The NLRB Joint-Employer Cases

An Attack on American Business


View the full Issue Analysis here

Your salary, purchasing power, and job are on the line as an independent federal agency takes the core American business concepts of franchising, temporary staffing, contracting, sourcing, and outsourcing to court.

Regular Americans stand to lose a lot as some franchises are regulated out of existence. Franchise businesses provide us food, tax preparation, day care, gasoline, and many other products and services. We all know someone who has worked in a temp agency. Businesses commonly outsource accounting and cleaning. Our cars are manufactured with parts sourced from smaller businesses. Our homes are constructed with subcontractors plumbing the bathrooms and wiring the fixtures. All are at risk.

National Labor Relations Board (NLRB) cases involving three different companies could upend these business practices by radically redefining what constitutes a joint-employment situation—when an employee is considered jointly employed by two businesses. The joint-employer cases threatens to overturn decades of established precedent, upsetting the expectations of thousands of businesses that have relied on the current rules in developing their business models. These cases involve major American businesses—McDonald’s, CNN, and Browning-Ferris Industries (BFI), to list but a few—and regular American citizens across the nation would be harmed.

NLRB General Counsel Richard Griffin and U.S. Department of LaborWage and Hour Administrator DavidWeil are pushing a radical redefinition of “employee.” Their goal is to give unions greater leverage against the businesses they seek to organize, by turning many American workers’ employment by one company into simultaneous joint employment by two or more companies. The effect would be to add an additional, usually larger, employer to the collective bargaining table for negotiating wages, safety, and benefits.

Franchising, temporary staffing, contracting, sourcing, and outsourcing help companies focus on core competencies, improve productivity, and meet consumer tastes. Franchising, for example, helps by providing an established brand, marketing, and tested business methods. Notably, minority-owned franchise businesses succeed at a rate 46 percent higher than that for minority-owned non-franchise businesses.

Currently, businesses jointly employ a worker when their actual practices involve sharing substantial, direct, and immediate control over hiring, firing, discipline, supervision, and direction. General Counsel Griffin seeks to expand the definition of joint employer to include direct or indirect or unexercised potential control, as well as broadly defined “economic and industrial realities”—a fudge factor that would cover most businesses simply by claiming one party is essential to the collective bargaining process.

The NLRB’s proposed change would decimate the “bright-line” clarity of the past 30 years of law in this area. Under the Griffin-Weil plan, workers employed by franchisees, staffing agencies, contractors, and suppliers would typically become joint employees of the franchisor, lead company, or manufacturer, but the assessment would be highly speculative and specific to the situation. And the NLRB is sure to find whatever outcome benefits unionization appropriate

Furthermore, the NLRB is using sly means to impose this new definition of joint employment. Rather than issuing a rule, the Board will simply exploit its ability to decide the cases it prosecutes. Utilizing case law evades a number of congressional checks and balances to administrative rulemaking power.

Substantively, joint employment has major consequences.

First, joint employers can be sued more readily because they share liability for an employee’s actions. More parties and deeper pockets to sue translate into more business costs and hampered job growth.

Second, joint employers are unionized more easily because both businesses must negotiate with a union. To unionize one business is effectively to unionize the other. Recent research shows that unionization means a 15 percent wage loss for workers and, for publicly traded companies, a reduction in overall valuation by as much as 14 percent.

Third, Griffin andWeil intend to give unions “economic weapons”—pickets, protests, and boycotts—that have been prohibited for use against the third parties that would be redefined as joint employers. Unions then could pressure third parties into labor peace agreements—which grant union recognition via signed cards rather than secret ballots, give unions access to business premises, and prevent employers from opposing union organizing—in exchange for unions not deploying their weapons.

Fourth, the NLRB’s proposed joint-employer standard would force major employers to bring more services in house, leaving small business with fewer opportunities. The NLRB’s efforts to expand the definition of joint employer seek to aid unions’ organizing efforts by exploiting large companies’ sensitivity to attacks upon their reputation.”Weil’s top-focused strategy, which the NLRB is pursuing, seeks to bring others in line by attacking industry leaders like McDonald’s.

At stake is the survival of America’s popular franchise system—with more than 770,000 businesses and 8.5 million employees—and temporary staffing with an average of 3.15 million workers per week.

Manufacturing in America would be made more difficult if contracting out were penalized. Contractor jobs could dwindle. These jobs are jeopardized by the NLRB’s unpredictable and outcome-biased “economic and industrial realities” test, which would make people reluctant to use these prevalent American business practices.

As John Tamny shows in his new book, Popular Economics, Silicon Valley, one of the richest regions of America, contracts out practically all production. The only person who touches an iPhone before its user is the UPS man or the clerk in theApple store. Limiting contracting out will reduce Americans’ income and opportunity.

Congressional action is warranted. Litigation could take years to resolve, by which time several entire industries could be thrown into disarray. Congress needs to legislate relief to businesses and workers who would suffer as a result of the NLRB’s aggressive, pro-union agenda.