Are Occupational Licensing Regimes Strangling Small Businesses?

Date: August 27, 2015

Occupational licensing is a sticky issue for the small business community. Established businesses often benefit from licensing regimes in so far as they inhibit competition. But by that same token, licensing regimes stand as barriers to entry for entrepreneurs.

In recent years litigants have found marginal success in challenging licensing regimes that serve no purpose beyond protecting established market participants against competition from up-and-coming businesses. But, those cases are usually uphill battles, with courts generally upholding licensing regimes so long as the judge can think of any rational reason for why a licensing regime might be a good thing for the public. And the federal courts are currently split on the question of whether a licensing regime should stand if it serves purely protectionist purposes. So that’s a question the Supreme Court may ultimately need to sort out.

For our part, we’ve weighed in on a handful of lawsuits challenging some of the most outlandish licensing requirements—like Florida’s prohibition on unlicensed interior decorators, and New Orleans’ prohibition on unlicensed commercial speech. But we have not weighed-in on many other cases challenging licensing requirements because NFIB Legal Center does not file in cases where the small business community is substantially divided.

So is occupational licensing good or bad for small business? Well, that probably depends on whether you are talking to an established business that is currently operating under a licensing regime, or an up-and-coming business. Indeed, businesses operating within a licensing regime have a bulwark against potential competitors. But it’s equally clear that occupational licensing regimes inhibit entrepreneurial growth.

For what it’s worth, the White House recently released a report from the Council of Economic Advisors, which notes that “occupational licensing requirements have grown rapidly over the past few decades.” The report suggests that it may be necessary to roll-back some occupational laws in order to stimulate economic growth. And now the Wall Street Journal reports that the Obama Administration’s proposed budget includes $15 million in funding for studies to address the impact of occupational licensing: “Accordingly, the money proposed by the administration would be spent (assuming Congress agrees) by states to assess the costs and benefits of existing and new licenses, with a view toward eliminating licensing where it doesn’t make sense.”

Of course as a general matter, the small business community overwhelmingly agrees that over-regulation is a problem. But for the reasons addressed here, occupational licensing regimes are a somewhat more delicate issue. In any event, occupational licensing cases will continue to raise significant legal issues. At the same time, there is a chance that states may ultimately review and reconsider the propriety of licensing regimes for some professions. In the meantime, we’ll continue monitoring regulatory developments, so as to be a helpful resource to businesses with questions. And, in appropriate cases, we will continue to challenge licensing schemes that unduly restrict First Amendment rights and economic liberties.

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