Sep 02, 2015 - 9:15am

‘Joint-Employer’ Ruling Gives Franchisees Heartburn


Senior Editor, Digital Content

We’ve had a few days to digest the National Labor Relations Board’s Browning-Ferris decision that upended decades of settled labor law. It’s giving heartburn to small business owners.

For those who don’t know or need a quick refresher, The Hill sums up what the NLRB did to redefine the joint-employer standard:

At issue in the case was whether Browning-Ferris was responsible for the treatment of contracted employees. The Houston-based company hired Leadpoint Business Services to staff a recycling facility in California.

The labor board determined Browning-Ferris should be considered a "joint employer" with the Phoenix-based staffing agency. As a result, the company can be pulled into collective bargaining negotiations with those employees and held liable for any labor violations committed against them.

The NLRB ruling is a sharp departure from previous decisions that stated companies were only responsible for employees who were under their direct control. Without the power to set hours, wages or job responsibilities, the earlier rulings held, companies could not be held responsible for the labor practices of the contractors.

As Glenn Spencer, vice president of the U.S. Chamber's Workforce Freedom Initiative, said in a statement, the NLRB’s decision handed more negotiation leverage to labor unions:

By tossing out this current test, the NLRB's actions today will subject employers to increased uncertainty, liability for workplaces that they don't actually control, and ramped up pressure tactics to ease union organizing.

The board did this “by making it easier for unions to play the two sides of a potential joint employer against each other,” writes Iain Murray at the Competitive Enterprise Institute.

Which was the intention of the majority, as made clear in its ruling:

[O]ur joint-employer standard—to the extent permitted by the common law—should encompass the full range of employment relationships wherein meaningful collective bargaining is, in fact, possible.

While unions are winners of the NLRB’s ruling, the losers will be small business franchisees. Three told reporters the Browning-Ferris ruling will take away their independence as business owners:

“I fear that my days of being an autonomous business owner are numbered,” said John Sims, who owns a Rainbow Station early education center franchise in Richmond, Va.

Sims, who has 35 employees, said he assumes Rainbow Station “will want to limit their liability” as a result of the NLRB ruling and become “active in the operation of my business,” especially when it comes to personnel matters.

That’s the last thing that Ed Rothschild wants. Rothschild owns several AlphaGraphics franchises in the Denver area.

“I know what’s best for my business,” he said. “I don’t need a lot of help running it.”

Mara Fortin of San Diego, who gave up her career as an attorney to become the first franchisee of Nothing Bundt Cakes in 2007, said she fears the decision eventually could even force her out of business.

“For now we are questioning whether we want to grow or expand given this climate of uncertainty and increased risk,” said Fortin, who owns seven Nothing Bundt Cakes stores with a total of 100 employees.

At a minimum, Fortin expects she’ll have to pay more money in royalties and fees to her franchisor.

Franchising, a successful business model since the 1850s may be sacrificed in an effort to reverse decades of declines in union membership.

"This will reduce employer flexibility and competition at a time when the economy continues to experience anemic economic growth," warned Randy Johnson, senior vice president for Labor, Immigration and Employee Benefits at the U.S. Chamber. 

To learn more about the implications for small businesses of Washington bureaucrats rewriting the joint-employer standard, read the Workforce Freedom Initiative’s report, “Opportunity at Risk.” 

More Articles On: 

About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.