Joint employer ruling triggers economic earthquakes

Economic earthquakes – like the recent global stock market turbulence – generate plenty of headlines and anxiety. But what about the economic tremors caused by an increasingly active regulatory class in Washington, D.C.?  Are we paying enough attention to the unelected officials whose edicts are also capable of fracturing economic foundations? 

When the National Labor Relations Board (NLRB), in an Aug. 27 ruling in a case called Browning-Ferris, re-wrote longstanding labor law regarding the so-called “joint-employer standard,” independent business owners across the country felt a gut-clenching tremor.  That’s because the decision muddied the waters over just who exactly controls and has responsibility for their workplaces. How significantly the decision cracked the foundation of businesses like franchising and subcontracting is not yet entirely clear, but this lack of clarity is damaging in and of itself. 

{mosads}All businesses – not just Wall Street – react to government actions in a way that has an economic ripple effect. Simply put: Anxiety in the small-business sector affects the entire economy.  After all, small firms employ more than half of the private-sector workforce. Franchise establishments alone count for almost 770,000 business establishments employing almost 10 million people, and countless others work for subcontractors.  Bad news for a slice of the small-business sector that is economically significant. 

The NLRB’s intention surely was not to hurt the American economy.  But by making it more likely that independent businesses like franchisees and subcontractors will be treated as co-employers with larger companies, the agency has done just that.  Essentially they have made businesses liable for workplaces they don’t control, and workers they don’t employ.   

The NLRB’s decision would not only give unions new opportunity to enmesh small businesses in labor disputes, it may also create a new marketplace for litigation and the trial attorneys who seek a shortcut to deep pockets, as the reasoning of the new joint-employer standard could carry over to other labor and employment laws.  

The ruling of this politically appointed panel in Washington, D.C. is as vague as it is sweeping. Under the new standard virtually any business relationship could be the target of a claim alleging a joint-employment relationship. Common sense actions such as simply asking subcontractors to adhere to safety standards or to ensure that their workers aren’t intoxicated at the job site could trigger a joint-employer finding.  

It will take years of litigation to sort all of this out, costing employers time and money. Job creation and increases in compensation will be damaged as businesses spend money on lawyers instead of on employees. But unfortunately this is what happens when you regulate to achieve a narrow objective – in this case, a new marketplace for unions – without considering the larger consequences. 

Meanwhile, thousands of franchise owners will debate whether they want to stay in business, or worse, see their locally owned businesses taken over by corporate.  Subcontractors may lose opportunities as businesses limit their exposure to potential joint-employer status. And prospective small-business owners may never get the chance to start up their own firms.  With the NLRB’s new standard in place, these individuals may well see the foundation of their businesses crack beneath them.  And unfortunately, this is just the latest in a series of one-sided, anti-employer decisions issued by the Board. 

The NLRB, however, does not operate without oversight.  Congress can overrule the agency. Both the House and Senate recently introduced the Protecting Local Business Opportunity Act to do just that. Hopefully enough members of Congress can see that regulatory tremors can crack the foundation of a business just as surely as a Wall Street quake, and support legislation that will protect independent local businesses and the millions of Americans who work for them, and President Obama doesn’t stand in the way.

Johnson is senior vice president of Labor, Immigration, and Employee Benefits at the U.S. Chamber of Commerce. Spencer is vice president of the U.S. Chamber’s Workforce Freedom Initiative.