President Obama used his State of the Union Address to highlight a pivot to policies he claims will strengthen the middle class. As the last six years have instructed, President Obama’s rhetoric has a tortuous relationship with reality. As a new campaign by the Job Creators Network called Defend Main Street highlights, recent action by his Administration threatens almost 1 million small businesses.
The National Labor Relations Board (NLRB) is an unelected government body enforcing parts of the nation’s labor laws. Late last year, very soon after hundreds of NLRB decisions were thrown out by the US Supreme Court, the Board’s General Counsel recommended that the McDonald’s Corporation be considered a “joint employer” in lawsuits and complaints against individual franchise business owners.
In other words, the McDonald’s Corporation would be liable for many legal actions against individual owners of McDonald’s franchise restaurants, even though the corporation had no involvement in the day-to-day management of the restaurant.
The recommendation strikes at the heart of the American franchise business sector, which includes almost 1 million small businesses and supports 18 million people.
Many of the businesses with well-known names that dot the American landscape, like McDonalds, Subway, Dunkin Donuts, Golds Gym, or Jiffy Lube, aren’t owned by the parent corporations but thousands of small businessmen and women who license the brand name from the companies.
The man or woman who locks up the Subway at night doesn’t work for the Subway Corporation, but their own company which has a licensing agreement with the chain. Its a powerful symbiotic relationship, allowing entrepreneurs to build their own business around a trusted national brand.
If the NLRB decision stands, the Subway Corporation, or other parent franchise company, would be liable for complaints and lawsuits against any individual franchise owner. If someone trips outside a McDonalds’ restaurant, for example, the entire corporation and, by extension, every other franchise owner, would be liable, in addition to the owner of the restaurant where the accident happened.
Increased liability insurance for the franchisor would drive up the cost of purchasing a franchise, reducing opportunity for entrepreneurs looking to pursue the American Dream. Shared liability also means that franchisors would have to be much more selective in whom they franchise to, hurting those without a proven track record of business success. Minorities – who currently own 20 percent of the nation’s franchises – would likely be hardest hit.
The NLRB ruling, it should be noted, doesn’t address a policy problem. For decades complaints and lawsuits have been brought against individual business owners for alleged violations of federal law. The ruling does solve a political problem for unions and trial lawyers who would rather target the deep-pocketed corporation, rather than individual business owners.
“This is a play by unions to grab an industry they’ve never been able to conquer,” said Stephen Bienko, owner of two franchise moving businesses. “A last-ditch effort to try and participate in the franchising world. This allows unions to say (franchises) are one entity. This way they can start unionizing workers with one swoop.”
While the NLRB ruling would have far-reaching economic consequences, making it harder for individuals to start new businesses, it hasn’t drawn wide-spread attention.
A new campaign by Job Creators’ Network is trying to remedy that and make the public aware of the dangerous precedent the NLRB’s ruling would have on the economy. The Network has launched a website, DefendMainStreet.com, a petition drive and ad campaign to educate the public about the Obama Administration’s action.
“Unelected bureaucrats at the NLRB are trying to turn one of the most successful business models in history — the franchise system — on its head,” Alfredo Ortiz, CEO of the Job Creators Network, said in a statement. “Instead of threatening a proven way for minorities and others to start their own business, the government should be supporting policies that stimulate and encourage job creation.”
Other business groups agree: “this action by the NLRB severely threatens the time-tested and proven franchise business model,” said International Franchise Association President & CEO Steve Caldeira, a strategic partner of the Job Creators Network. “Federal policymakers should take swift action to protect locally-owned franchise small businesses from an increasingly hostile legislative and regulatory environment.”
We are well acquainted with the negative consequences of sweeping government action on tax policy or new programs like ObamaCare. Every day, though, the government makes decisions that have lasting impact across the whole economy. Some of these actions make headlines, while others, like the NLRB decision, inhabit arcane areas of regulations and law that get little attention. This lack of attention doesn’t diminish the possibly devastating impact of the decision.
Taking a scythe to debilitating regulatory decisions like these could be the greatest legacy of the new GOP Congress.