In a radical new ruling, the National Labor Relations Board (NLRB) late last week threw all American franchise and contract businesses into a state of uncertainty. In a 3-2 decision, the NLRB ruled that companies can now be held responsible for labor violations committed by franchisors and contractors. It’s hard to overstate the potential fallout from this decision.
First, the NLRB has turned the clock back 30 years in American employment practices, which have seen massive growth in flexible, more autonomous business and employment arrangements—such as franchises, contracted work, suppliers, and so on. I said as much in my initial review of the NLRB ruling.
Reading the lengthy, full decision, it is surprising how explicit the majority opinion is in that endeavor. They are proudly reactionary when it comes to labor and employment standards, wanting to rein in the developments of the past three decades in American employment practices. Time and again, the majority refers to Board decisions and Supreme Court opinions from the 1970s or earlier.
This decision makes contracting specifically much less attractive to companies. It essentially raises the transaction costs of hiring. And, as we know from Ronald Coase, lowering transaction costs is the main reason why we have corporations in the first place. More functions will be brought in-house, and with the raised costs, people will lose their jobs as a result. They will certainly lose the flexibility many people value of working for staffing companies rather than one particular employer. Unions may well not benefit at all, and those who have lost their jobs will be able to blame them for their place in the unemployment line.
Second, and worse, the majority’s stretching of the definition of “joint employment” shows a cavalier disregard for Congressional intent, by essentially reviving a definition of joint employment that Congress firmly rejected in the 1947 Taft-Hartley Act.
As Board Members Philip Miscimarra and Harry I. Johnson, III note in their dissent, the majority’s opinion seems to rely on an overly broad definition that Congress has since rejected.
In this case, our colleagues abandon the attempt to strain extant joint-employer law, which had already been strained beyond its rational breaking point in CNN. Instead, similar to what was done in FedEx for the definition of a statutory employee, they have announced a new test of joint-employer status that, notwithstanding their adamant disclaimers, effectively resurrects and relies, at least in substantial part, on intertwined theories of “economic realities” and “statutory purpose” endorsed by the Supreme Court in NLRB v. Hearst Publications, 322 U.S. 111 (1944), which Congress expressed rejected in the Taft-Hartley Amendments of 1947. (Page 26)
The majority is also explicit in why it wants to do this—to make collective bargaining easier for labor unions. The American people have made their choice over the past forty years, with now only 6.6 percent of private sector employees belonging to labor unions. The NLRB is trying to use the joint employer decision to reverse this trend, by making it easier for unions to play the two sides of a potential joint employer against each other.