November 23rd, 2015
Patel: Small business owners lose sleep over labor board decision
By Vinay Patel in the Richmond Times-Dispatch
Virginia’s small business owners are experiencing restless nights as control over their companies is threatened. The fault lies with an activist National Labor Relations Board, which invented new logic-defying criteria in its recent redefinition of the term “joint employer.”
The NLRB’s Browning-Ferris decision removed the legal firewall between franchisers and franchisees, purchasers and service suppliers, and entities in other contractual relationships. The board made companies liable for the other party’s employment decisions and, in doing so, put the franchise business model in jeopardy.
This is a blow to entrepreneurs in the hotel industry and beyond. Franchising has long provided an avenue to business ownership. In fact, franchising provides 287,000 jobs at nearly 25,000 locations in Virginia. I, for one, can personally testify to its importance.
I was born into the hotel business, working in my parents’ 15-room inn by age 8. As times changed, however, customers drifted from one-off properties like ours to recognized brands where they could feel at home in new destinations. Sensing the shift, I pivoted to operating franchises.
After 30 years of hard work, I am now CEO of a thriving company with seven Virginia properties. Although I may have been successful otherwise, I must credit the many advantages of franchising. Advertising support, loyalty programs, and operating standards all contribute to the franchise owner’s toolkit.
These benefits help, but what the NLRB clearly doesn’t understand is that franchise business growth hinges on the actions of the independent franchisee. I work with several franchisers, but my hotels stand out because of my unique approach to each one.
A critical element is staffing. The right front desk receptionist or a reliable housekeeping team can affect guest experience. My managers and I take hiring, training, task delegation, and promotions very seriously.
No franchiser has ever been involved in these decisions, but that may soon change. If my franchisers can be sued over my employment practices, they will certainly want tighter reins on my operations — potentially auditing job applications, setting wages, or placing union-like rules on task assignments.
As the franchiser becomes increasingly involved, my autonomy disintegrates. No longer will I be able to apply my business philosophies. Instead, I will serve at the whim of various corporate bosses.
I cannot imagine opening a franchise in this type of environment, and Virginia will find its pool of entrepreneurs diminish — not only in the hotel industry, but in restaurants, automotive shops, dry cleaners, and other sectors as well.
Of greatest concern may be the impact of the NLRB ruling on more distant business relationships, such as purchasing a service. If a company outsources building maintenance or uses an agency to find temporary workers, the company could now be sued for employment decisions made by vendors and subcontractors without its knowledge.
The best defense against such litigation will often be to bring functions in house. Service providers and consultants that rely on contracts from larger companies will lose out.
This will be bad for the economy and worse for small-business ownership.
But there is an alternative. Congress has the authority to return to the common-sense joint employer definition, which worked for more than 30 years.
Since opening a new franchise on average creates 20 to 30 new jobs, it’s critical to protect this model.
Appropriate legislation — called the Protecting Local Business Opportunity Act — has been introduced. For the sake of Virginia’s entrepreneurs, Sens. Mark Warner and Tim Kaine should become co-sponsors and vocal advocates of this bill.
Vinay Patel, the CEO of Fairbrook Hotels, is a small business owner with seven hotels across Virginia, including one in Richmond. He grew up in Richmond, went to Manchester High School, and graduated from VCU. Contact him at firstname.lastname@example.org.