An Obama-era National Labor Relations Board decision discourages larger companies from opening franchises and hiring subcontractors. What can small businesses do?
Under the Obama administration, the National Labor Relations Board (NLRB) revised the joint employer standard so that businesses are now legally responsible for any workplace violations committed by their franchisees or subcontractors.
According to The Wall Street Journal, the Browning-Ferris ruling intended to protect unions. But the ruling punished large and small companies alike: In the face of higher legal risks and costs, companies may hesitate before opening independently owned franchises or hiring small businesses that do contract work.
In 1984, the standard defined a joint employer as a business that yields direct control over hiring, terminating, and managing employees. Under this definition, a franchisee was the only one responsible for their employment and their employee’s conduct. Under the Browning-Ferris ruling, the NLRB rewrote the standard to include indirect control, so that even influence over employment would qualify a business as a joint employer.
Now, a franchiser is liable for their franchisee’s employment law violations, and a business that hires a subcontractor can be legally responsible for their subcontractor. This means that companies may stop or avoid using franchising as a method of business growth or will be forced to spend more money and time to oversee their franchises. Entrepreneurs might also refrain from buying a franchise, which would affect the nation’s job growth.
“The danger for small businesses under the joint employer rule is that firms that hire subcontractors would consider the legal risk too great and discontinue those relationships,” said NFIB President and CEO Juanita Duggan in a press release. “That’s a direct threat to small businesses that operate as subcontractors and franchisees.”
Small businesses aren’t safe from this threat unless the NLRB reverses the Browning-Ferris ruling or Congress passes a law to overturn it. The Browning-Ferris decision, which has been challenged, is currently pending in the U.S. Court of Appeals for the District of Columbia Circuit. But small businesses would be better protected if Congress passed H.R. 3441, the Save Local Business Act. The legislation returns the joint employer standard back to its prior definition by removing indirect control from the language.
NFIB encourages small business owners to contact their representatives and ask them to support or co-sponsor the Save Local Business Act.