Small businesses are the beating heart of the U.S. economy, employing 61 million workers. But not all small businesses have their own brand names. Many operate as independent franchises under the logo of a larger company. In fact, the U.S. franchise system comprises more than 750,000 small businesses, including restaurants, fitness centers, moving companies, cleaning services, and hardware stores, among others.
Newly proposed federal legislation will help protect this ecosystem of small businesses from a regulation that threatens their autonomy.
Recently introduced by Sen. Tim Scott of South Carolina, the Employee Rights Act of 2022 will clarify the Labor Department’s “joint employer” standard so franchisers will continue to partner with entrepreneurs in local communities. You see, franchisees may operate under the branding of a bigger parent company like McDonald’s, but they are largely responsible for hiring employees, distributing compensation, scheduling hours, and other typical duties associated with running a business.
An overbroad government definition of “joint employer” will strangle the relationship parent companies have with independent franchisees, effectively shutting down the traditional franchise system. Without the clarification included in the act, the opportunity for so many want-to-be entrepreneurs to operate their own businesses independently and chase the American dream will be stripped away.
Beyond shoring up franchise small businesses, the act also includes provisions that will modernize regulations around the gig economy and protect workers from bad actors within labor unions.
Currently, gig economy companies are limited in what benefits (such as healthcare) they can offer to independent contractors, as opposed to full-time employees. Think of Lyft drivers, DoorDash delivery people, or personal shoppers. The act would allow gig workers to receive these benefits without giving up the flexibility of choosing when, where, and how much to work.
For workers in more traditional positions, the act guarantees that votes held within a workplace to join a union are done via secret ballots. Currently, the alternative is called “card check,” which leaves employees vulnerable to intimidation practices that could influence decision-making. Voter integrity should be a priority beyond elections for political office.
The act also establishes additional privacy protections for workers, criminalizes coercion or threats made by union officials, and requires a union member’s consent before a portion of their paycheck is used to fund anything beyond collective bargaining efforts. Since 2010, unions have spent more than $1.6 billion (nearly all of their political spending) to benefit left-wing special interest groups when 40% of union households vote Republican.
Overall, key provisions of the act enjoy broad support among the public. Nearly two-thirds believe franchise small-business owners should retain control of their own employees. Roughly the same proportion agree that gig workers should be able to access employment benefits without sacrificing job flexibility. And 76% of union households say workers should be guaranteed a secret ballot election when deciding whether or not to unionize.
As small businesses continue their uphill climb against inflation, supply chain disruptions, and labor shortages, Main Street can use all the help it can get. Passing the Employee Rights Act will help empower entrepreneurs and protect workers at the same time. The rest of Congress should follow Scott’s lead.
Alfredo Ortiz is the president and CEO of the Job Creators Network.
