Yesterday, U.S. Senator David Vitter (R-La.), Chairman of the Senate Committee on Small Business and Entrepreneurship (SBC), held a hearing entitled, “Keeping the American Dream Alive: The Challenge to Create Jobs Under the NLRB’s New Joint Employer Standard.”
In August 2015, the National Labor Relations Board (NLRB) issued a ruling that redefined its criteria for what qualifies a business as a joint employer. The NLRB’s rule fundamentally changes the proven, successful franchise model of business and leaves many small business employers liable to violate unfair labor practices. During the hearing, Committee Members heard from small business owners and experts on how the NLRB rule will impact small employers.
The National Labor Relations Board's new joint employer standard has left businesses fearful and uncertain about their legal responsibilities, witnesses told the Senate Small Business and Entrepreneurship Committee June 16.
The board's 2015 ruling in Browning-Ferris Industries of California Inc. was a product of the Obama administration's “push for aggressive labor policies” that have negative economic consequences, Chairman David Vitter (R-La.) said. The NLRB's action threatens franchised businesses and “puts millions of jobs at risk,” he said, and many members of his committee will support legislation to overrule the decision.
A North Dakota franchiser and a Maryland franchisee told the committee that uncertainty about the NLRB's new standard has already disrupted successful business relationships. However, a union lawyer called Browning-Ferris a “modest” ruling that provides more “guidance and clarity” than the board's previous decisions offered.
Browning-Ferris Decision Under Scrutiny
The board's decision in Browning-Ferris Industries of California Inc., 2015 BL 278454, 362 N.L.R.B. No. 186 (2015), expanded joint employer liability under federal labor law.
The board held that a business may be liable as a joint employer if it indirectly controls an employment relationship or has reserved the right to do so. Earlier board precedents, dating back to 1984, required a showing that a business entity shared direct control of employees' terms and conditions of employment for the business to be considered a joint employer.
Critics of the NLRB decision have argued it may induce franchisers to take more control over franchisee operations or may discourage some businesses from starting or expanding franchise systems.
Washington Free Beacon
Obama administration regulators could cripple the growth of businesses that employ more than 8 million Americans.
The National Labor Relations Board (NLRB) overturned decades of precedent, ruling in 2015 that corporations could be held liable for labor violations committed by subcontractors or franchisees in Browning Ferris. Franchise owners and franchisees told the Senate Committee on Small Business and Entrepreneurship that the change in rules could hinder economic growth.
Under the existing franchising system, small business owners pay corporate brands, such as McDonalds and other chain outlets and restaurants, to operate under the company brand. Those entrepreneurs are charged with day-to-day management of the business.
The NLRB’s previous interpretation of the rule held that liability under federal labor law was limited to the small business owner since the corporation did not handle hiring or scheduling. The new standard could make the umbrella company vulnerable to violations perpetrated at the local level.
Ciara Stockeland, owner of Mode, a high end maternity leave shop with 11 locations in six states, told the committee that she should not be held liable for employees that she “did not hire and do[es] not manage.”
“Not all franchise brands are high powered multination corporations,” she said. “Changes to the joint employer standard have me questioning the future of [my company growth] … you must understand how absurd the new standards are.”
The new standard could force her to halt expansion or bring locally owned stores under direct corporate control to address litigation costs. Stockeland said that this would eliminate opportunities for budding entrepreneurs to pursue their goals of becoming small business owners.
“The Joint Employment Standard means less growth and less jobs,” she said.
Committee Chairman Sen. David Vitter (R., La.) echoed those concerns, saying that the new rule “puts millions of jobs at risk.”
The Business Journals
By Kent Hoover | June 16, 2016
Ciara Stockeland, owner of the Mode designer outlet franchise, says the NLRB's new "joint employer" standard forced her to decline a franchisee's request for advice on how to handle a certain employee.
Lawyers can argue over what it takes for one company to be a joint employer with another, but most businesses don’t have the time or money for that kind of debate.
So they’re taking steps to protect themselves from the National Labor Relations Board’s expanded definition of “joint employer,” even if pro-labor employment attorneys assure them the NLRB’s rulings wouldn’t apply to them. Many franchisors, for example, aren’t providing as much assistance to their franchisees as they were before the NLRB ruled last year that even indirect or potential control over workers’ terms and conditions of employment was enough to make a company a joint employer. This status could make franchisors liable for employment law violations committed by franchisees and make it easier for unions to organize franchise workers.