Labor Board Reverses Ruling That Helped Unions Fight Chains

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The National Labor Relations Board on Thursday overturned a key Obama-era precedent that had given workers significant leverage in challenging companies like fast-food and hotel chains over labor practices.

The ruling changes the standard for holding a company responsible for labor law violations that occur at another company, like a contractor or franchisee, with which it has a relationship.

The doctrine also governs whether such a corporation would have to bargain with workers at a franchise if they unionized, or whether only the owners of the franchise would have to do so.

While most labor law experts expected the labor board, which gained a Republican majority only in late September, to overturn the board’s so-called joint-employer decision from 2015, the speed of the change came as a surprise to many.

“Frankly, it’s shocking,” said Wilma B. Liebman, a former Democratic appointee on the board who once served as its chairwoman.

The board’s 3-to-2 vote, along party lines, restores the pre-2015 standard, which deemed a fast-food corporation a joint employer only if it exercised direct and immediate control over workers at the franchise, and in a way that was not limited.

Employer groups had been agitating to undo the Obama-era standard almost from the moment it was decided, and they applauded the decision on Thursday.

“Today’s decision restores years of established law and brings back clarity for restaurants and small businesses across the country,” said Cicely Simpson, executive vice president of the National Restaurant Association, in a statement.

Ms. Liebman noted that the parties in the case that served as the vehicle for Thursday’s ruling had not even asked the board to reconsider the existing precedent.

The key question in determining whether a company, like a fast-food corporation, is a joint employer of workers employed by another company, like one of the chain’s franchisees, is the degree of control exercised by the corporation over workers at the franchise. The ruling on Thursday declared that such control must be direct.

Under the Obama-era doctrine, the fast-food corporation could be held liable for labor violations that occurred at the franchise even if the control it exerted was indirect — for example, if it required the franchisee to use software dictating certain scheduling practices — or if it had the right to exercise control over workers that it nonetheless didn’t exercise.

The reversal could have important implications for the ability of workers to win concessions from employers through collective bargaining. In many cases, a contractor or franchisee has such low profit margins that it could not afford to raise wages or improve benefits even if it wanted to.

But when, as was more likely under the Obama-era doctrine, a wealthier company employing a contractor or conferring a franchise is considered a joint employer, it must join the bargaining and could in principle compensate workers more generously.

The reversal could also affect the ability to unionize in the first place. A company is free to fire a contractor or end a franchise arrangement if it suspects that workers are on the verge of unionizing. But there could be legal liability for doing so if the company is a joint employer of workers with the contractor or franchisee.

Employers have been so concerned about the more sweeping joint-employer standard that they have lobbied Congress to change the standard through legislation, a version of which the House passed in November. They are likely to continue to push for such legislation for fear that a future labor board under Democratic control could simply reverse the standard again, and because there are applications of the joint employer concept — as in enforcement of minimum-wage laws — not covered by the labor board’s decision.