The PRO ACT and Its Impact on Franchising

 On March 9, 2021, the House of Representatives passed the Protecting Right to Organize (PRO) Act (H.R.842). The Pro Act expands various labor protections related to employees’ rights to organize and collectively bargain in the workplace.

Some of the key aspects of the PRO Act include: (1) revising the definitions of employee, supervisor, and employer to broaden the scope of individuals covered by the fair labor standards; (2) allowing labor organizations to encourage union members to participate in secondary strikes (strikes initiated by a different labor organization); and (3) prohibiting employers from bringing claims for secondary strikes. The PRO ACT makes it an unfair labor practice to require or coerce employees (including those with management responsibilities) to attend employer meetings designed to discourage union membership.

Additionally, the PRO Act would make significant changes to the joint-employer standard under the National Labor Relations Act (NLRA). The Pro Act would preserve in federal law the joint-employer standard made in the National Labor Relations Board (NLRB) decision Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015). In Browning-Ferris, the NLRB ruled that a business may be a joint-employer when it reserves contractual rights permitting it to affect employment terms and conditions for employees hired through a third-party intermediary, even where the business does not exercise any actual control over their employment. Put another way, the NLRB expanded the definition of a joint employer from an entity exercising immediate and direct control over employees to an entity with indirect or potential control over employees, even where hired by third-parties.

The PRO Act also utilizes as the “ABC test” to determine who is an employee under the National Labor Relations Act (NLRA). Under the ABC test, an individual is considered an employee (and not an independent contractor) unless: (a) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; (b) the service is performed outside the usual course of the business of the employer; and (c) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Conservative advocacy group, the American Action Forum (AAF) has voiced concerns regarding the “ABC test” arguing it will cause a large-scale reclassification of workers from independent contractors to employees and may threaten franchisors ability to continue franchising.

Certain industry organizations, including the International Franchise Association (IFA), have voiced their concerns to Congress about the impact of the PRO Act on the franchise community. The IFA expressed its concern that the PRO Act would disrupt the franchise business model and hinder job growth during the economic recovery from the COVID-19 pandemic. The PRO Act still needs to be approved by the Senate and signed into law by President Biden. Einbinder & Dunn will continue to monitor the PRO Act and its potential impact on the franchise industry.