By: Robert Cresanti and Neil Bradley
America’s small businesses would have created hundreds of thousands more jobs over the past three years if not for an Obama-era mistake by the National Labor Relations Board. The NLRB has an opportunity to correct the error.
At issue is Browning-Ferris Industries, a case the board decided in 2015. BFI created a new definition of “joint employer” under the National Labor Relations Act and saddled employers with a broad and ill-defined test for determining when they might share liability for the actions of another business’s employees. The NLRB concluded that joint employment could be found if a business had even “indirect influence” over another company’s employment terms and conditions.
One criticism of BFI was that it failed to contemplate the unique nature of franchising and the difficult position it created for both franchisees and brands. A dissent predicted that the decision would significantly harm both types of businesses. The NLRB majority breezily dismissed these concerns, claiming that the decision would have little impact on employers. The dissenters were spot on.
Our organizations interviewed more than 75 franchise brand managers and owners to determine the economic impact of BFI. The study, conducted by economist Ronald Bird, concludes that the average franchisee has suffered an annual revenue loss of $142,000 and annual profit loss of $21,000 because of BFI. In total, the expanded joint-employer standard has cost businesses between $17 billion and $33.3 billion a year. Even worse, those additional costs have eliminated between 194,000 and 376,000 potential jobs. Compounding the injury, the decision also led to a 93% increase in lawsuits against franchise businesses.
This harm has come about because franchise owners have lost precious time working to comply with the new and unclear standard, when they could have been innovating, hiring and boosting the economy. In our study, 92% of surveyed brands and franchise owners say that the expanded joint-employer standard has led to a loss of critical support from their brands.
Fear of joint-employer liability has caused the brands to distance themselves from franchisees by offering less guidance about how to comply with labor and employment laws, limiting training programs, withdrawing assistance with marketing and cost-control practices, and eliminating other valuable services. One franchisor estimated that its training costs increased 300% to 400% because of BFI.
That’s not all. Under BFI, even routine oversight of brand standards has raised concerns about a joint-employer designation.
A new NLRB majority has recognized the serious problems with the BFI standard and is taking steps to address the problem. Through their pending regulatory process, the board has a chance to promote job and business creation and economic growth.