The franchise business model is the greatest path for successful entrepreneurship in American history and has paved the way for tens of thousands of hoteliers to own their own businesses and achieve the American Dream. That dream has been under attack by government agencies intent on undermining small-business ownership by changing the legal definition of “employer.”
The National Labor Relations Board (NLRB) enacted a new rule to intentionally conflate liability for franchisees and franchisors to compel collective bargaining at small businesses, including hotels, through a new “joint employer” liability standard. AHLA, the U.S. Chamber of Commerce, and several other business trade associations knew this new regulation would be devastating to our members and our industries and filed a lawsuit to stop the rule from going into effect.
Thankfully, last month, a federal judge in Texas agreed with our legal position and stopped the burdensome rule from becoming law. Make no mistake, a new joint-employer standard like the one envisioned by the NLRB would have been an existential threat to the entire lodging industry, created massive uncertainty, obscured the relationships between employees and employers, and dramatically changed the entire franchising landscape. The decision is great news for hoteliers, as the court returned to more than four decades of precedent that defines an employer as one who has direct control over working conditions of the employees at the company.
But the fight is not over, as the NLRB will appeal the decision to a higher federal court; however, we understand it might take several months, if not upwards of a year, before courts are ready to hear those arguments. AHLA plans to devote substantial resources to this battle as it progresses, by fighting the appeal in court and pushing Congress to pass legislation that revokes the proposed rule entirely.
Our industry has the momentum, but we cannot let up now because the NLRB’s proposed rule would be disastrous for America’s hoteliers and the millions of workers they employ. In addition to ingenuity, determination, and exceptional sweat equity, franchising has been an essential driver for building minority entrepreneurship and job creation in the hotel industry, as more than 60 percent of hotels are owned by first- and second-generation Americans. There is no other industry in history that can boast this incredible track record of inclusive success. Therefore, it is critical to appreciate exactly what this victory means for hoteliers, and what it might mean if this decision were reversed.
Ramifications of the Proposed Rule
Under current law, an employer is defined as having direct control over a finite list of working conditions including wages, benefits, compensation, hours, schedules, etc. The proposed rule would have expanded the definition to entities that might have “indirect” or “unexercised” control over newly created vague terms. Any entity found with such control would be required to join the collective bargaining process.
The goal is to organize franchised businesses across an entire system, instead of business-by-business or property-by-property. Consequently, hotel brands would become co-employers along with hotel franchisees under the law. Hoteliers are bona fide small-business owners and by no means agents of brand companies. The rule seeks to change this model in an effort to ease organizing efforts at the expense of franchisees.
To illustrate how this would work, the new rule determined employer status for anyone with a say over workplace “health and safety.” During the COVID-19 crisis, hotel brands created new protocols to ensure associates and guests were protected from contracting the virus. The existence of air filtration and hand-sanitizer requirements could be used against companies to force them to the bargaining table.
Without clearly defined rules and guidelines, it would be up to government bureaucrats and courts to determine who actually owns and runs the business, instead of the parties who have taken all of the risk. Further, some franchisors might have no choice but to distance themselves from their franchisees to avoid a costly ruling from the NLRB that they are joint employers. This could include steps to reduce annual training for managers and, devastatingly, step back from providing vital human trafficking prevention training. By all measures, these changes would negatively impact employees, guests, owners, brands, and the entire lodging ecosystem.
Over time, some franchisors might otherwise decide to take more control over their franchisees’ operations if they are unable to avoid a joint-employer designation. This would essentially turn franchisees into employees of the brand instead of entrepreneurs and could lead to consolidation in the industry where only larger ownership groups could franchise. None of these outcomes are good for employees, franchisees, or franchisors.
Our legal victory is a testament to how hoteliers can work for positive change when we stay engaged, and AHLA will ensure hoteliers’ voices are heard as this battle continues.
