minimum wage and employee treatment by claiming responsibility rests solely in the hands of franchisees, can now be held legally accountable by workers. Because of this, employees are a big step closer to being able to bargain with franchises collectively on issues of pay and alleged mistreatment, as opposed to dealing with individual franchisees.

Related: New York Moves Closer to a $15 Minimum Wage for Fast-Food Employees

The NLRB's new definition springs from a decision involving Browning-Ferris Industries (BFI), in which the board found BFI to be a joint employer with subcontractor Leadpoint, due to both direct and indirect control exerted. However, the decision promises to influence the entire franchise industry, especially big names in fast-food such as McDonald's.

"Today's NLRB decision is a seismic shift in the Board's employer definition and, without any Congressional or court action could significantly alter the face of American business as we know it" International Franchise Association (IFA) President Steve Caldeira said in a statement. "If allowed to go into effect, the impact of this new joint-employer rule would be sweeping and widespread, create havoc for the franchise industry and, ultimately, would inflict serious damage to our nation's economy."

The IFA is currently working to encourage Congress to support legislation that will codify the long-held, narrower definition of what constitutes a joint employer. Additionally, BFI may appeal the decision to either the 9th Circuit of the D.C. Circuit Court.

Related: In Tennessee, Only Franchisees Can Be Held Accountable for Employees

If BFI and the IFA does not succeed in convincing Congress to pass legislation that will oppose the NLRB's decision, franchises are going to have to examine their business model and see where they fit under the expanded definition. Many companies will either have to take responsibility to ensure employees' well-being or, alternatively, diminish direct and indirect control over franchisees, such as in the forms of hiring practices and corporate instruction related to employees.

McDonald's is already in the midst of an attempt to escape the label of joint employer. Last July, the NLRB deemed McDonald's a joint employer and a responsible party in labor cases, a decision the company is still fighting, with a final decision expected in 2016.

However, not every franchise necessarily needs to worry. In April, the NLRB concluded that healthy fast-casual chain Freshii is not a joint employer, even when considering both the direct and indirect power of the franchisor in terms of hiring, firing and discipline.

Related: Why the NLRB Says This Franchise Isn't a Joint Employer, But McDonald's Is

Kate Taylor

Reporter

Kate Taylor is a reporter at Business Insider. She was previously a reporter at Entrepreneur. Get in touch with tips and feedback on Twitter at @Kate_H_Taylor. 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Social Media

AI Is Transforming the Workplace — Including Social Media Marketing. Here's How Businesses Can Actually Use It.

Artificial intelligence is transforming social media management for small and medium-sized businesses, helping them enhance scalability, improve cost efficiency and build stronger customer relationships.

Business News

Your Old Apple AirPods Can Soon Act as an Over-the-Counter Hearing Aid, According to the FDA

The new software is compatible with the Apple AirPods Pro and accessible through iOS — for free and now FDA-authorized.

Growing a Business

Entrepreneurs Should Invest in Service, Not Just Sales — Here's How to Build a Customer-First Business

A customer-first business strategy that prioritizes exceptional service, empowers employees and leverages feedback can transform satisfied customers into loyal advocates, driving sustainable, long-term growth.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Business News

Elon Musk's xAI Claims Its New Grok 3 AI Is Better Than ChatGPT and DeepSeek: 'Seeing the Beginnings of Creativity'

xAI debuted the new AI on Monday, claiming it has 10 times the computational power of Grok 2.

Business News

'Unprecedented in Our 53-Year History': Southwest Airlines Announces Its First Mass Layoffs Ever

The airline is eliminating 15% of its corporate workforce, including many in senior leadership positions.