The National Labor Relations Board and Congress can protect small business ownership by enshrining a clear standard for determining “joint employer” status. A bill pending in Congress would clarify the standard under the National Labor Relations Act and the Fair Labor Standards Act, respectively.
Franchising and subcontracting are integral parts of America’s economic success. Both franchising and subcontracting have enabled businesses to specialize, innovate, increase efficiency, lower costs, and expand jobs and growth. Franchising has created 770,000 new businesses that account for nearly 18 million direct and indirect jobs and contribute $2.1 trillion to our economy each year. Through franchising, employers are able to expand the reach of their products and services while allowing individuals to open their own small businesses. Through subcontracting, employers are able to focus on functions that are at the core of their businesses while farming out ancillary activities such as custodial services or landscaping. Likewise, companies that provide those services are able to retain multiple businesses as clients.
Despite their overwhelming successes, the National Labor Relations Board (NLRB or Board) under the previous administration brought these business models under threat. On August 27, 2015, the Obama NLRB issued a decision in a case called Browning-Ferris that essentially rewrote the so-called “joint-employer” standard. Under Browning-Ferris, the NLRB could hold millions of businesses liable for the management and treatment of workers they didn’t actually employ or control. The standard extended liability from individual franchises to brand name companies, from subcontractors to larger employers, and potentially even from a vendor or supplier to the company purchasing their products or services. The ruling exposed numerous businesses to increased liabilities and frivolous litigation.
Browning-Ferris established a sweeping standard based on “indirect” control or even the “potential” to control — ensnaring all manner of businesses in potential legal liability. Businesses under threat from this policy included many franchises (e.g. restaurants, dry cleaners, fitness centers, convenience stores, tax preparers, auto maintenance, hair salons, hotels), companies that use subcontractors, such as construction, janitorial services, landscaping, accounting, or shipping, and companies that were the major purchaser of goods or services from a particular vendor or supplier.
Browning-Ferris was part of the Obama NLRB’s aggressive agenda to promote union organizing. The decision opened the door for a union to force a larger company to the bargaining table simply by organizing one of its independent local franchises or subcontractors. Such an outcome would have given unions significant leverage to extract concessions like card check or neutrality that could be used to organize the company’s other franchises or subcontractors.
The NLRB should:
- Overturn the Browning-Ferris decision, and establish a commonsense joint employer standard.
- Pass the Save Local Business Act to enshrine a sensible joint employer standard into the National Labor Relations Act, and the Fair Labor Standards Act, respectively.