By Mark Sinatra
Congress has caught heat from franchisees recently for the National Labor Relations Board’s newly expanded definition of who qualifies as a “joint employer,” a decision made in response to the increasing number of Americans who rely on independent subcontracting, franchising, and temporary staffing agencies for employment.
The NLRB’s case, which puts more responsibility on franchisors and on companies who outsource staffing and use contract labor, has led to major debates and split Democratic and Republican panels. These ongoing arguments and choices about what type of worker qualifies as an employee are likely to shape American labor history and could redefine the way small businesses run and develop in the future.
The NLRB’s expanded definition of employer responsibilities was made after labor advocates and academics argued that today’s economy is increasingly built on business models that rely on contractor employment, which doesn’t offer workers many of the benefits and resources of a traditional employer-employee relationship.
The Department of Labor as well as the Occupational Safety and Health Administration have each become more stringent on employers recently as well. Each is scrutinizing employer status and independent contractor classification more closely and asking more questions about who is ultimately in charge of handling benefits.
Many are in favor of giving more rights to contractors, yet the ruling could also dramatically affect American small businesses, which might not be able to handle additional costs associated with the NLRB’s employer definitions.
Some say the NLBR employer definition favors larger companies over smaller ones, since only larger companies are financially better able to handle the additional burden of delivering benefits.
Plenty of American franchisees are lobbying in favor of the Protecting Local Business Act (HR 3459), a piece of counter legislation that hopes to overturn the NLRB’s expansion of joint employer status. Franchise businesses say the NLRB’s new employer status standard could undo contracts between franchisors and franchisees and limit small business potential.
If the NLRB ruling stands, the franchise model could become less attractive. Franchisors would likely have greater financial and human resources responsibilities for workers, and would cloud the picture on who is actually the employer: the franchisor or franchisee.
Contracts between all parties will need to be rewritten with clearer codified allocations of employer responsibilities. This adds another layer of challenge for franchises and small businesses, who will need human resources experts to help them understand the new rules and ensure compliance.
The ultimate questions are of accountability—who has the most authority, and who will shoulder the most risk.