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Joint Employer Standard an Obstacle to Job Creation and Entrepreneurship

While the economy is slowly improving, the House Committee on Education and the Workforce is seeking to tackle a holdover Obama regulation that’s an impediment to business expansion, job creation, entrepreneurship, and workforce development.

Today, the E&W Committee held a hearing entitled “Redefining Joint Employer Standards: Barriers to Job Creation and Entrepreneurship.”

It discussed the negative impact of the National Labor Relations Board’s 2015 joint employer decision, and other agency action in the policy area, on job creators and workers. Here is a little background (for more background, see here):

In an August 2015 decision, Browning-Ferris, the NLRB dramatically changed when a company may be held liable for labor violations by other employers they contract with, by merely exercising indirect control or possessing unexercised potential control over work conditions like hiring, supervision, and wages. Additionally, a company deemed a joint employer would also assume bargaining responsibilities if the other employer was unionized. Previously, a company established a joint employer relationship when they directly controlled the essential terms and conditions of employment of another company they contract with.

Needless to say, navigating such a nebulous and expansive definition of joint employer is difficult. Employers have previously remarked that the NLRB’s joint employer standard has forced them to pull back on assistance to franchisees, rethink expansion and hiring plans, and bring subcontracted services back in-house, which reduces an employer’s ability to focus on its core functions.

Thankfully, E&W Committee Chairwoman Virginia Foxx (R-NC) is a former small business owner and understands “the many challenges small businesses face.” She understands that subcontracting and franchisees are a way for entrepreneurs to get a start with lower startups costs.

However, as she points out in referring to NLRB members, “unelected bureaucrats who have never owned a business or made a payroll launched an unprecedented attack on these successful business models.”

She goes on to state how such a vague new joint employer standard threatens independence for small business, like franchisees, and causes uncertainty. This is bad news because there are 733,000 franchise businesses that provide 7.6 million jobs and the franchise sector frequently outpaces the rest of the economy in job creation. The NLRB’s joint employer standard could end these positive contributions to the economy and worker opportunities.

Rep. Foxx’s sentiment is echoed by small business owners who testified at the hearing.

Mr. Jerry Reese, Director of Franchise Development at Dat Dog, spoke about the need for Congress to enact legislation to clearly define who is an employer in a clear and fair way.

Reese, as well as fellow witness Mary Thompson, Chief Operating Officer at the Dwyer Group, also stressed that the unlimited liability and uncertainty from the NLRB joint employer makes it difficult for franchises to operate and makes them put a pause on expansion plans. With joint employer liability looming, franchises are forced to reduce assistance to franchisees and is the “most prominent risk on our minds.”

Witness Richard Heiser, Vice President of FedEx Ground, really got to the meat of the issue in his oral testimony. It is not just the NLRB joint employer standard that is causing problems, he pointed out. Heiser remarked on how many different tests and definitions there are across labor statutes, the courts, and agencies.

Under just three federal labor statutes—the Fair Labor Standards Act, National Labor Relations Act, and Civil Rights Act, there are nearly 20 different joint employer tests in the various district courts. Each of these tests have varying factors that establish joint employment. Worse, federal agencies change the definition of joint employer over time and courts take on the role of refining these definitions by further changing joint employer tests. This situation is untenable and Congress needs to act to clarify joint employment.

Thankfully, Bloomberg BNA has reported that Congress is working on legislation to address and clarify joint employment in a way that enables entrepreneurs to start businesses without regulatory roadblocks.