NLRB Reinstates Strict 2020 Joint Employer Rule, Shielding Franchisors from Labor Liability

For a fast-food worker seeking to unionize, the target of their collective bargaining just shrank from a global corporate brand to a single local franchise owner. For a parent company relying on subcontracted labor, a major legal liability has just been erased. The National Labor Relations Board has fundamentally altered the balance of power in the modern franchised and subcontracted economy, formally reinstating a strict standard that shields parent companies from being classified as "joint employers" of their contractors' workers.

In a final rule published in the Federal Register, the NLRB officially withdrew a broader 2023 regulation and codified the return to its 2020 joint-employer standard. The regulatory maneuver formally embeds the employer-friendly framework into the Code of Federal Regulations, bypassing the standard public notice-and-comment period.[3][8]

Under the reinstated framework, a company can only be deemed a joint employer if it possesses and actually exercises "substantial direct and immediate control" over a worker's essential terms of employment. The rule explicitly states that control exercised only on a "sporadic, isolated, or de minimis basis" is insufficient to trigger joint liability.[1][3]

The NLRB defines the "essential terms and conditions of employment" as an exclusive list of eight factors: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. To be considered a joint employer, a parent company or franchisor must have a regular or continuous consequential effect on at least one of these specific areas.[1][4]

The action officially buries a Biden-era attempt to expand corporate liability. Issued in 2023, that broader rule would have allowed companies to be classified as joint employers if they possessed merely indirect control, or if they held an unexercised "reserved right" to control a subcontractor's workforce.[6]

That expansive standard never took effect. It was vacated in March 2024 by a federal judge in the U.S. District Court for the Eastern District of Texas, who deemed the rule "arbitrary and capricious" for failing to distinguish a true employer from a mere contractual partner.[7]

After the NLRB voluntarily withdrew its appeal of that Texas ruling in July 2024, the agency was left to determine how to clean up the regulatory text. The Board ultimately classified the formal reinstatement of the 2020 rule as a purely "ministerial" act necessary to comply with the court's vacatur, justifying the absence of a new public comment period.[1][3]

The structural shift carries massive financial and operational stakes for the franchise model. By requiring direct and immediate control, the 2020 rule allows corporations to dictate brand-recognition standards—such as requiring franchisees' employees to wear specific uniforms or use specific operational software—without inadvertently transforming the franchisor into a legal employer.[4]

For labor unions, the rule represents a formidable barrier to organizing at scale. If a parent company is designated a joint employer, it is legally compelled to sit at the bargaining table with unions representing its franchisees' workers and can be held jointly liable for unfair labor practices, including union-busting tactics or wage theft. Shielding the parent company forces unions to organize franchise by franchise, a significantly more resource-intensive process.[5]

While the NLRB's action provides immediate regulatory certainty under the National Labor Relations Act, corporate counsel warn that companies still face a patchwork of liability. The Department of Labor and the Equal Employment Opportunity Commission apply different tests for joint employment under the Fair Labor Standards Act and civil rights laws, meaning a relationship that passes muster with the NLRB could still trigger liability elsewhere.[5][7]

Furthermore, the legal maneuvering over the NLRB standard is not entirely finished. A challenge to the 2020 rule brought by the Service Employees International Union remains pending in the U.S. Court of Appeals for the District of Columbia Circuit, with the union arguing that a company's reserved right to control workers should be sufficient to establish joint liability.[2][4]