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How a new agency rule would hurt small businesses

Dec 9, 2022 by Austen Bannan

On December 7, Americans for Prosperity Foundation, Americans for Prosperity’s sister organization, submitted a public comment opposing a new National Labor Relations Board joint employer rule that threatens the livelihoods of small business owners across America.

Numerous business owners, workers, organizations, and leaders have shared opposition to the rule, including a bipartisan coalition of U.S. Senators in a letter to the Biden Administration that included Senators Mike Braun, Joe Manchin, James Lankford, Angus King, Kyrsten Sinema, and Susan Collins.

If implemented, the rule would allow the NLRB to impose joint employer status on businesses who merely show evidence of reserved (unused) and/or indirect control of employees working for other businesses based on the judgment of the NLRB.

Small business entrepreneurs whose businesses serve as vendors and contractors to other businesses, or who use a franchise model to open up independent enterprises, would lose their independence, instead having to share control of their business, and workers in ways that neither they nor other businesses they work with desire.

Essential background on the NLRB’s joint employer standard

In 2015, the Obama NLRB issued a new joint employer standard in its Browning-Ferris decision that imposed broad new “indirect control” and “reserved” (unused) control interpretations to establish joint employer status between businesses.

However, in 2017, the Trump-era NLRB overturned the expansive new standards implemented in 2015, returning to a joint employment standard that had been in place for decades through precedent, clarifying that “proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.”

In February 2020, the NLRB issued a new final rule to add further clarity to the long-standing policy of determining joint employment based primarily on “substantial direct and immediate control.”

However, the new Biden rule would impose similar but even broader powers to the NLRB than the 2015 Browning-Ferris decision.

  • If implemented, the NLRB will be able to establish a joint employer status “with evidence of indirect and reserved forms of control, so long as those forms of control bear on employees’ essential terms and conditions of employment.”
  • The rule would also expand the interpretation of “essential terms” of employment to “extend to nearly every aspect of employees’ terms and conditions of employment.”
  • Furthermore, the rule would provide an open-ended approach when considering if any aspects of control — direct, indirect, and even reserved/unused as deemed solely by the NLRB — would represent matters that would constitute “meaningful collective bargaining” if such matters were theoretically bargained over. Any aspect the NLRB thinks could be meaningful in its estimation could also lead to a joint employer designation between businesses.

Several key points in AFPF’s comment submitted by Lee Steven and Austen Bannan include:

  • “The proposed rule will introduce unnecessary uncertainty, drive up compliance costs, and arrogate arbitrary power to the NLRB.”
  • “The proposed new rule undermines the applicable principles articulated by the federal courts and previous NLRB caselaw for determining joint employment status under the NLRA.”
  • “[N]o previous case, whether before the NLRB or the federal courts, and no subsequent case up until the present, had or has held that the mere “right to control” without the actual exercise of control is enough to establish an employer-employee relationship. That includes the D.C. Circuit’s Browning-Ferris case, upon which the NLRB now seeks to rely in the NPRM.”
  • “[B]y directing the Board to find joint-employer status even in situations where the business entity never exercises actual control over the employees in question, the NPRM will create a rule that is unsupported by caselaw or the common law understanding of employer-employee relationships. Further, by making items considered to be essential terms and conditions of employment essentially unlimited, the NPRM directs the Board to consider those types of control that “cast no meaningful light on joint-employer status.”  Browning Ferris, 911 3.d at 1220.  The NPRM thus proposes a standard that is beyond the authority of the NLRB to enact because that standard exceeds the applicable common law boundaries.  The proposed new standard should therefore be rejected and the 2020 Final Rule retained.”

What is the result of joint employment under the NLRB?

As summarized by the Society for Human Resource Management (SHRM), if the NLRB makes a  determination under the National Labor Relations Act (NLRA) that two entities are joint employers, “both must bargain with the union that represents the jointly employed workers, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other economic pressure if there is a labor dispute.”

In other words, businesses that are engaged in mutually beneficial relationships, such as serving as vendors or contractors for another business or engaged in franchisor/franchisee relationships that allow them to operate as independent businesses while utilizing valuable resources from franchisors, could become entangled in joint employment relationships all across the country.

Many businesses could be forced to close, and in other situations small business owners would lose their independence to larger entities, converting essentially to co-managers instead of owners even though neither business wants that relationship.

Who does joint employment policy impact?

Shifting joint employer standards will impact millions of businesses and workers. Numerous small businesses serve as vendors and contractors for other businesses including as manufacturers, construction contractors and subcontractors, staffing agencies, janitorial businesses, and IT and data entry providers to name a few.

Furthermore, there are over 750,000 franchise businesses such as restaurants, health care providers, hotels, hair salons, gas stations, tax companies, real estate agencies, auto shops, and fitness centers that employ over 8 million workers.

In AFP’s newly launched 2023 Pathway to Prosperity agenda, supporting a flexible workforce is a key focus, including protecting the mutually beneficial relationships between businesses that are under fire in this new Biden NLRB rule.

Read the agenda today to learn more about how you can support a flexible workforce with sound policy.