By Ben Gitis | The Hill | While most headlines focus on Republican efforts to create jobs and raise wages through tax reform, another effort vital to the future of the American labor force is well underway. The House of Representatives will soon vote on the Save Local Business Act, a bill that would address the National Labor Relations Board’s problematic decision to expand the joint employer doctrine. If the NLRB’s decision remains in effect, small businesses will likely suffer, and workers could ultimately pay the price.
In a 2015 decision, the NLRB created a legal and economic mess when it broadened the standard for “joint employer” so that one business is much more likely to be held responsible for the employment and pay conditions in a separate firm. The NLRB changed the “direct control” standard to an ambiguous definition that holds a firm as a joint employer if it exercises “direct or indirect control” over another firm’s workforce.
Because this definition is so vague, the new standard could easily be applied to any business arrangement. In an era with a growing gig economy, the relationship between employers and employees is already more confusing than it used to be. The NLRB’s new ambiguous joint employer standard further muddles the relationship, making a true legal nightmare. Why would the NLRB make this change in the first place? According to its previous general counsel, the change was needed to strengthen unions. Yet, such a fundamental change was made with absolutely no evidence to suggest that it would actually improve collective bargaining in any way.
Meanwhile, the new standard threatens to damage the U.S. economy and its workers, as it is particularly harmful to franchises. This is a problem because franchises have been among the most dependable sources of job creation in the United States since the end of the Great Recession. An American Action Forum report found that since 2010, franchise jobs have grown 3.4 percent annually, while in the rest of the private sector jobs have increased only 2.0 percent per year.
By joining a nationally recognized brand, franchising is a relatively inexpensive way to become an independent business owner. Moreover, franchising also makes it easier for independent business owners to expand their operations, open new locations, and hire more workers. Yet, if a parent company is more likely to be held responsible for a franchisee’s workers, it will be much less likely to sell franchise licenses. The stark consequence of the new joint employer standard is the possible loss of 1.7 million jobs over the next decade.
Moreover, the new joint employer standard is already damaging industries that rely on franchises. In another report, the American Action Forum found that the new standard has been harmful to hotel employees, more than one-third of whom work for franchises. In the years leading up to the NLRB’s decision, hotel employment grew 1.9 percent per year. After the decision, however, hotel jobs only rose by 1.1 percent.
Moreover, this decline was driven by a sizable drop in franchise job growth. Jobs in hotel franchises went from growing 1.8 percent annually in the years before the new standard, to growing just 0.4 percent after. Likewise, hotel worker wages, hours, and total compensation have all suffered since the NLRB’s decision.
The NLRB’s ruling threatens to upend small businesses and impose a major barrier to job creation. Returning the joint employer standard to its traditional definition would provide much-needed clarity and helpfully sidestep the economic pitfalls affiliated with this ill-conceived decision.
Ben Gitis is director of labor market policy at the American Action Forum.