New “Joint Employer” Standard Would Hurt Small Businesses Everywhere

February 2, 2015

The National Labor Relations Board wants to demote thousands of America’s entrepreneurs to assistant managers. It’s time to push back against this government overreach into local businesses and preserve the joint employer standard.

The NLRB will soon decide whether to invent a new joint employer standard under the National Labor Relations Act (NLRA) in the pending case, Browning-Ferris Industries. The case will determine whether companies can be held liable for the labor and employment practices of third-party vendors, suppliers, staffing firms and other contracted parties, such as franchisees, subcontractors or independent contractors, over which they have no direct control.

The NLRA’s joint employer standard is intended to protect businesses from unnecessary involvement in labor negotiations or fights involving workplaces in which they do not maintain any direct control. The Board’s current standard deems businesses joint employers only when they share direct and immediate control over essential terms and conditions of employment including hiring, firing, discipline, supervision and direction. Franchise companies and brand companies often have no direct control over the employment practices and policies of their small business partners. The NLRB General Counsel proposes an amorphous indirect control standard be adopted. Almost any economic or contractual relationship could trigger a finding of joint employer status under the proposed new standard.
What will happen if Browning-Ferris is ruled a joint employer?

Brand companies will be required to exercise more control over small businesses with which they contract, in order to limit their NLRA liability.

Local business owners would forfeit operational control of the stores, clubs, inns or restaurants they built.

Enterprise value of thousands of franchises and small businesses may decrease because of the decreased operational control and future franchise development is jeopardized as brands expand using a corporate ownership model

Nearly all contractual business relationships will be called into question and NLRB rulings will conflict federal and state courts which continue to apply the well-understood direct control standard.

Despite the fact that only the full Board can change the NLRB’s joint employment standard, the NLRB’s General Counsel, Richard F. Griffin, Jr., is already interpreting the law as it sees fit and ignoring the current standards established in the NLRB’s Lareco Transportation (1984) and Southland Corporation (1968) decisions. He is pursuing complaints against numerous local McDonald’s franchisee owners, alleging that McDonald’s USA is their joint employer.
If the NLRB expands its new joint employer standard, then there will be:

Fewer local businesses: If control is taken away from entrepreneurs, they will not open new businesses in their local areas. Large brands will open corporate locations instead. As a result, America’s Main Street will lose the small businesses that independent owners create in their local communities.

Fewer jobs: According to the Small Business Administration, local businesses in the 20-499 employee range have created 60 percent of the net new jobs since the end of the recession (from mid-2009 to mid-2013). If entrepreneurs are not investing in local businesses, then jobs will disappear.

Bottom line: The joint employer changes pursued by the NLRB may make it far harder for independent business owners to build and operate effective, profitable local businesses and that will lead to large corporations taking Main Street.