The National Labor Relations Board's proposed rule would classify companies as "joint employers" when they have indirect control over working conditions such as scheduling, hiring and firing, and supervision.
Since the Obama administration, when the NLRB adopted a similar standard that trade groups said was unworkable and would limit franchising, joint employment has been one of the most contentious labor issues for many U.S. businesses.
To be considered joint employers, companies must have "direct and immediate" control over contract and franchise workers, according to a rule implemented during the Trump administration. The proposal made on Tuesday would repeal the 2020 rule, which was supported by business groups.
The new proposal would have a wide-ranging impact on industries such as manufacturing and construction, which rely heavily on staffing agencies and contractors for labor, as well as franchises such as McDonald's Corp, which are typically not involved in franchisees' day-to-day workplace issues.
On Wednesday, the NLRB will formally publish the proposal, kicking off a 60-day public comment period. A final rule is expected to be issued next year.
The proposed rule, according to NLRB Chair Lauren McFerran, a Democrat, is necessary to protect workers' rights to collective bargaining as employment relationships become more complex.
If a company is found to be a joint employer, it will most likely be forced to become more involved in setting and implementing workplace policies, as well as bargain with unions.
This would complicate collective bargaining even further, making it more difficult for unions to negotiate contracts with businesses and undermining the NLRB's stated goal of strengthening workers' rights, according to Glenn Spencer, senior vice president of the United States Chamber of Commerce, the country's largest business lobby.
Spencer stated in an interview that once the rule is finalized, he expects legal challenges.
The rule, if implemented, would significantly limit the freedom of many small business owners, according to Elizabeth Milto, acting executive director of the National Federation of Independent Business' legal arm.
"This decision has the potential to take employment decisions away from small independent franchisees and place them in the hands of large corporations," Milto said.