The National Labor Relations Board (NLRB) on Thursday handed down one of its biggest decisions of President Obama’s tenure, ruling that companies can be held responsible for labor violations committed by their contractors
You can rightly complain about the things which go on inside the White House, the State Department, the Justice Department or the EPA and all of the headline grabbing controversies which erupt from them. None of them, however, may be up to nearly as much mischief as the National Labor Relations Board (NLRB) though it doesn’t seem to catch the attention of the media nearly as much. This week they were at it again and while a bit on the wonky side, a new wrinkle in the rules could spell big trouble for America’s employers and many, many workers.
The decision in question came in the case of waste management firm Browning-Ferris. The board has found that they can be held liable for the actions and policies of subcontractors providing services to them and even be forced to negotiate with the big labor unions on behalf of those workers, treating them as a “joint employer” of the subcontracted or franchise employees.
The National Labor Relations Board (NLRB) on Thursday handed down one of its biggest decisions of President Obama’s tenure, ruling that companies can be held responsible for labor violations committed by their contractors.
While the ruling from the independent agency specifically deals with the waste management firm Browning-Ferris, the so-called “joint employer” decision could have broad repercussions for the business world, particularly for franchise companies.
Opponents of the action warn the ruling could hurt businesses as diverse as restaurants, retailers, manufacturers and construction firms, as well as hotels, cleaning services and staffing agencies.
There are two different, primary areas of concern here, both of which will be hit hard by this ruling. One is the ubiquitous presence of subcontracting companies and temporary personnel agencies who provide direct support to employers by taking on specific, often short term tasks or providing workers on a temporary basis to fill specific talent requirements. These show up in almost every industry you’d care to name. A second class of businesses which will fall under this are companies which engage franchise owners to carry their brand, but who operate largely as their own independent outlets. (The biggest example is McDonald’s, which actually owns and operates less than 20 percent of the restaurants you see. The rest are all franchises.) In each case, the direct employer of the workers is held responsible for their own policies and any negotiations with their workers.
But under this new definition of “joint employer” the main corporation using the services of these subcontractors or leasing out franchise rights can be forced into union negotiations (and sued) relating to the employees of other companies and for things which take place totally outside of their control. As Daniel Fischer at Forbes points out, this could spell the end of the line for many employers.
In so doing, the board’s Democratic majority reversed several decades of practice where companies had to exercise “direct and immediate” control over workers with a new regime in which regulators will examine each case for signs a company has the potential to affect pay and working conditions. It will have a large impact on how franchisers like McDonald’s do business, since they can potentially be held liable for hiring and firing decisions by any of their thousands of individual franchisees and even routine business decisions will be examined in light of how they affect union organizing efforts.
“If this goes into effect then the franchiser has to step in and have a standard for hiring, human resources, payroll, everything,” said Jania Bailey, a board member of the International Franchising Association and chief executive of FranNet, a consulting firm that matches franchisees and franchisors. “It basically nullifies this independent business model.”
This is a pretty clever move by the NLRB. If their goal is to get the fingers of the big labor unions into every nook and cranny of business, there isn’t a much better way to do it. Now, under this new standard, if an employer is judged as having “the potential” to affect wages and working conditions at a franchise outlet or staffing agency, they can be held liable and immediately be forced into negotiations with the Teamsters or whoever else has their thumb on the scale for that type of operation. So how will the larger employers respond? Probably by cutting ties with those companies. Why take the risk if the benefits of bringing in such help are outweighed by the potential union hassles?
