Retail Industry Hit by New Labor Relations Rules

In February, the National Labor Relations Board’s (NLRB) newest guidance for addressing joint employer status will go into effect, and the impact on the retail sector could be significant. In situations where there's a parent company that sets standards — e.g., related to working conditions or parameters around the quality of work — left to be enforced by a franchisee or similar entity, both businesses could ultimately be responsible for employees under the revised joint employer status. In other words, even if the parent company doesn’t have direct interaction or control with the employee, it can still qualify as a joint employer.

This development is in direct contradiction to previous guidance issued in 2020, which explicitly required “substantial direct and immediate control” over the terms and conditions of employment in order to countenance a finding of “joint employer” status. Now, there can be a shared employment relationship between two organizations and the employee, when the organizations co-determine the terms and conditions of employment such as:

• wages, benefits and other compensation;
• hours of work and scheduling;
• the assignment of duties to be performed;
• the supervision of the performance of duties;
• work rules and directions governing the manner, means and methods of the performance of duties and the grounds for discipline;
• the tenure of employment, including hiring and discharge; and
• working conditions related to the safety and health of employees.

Importantly, there are no carve-outs or exceptions provided by the NLRB that would potentially exempt retailers.

Significance of This New Standard 

The ramifications of being a joint employer are simple. If an organization is determined to be a “joint employer” of an employee, the organization is required to collectively bargain with the employee(s) over the terms and conditions of employment. This could result in multiple employers being present at the collective bargaining table, resulting in a far more difficult and convoluted negotiation.

Additionally, joint employers are responsible — and potentially liable — for unfair labor practices as well as any other workplace violations that fall under the purview of the NLRB.

Further complicating this new standard for retailers, at the highest level this means there will be more employers for employee-plaintiffs to potentially pursue in litigation. Organizations that previously thought they were insulated by franchise agreements with indemnity clauses could find themselves liable for failures to collectively bargain, unfair labor practices, and additional workplace violations across an expansive employee base. Depending on whether there's an enforceable arbitration agreement and class action waiver, this could result in larger, or additional, class actions and mass arbitrations.

What Should Retailers Do?

First, it's now imperative to use contracts that specifically spell out who controls all aspects of the terms and conditions of employment. The clearer the lines, the better. Any failure to delineate which entity is responsible for the terms and conditions of employment set forth by the NLRB will result in potential liability. While this may be difficult given the realities of the contractual relationship, organizations need to think critically about what they can and can’t do if they wish to avoid being a joint employer, and contracts must reflect that.

Additionally, arbitration and indemnity clauses may become even more key to agreements between retailers and their franchisees.

When there's disagreement about who dictates the terms and conditions of employment, these issues can be effectively arbitrated or mediated before a lawsuit is brought forth. More specifically, defined arbitration agreements with the actual employees also create a quicker and more efficient environment for the resolution of potential claims.

Next, clearly delineated indemnity clauses would also help define who bears the brunt of the costs and expenses in the event there is a dispute, potentially alleviating the financial burden to the parent company.

When Will This Go Into Effect?

Originally, the new rules were set to go into effect by Dec. 26, 2023. As expected, there have been several legal challenges, and the NLRB pushed the new implementation date to Feb. 26, 2024. Regardless of whether this becomes the actual implementation date or additional extensions are granted, retailers need to be preparing for the change to the joint employment standard as it promises to significantly alter how business is done.

Collin Williams is an attorney, founder, and chairman of New Era ADR, a digital platform that revolutionizes alternative dispute resolution.