Small Business Needs Relief from Federal ‘Joint Employer’ Scheme

Small business owners create a majority of net new jobs, and their investment provides opportunity to their local community. Running an independent business is hard work; they are responsible for hiring, supervising, setting work schedules, and all the other decisions that come with operating a business.

But small businesses all across the country have expressed their concern that red tape coming out of Washington, D.C. may block them from realizing their dreams.

Causing this distress is the National Labor Relations Board’s “joint employer” rule that exposes businesses—large and small—to near unlimited liability. It overturned a decades-old definition of joint employment in a way that increased the cost of doing business. Another significant issue with the rule is that it is extremely broad and vague, as opposed to the previous bright-line rule. It is important to note that joint employer standard created by the NLRB is so confusing that even the agency’s lawyers could not adequately explain when joint employer relationships are established at oral argument before the D.C. Circuit of Appeals.

Now, one company may be held liable for violations committed by another company that they do not directly control. It is absurd to hold an employer liable for actions of another company when they do not exercise control over key aspects of employment. Previously, a joint employer relationship was only established when one company directly controlled the hiring/firing, scheduling, and supervising of employees at another employer.

The costly and confusing joint employer rule threatens the path to entrepreneurship and job creation, and is an invitation to increased litigation. The American Action Forum estimates that the current joint employer standard could result in 1.7 million fewer jobs.

Small businesses need certainty and clear rules from D.C. bureaucrats, something that is greatly lacking from the NLRB’s joint employer definition. The NLRB joint employer standard puts immense stress on thriving business models like franchisors and companies that utilize contractors. Below is example of the threats business owners feel from the joint employer rule.

Small business owner Kristie Arslan, owner of Pop Republic a gourmet popcorn store in Alexandria, Virginia, said “It’s a shame that these types of regulations can really stifle that growth … For us, the hope is that we will get some certainty, so that we are able to take our business to the next level quicker, faster, and help create jobs.”

Granger MacDonald, CEO of a real estate company, says “Without [contractors], my company and many other family-owned home building firms like it would simply cease to be viable operations … Simply by applying responsible, everyday business practices, we could still be held accountable for the labor and employment practices of third-party vendors, supplies, and contractors over whom we have no direct control.”

The House Education and Workforce Committee has a bill to remedy the NLRB’s ill-conceived joint employer standard. The Competitive Enterprise Institute led a coalition of 29 free market groups in support of the Save Local Businesses Act (H.R. 3441).

The bill will restore prior joint employer definition, where a company must exercise direct, immediate, and routine control over another company’s workforce to establish a joint employer relationship.

Today, the Save Local Business Act was approved by the House Education and Workforce Committee by a vote of 23 to 17. Congress took a great step forward from clearing up the confusion caused by the NLRB’s joint employer rule.