The National Labor Relations Board is on the verge of restoring sanity to a hugely important yet little-known government rule that impacts the future existence of countless franchise and contractor businesses and workers nationwide.
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The madness started in 2015, when the Obama-controlled NLRB abruptly changed the decades-old “joint employer” standard governing when more than one employer is held responsible for collective bargaining obligations and unfair labor practices for a group of employees. In a case involving waste management company Browning-Ferris, the board imposed a novel, new approach to determining joint employer status, one that was overly broad and vague.
For decades prior, multiple employers would be considered joint employers if they both exercised direct and immediate control over employees’ essential work conditions - like pay, supervising, hiring and firing. Suddenly, however, a joint employer determination could be made when one company merely exercises “indirect” control or possesses “unexercised potential control.”
This rule caused immense confusion among employers. The simple question “who’s the boss?” became needlessly complicated. It discouraged many employers from creating new jobs, increased labor costs, and left businesses with a heap of regulatory uncertainty.
For example, what the heck is indirect control? It was never adequately defined by the NLRB, and even the Obama NLRB lawyers had trouble explaining it in oral argument before the D.C. Circuit Court.
Meanwhile, the uncertainty created major unintended consequences. Companies like Microsoft that had recently adopted policies requiring suppliers to offer certain wages or paid leave suddenly had to worry about whether that amounted to indirect control.
Never before would a business placing general standards on suppliers establish a joint employer relationship, but the Obama standard made it a real concern and a do-gooder deterrent. Microsoft discovered its prized supplier code of conduct, which President Obama praised at the time, led “to substantial and growing legal expenses and great uncertainty.”
That sort of unpredictable liability takes a big toll on contractors, too. Understandably, big companies would be more inclined to keep their distance from contractors. That means less work for contractors and less assistance from larger businesses they work with.
It also means companies that currently offer apprenticeship or workforce development opportunities to employees employed by franchisees or contractors may be forced to discontinue or halt these programs.
Luckily, the NLRB is already at work to clear up the confusion with a proposed rule that is now available for public comment. The proposal would essentially restore the traditional joint employer standard that relies on a company exercising direct control over another business’s employees.
Comments submitted by the International Franchise Association illustrate the devastating consequences of an ambiguous Obama standard. The trade association conducted a survey of more 75 franchise brand managers and owners to find out the impact of the joint employer standard. The results were astounding.
The Obama standard already cost businesses between $17 billion and $33.3 billion annually. Fewer jobs were created, with between 194,000 and 376,000 potential jobs eliminated. Franchise businesses faced a massive increase in lawsuits, which spiked 93 percent.
The NLRB’s proposed rule is urgently needed. American businesses deserve a predictable and easily understood joint employer standard that enables employers to provide assistance to their contractors. Without that, the confusion caused by the destructive Browning-Ferris ruling will diminish economic opportunities and financial security for entrepreneurs and workers. That is not an outcome anyone should want.
Trey Kovacs is a labor policy analyst for the Competitive Enterprise Institute, a free market public policy organization in Washington, D.C.