The decision, which muddies the water regarding who is an employer, dismantles the way small businesses work with one another and prevents entrepreneurs of all trades from following their dreams.
The NLRB’s decision in the Browning-Ferris Industries case brought sweeping changes to the joint employer standard and posed a direct threat to businesses striving for growth. Joint employer is a legal theory that seeks to more broadly define who is an employer, particularly in certain instances where two companies may have a working relationship.
The most common example is the franchise model, under which franchisees operate independently of the parent company except for the branding.
Under the NLRB’s ruling, the franchisor is the “joint employer” of the franchisee’s employees, and is thus liable for the franchisee’s employment law violations. If forced to assume such additional liability exposure, or spend more money and time overseeing their franchises, why would companies continue to use the franchising model as a method of business growth?
This new standard has sown so much confusion with small business owners we work with on a day-to-day basis, leading to higher legal and compliance fees, and it has held back further investment given the legal limbo that has been thrust into existing contracts.
Under this 2015 ruling, companies that hire IT firms for contracted technology services, for example, will be held directly responsible for the firm’s employees. Not only would the IT company be liable for any alleged violation of employment law, but the businesses it serves could be liable as well.
Beth Milito, Senior Executive Counsel at the National Federation of Independent Business (NFIB) Small Business Legal Center, called the ruling “a warning shot aimed just over the heads of businesses that regularly contract with other businesses.”
“If you hire other firms for certain types of work, you may try to limit your exposure by discontinuing those relations and hiring direct employees to perform those services,” Milito said. “Obviously that hurts the entrepreneurs who are mostly small businesses. But it also hurts the larger firms since their payroll costs are very likely to increase. It creates pressures on both sides of the contract.”
The NLRB’s ruling will no doubt have a negative impact on job growth and business confidence – two metrics we watch to gauge how our economy is doing. According to the Small Business Administration, roughly two-thirds of all jobs are created because of small, locally-owned businesses, such as franchises. In addition, the average franchise creates 10 new jobs per location. The NLRB’s rule is a direct threat to these jobs.
In June, U.S. Department of Labor Secretary Alexander Acosta announced that the joint employer rule would be withdrawn. But small businesses aren’t safe unless the NLRB reverses the ruling or Congress passes a law to overturn it.
That’s why NFIB is pushing for legislative action. Congress recently introduced a bill to return the joint employer to its original intent, and we’re urging Florida’s Congressional delegation to support it. The Protecting Business Opportunity Act, H.R. 3441 is good, common sense legislation that will allow small business owners to breathe a sigh of relief and will protect the many relationships that the small business engine runs on.
Bill Herrle is the executive director of the National Federation of Independent Business/Florida, the nation’s leading small business association.