Small business groups urged Congress to rein in the National Labor Relations Board, the main federal labor law enforcement agency, over its use of the “joint employer” doctrine. The groups warned that the NLRB’s policy could undermine business franchising, cutting off one of the main ways for new entrepreneurs to get started.
“Joint employer” refers to when one business can be held legally liable for workplace violations at another business it works closely with. Traditionally, the standard applied only when one business had “direct control” over another’s workforce. During the Obama administration, the board expanded it to include “indirect control,” a far more ambiguous standard. The labor board used it to pursue a major case against McDonald’s Corporation, arguing the company is responsible for violations at its various franchisees, although they are businesses that merely rent out the corporate brand.
Defenders of the NLRB’s actions, such as labor unions, argue that the policy reflects changes in business practices, and only large employers such as McDonald’s will be affected. But representatives of small business groups told the House Education and the Workforce Committee Wednesday that they were the ones feeling the brunt of the changes.
“Make no mistake about it: This policy disproportionally affects small businesses. Big corporations have the resources, the attorneys, and the economies of scale to adapt to joint employer. If they’re slapped with a joint employer claim, they can better afford to defend themselves and weather the storm. It’s the small employers like Dat Dog that may run out of resources before we even get started,” said Jerry Reese, director of franchise development for the New Orleans-based hot dog vendor franchise.
Mary Kennedy Thompson, head of franchising brands for the Dwyer Group, a Texas holding company for brands such as Molly Maid, said the board’s new doctrine has caused it to revert to an arm’s length relationship with its franchisees, lest it find itself on the receiving end of a joint employer lawsuit. That has made it harder for its franchisees to succeed.
“Franchisers are cutting back on giving training to technicians, helping franchisees find new employees, and providing point-of-sale software to franchises. These have been resources that help attract entrepreneurs to franchising and grow franchises across the country. Franchises are small businesses that have on average seven to 10 employees, and they need all the help they can get with recruiting, training, and having a blueprint for operating their business successfully,” Thompson said.
Republicans introduced legislation in the previous Congress that would codify direct control as the legal standard for joint employer cases. They are expected to reintroduce it this year.
The Trump administration already has moved to retract the policy. Labor Secretary Alexander Acosta this month issued a statement that the department would return to the direct control standard. That does not apply to the NLRB, though, as it is a separate federal agency that operates independently.
On Thursday, the Senate Health, Education, Labor, and Pensions Committee will hold a hearing on Trump’s picks to fill the labor board’s two open seats. The nominees, lawyers Marvin Kaplan and William Emanuel, would give the board a Republican majority for the first time since President George W. Bush’s administration.
