Protect Small Business Owners by Restoring Proper Definition of Joint Employer

Wednesday, January 4, 2017 - 10:30am

In Brief:

The Trump administration, with new appointees at the National Labor Relations Board (NLRB or Board), can protect small business ownership by restoring a clear standard for what the Board considers to be a “joint employer.”  

Summary:

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, these business models are 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 can hold millions of businesses liable for the management and treatment of workers they don’t actually employ or control. The new standard may extend 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 exposes numerous businesses to increased liabilities and frivolous litigation.          

Under the NLRB’s previous “joint employer” standard, two companies shared liability only if a brand name company or a business that engaged in contracting exerted significant control over the employees of a franchise or subcontractor.  This “direct and immediate” control standard provided clarity for employers and workers.

Browning-Ferris replaced this with a vague and sweeping standard based on “indirect” control or even the “potential” to control — ensnaring all manner of businesses in potential legal liability. Businesses that could be harmed by this new policy include 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 are 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 could allow 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 give 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 joint-employer standard that the Obama Board detailed in Browning-Ferris could mean:

  • Companies will become vicariously liable for the actions of independent businesses that they do not control and could be forced to bargain with unions over workers they don’t actually employ.
  • More litigation against employers, with the costs passed on to consumers.
  • Subcontracting and franchising will become less economically attractive, slowing business growth and denying some entrepreneurs the opportunity to start their own businesses.
  • Communities will be harmed by having fewer local franchise business owners, who are often deeply involved in local charitable and community affairs.
  • Unions will gain leverage to extract organizing concessions from employers, such as card check.

Once the Trump administration's nominees to the NLRB have been confirmed, the Board should:

  • Overturn Browning-Ferris and return to the prior joint employer standard.

Congress should pass legislation that:

  • Codifies the “direct and immediate” control standard that existed for over 30 years prior to Browning-Ferris.