OPINION:
For America’s 830,000-plus franchise businesses and its untold number of small businesses, contractors and subcontractors, this Labor Day marks an unhappy anniversary.
Ten years ago on Aug. 27, in the 2015 Browning-Ferris decision, the Obama-era National Labor Relations Board threw these proven business models into chaos. Ever since, many American workers and job creators have been whipsawed between no fewer than four contradictory changes in government policies.
We need a permanent legislative solution to protect these businesses and the jobs they create.
Franchising and subcontracting are thoroughly American ways of doing business. In the franchising model, local entrepreneurs sign agreements with national or regional brands to use their names, product lines and standards. Contractors are typically smaller businesses that provide a slew of services for bigger companies, an especially popular arrangement in the supply chain.
Since the 1930s, these models have been governed by the National Labor Relations Act. Although that law is silent on whether workers at franchisees and contractors can have two employers, the NLRB applied common law principles to establish a joint-employer standard grounded in common sense. The board held that the two businesses had to exercise “direct and immediate control” to be considered a joint employer, something the franchise brand companies that use contractors hardly ever do.
The standard was the norm for more than 75 years, with little question, but the Obama NLRB suddenly and unexpectedly discarded the long-standing joint-employer standard in 2015. It held that, instead of direct and immediate control, companies could be considered joint employers if they had “indirect control” over workers or even “reserve control,” which in plain English is control that they could exercise but didn’t.
“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?” asked Bill Herrle, executive director of the National Federation of Independent Business for Florida. It’s a good question. This new standard can’t exist without small businesses and their workers paying the price.
No company wants to be held liable for the actions of workers who, despite the Browning-Ferris decision’s tortured logic, clearly don’t work for them. In response to the ruling, some companies looked to limit franchising and contracting opportunities in favor of corporate-owned stores, which could lead to fewer opportunities for smaller businesses.
Companies that franchise were also advised to modify their franchise or contracting agreements to avoid even the appearance of indirect control over workers. Yet that often meant cutting back on the support services they offer franchisees or contractors, eliminating benefits that make those business models attractive in the first place.
The Browning-Ferris decision was a direct attack on job creators. It increased litigation risk, discouraged investment and imposed operational constraints, all of which depress job growth. The losses would have been much higher had the Trump administration, in a 2017 decision, not appointed NLRB members who restored the traditional joint-employer standard, which the agency codified in a formal rule in 2020.
In 2023, the Biden-era NLRB attempted to restore the Obama policy, only to have a federal court strike it down in mid-2024, effectively reverting to the Trump-era rule and the traditional standard.
Although common sense has temporarily won the day, many franchises, contractors and their workers have still lost. In 10 years, four changes have been proposed or in effect, some having the potential to force upheaval in the way they operate and the agreements they sign. The lack of stability has created uncertainty. When uncertainty reigns, entrepreneurship and job creation suffer. Why take the risk when the rug could quickly be pulled out from under you?
Had Browning-Ferris never happened, there would almost certainly be even more small businesses across America today, giving even more opportunities to many workers from all walks of life.
Franchises and contractors live in fear of the next anti-small-business administration, which is all but certain to shift the joint employer standard once again. But Congress can act now. The Save Local Business Act would codify the sensible standard in federal law. This bill previously passed the House of Representatives and received bipartisan support in the Senate, though it never became law. President Trump could work with Congress to advance this bill as soon as possible.
After 10 years of chaos, these small businesses and their millions of workers deserve permanent protection.
• Jeremy Lott is managing editor of Competitive Enterprise Institute and the author of the forthcoming study “Joint Employer Ping Pong.” F. Vincent Vernuccio is president of the Institute for the American Worker.
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