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Washington is a city built on virtue signaling and hypocrisy. Lately, the biggest culprit has been none other than the White House itself. President Biden said it all the right things during Small Business Week, but his action on a key issue affecting millions of small businesses told a very different story.
With May 3 of the president veto of a bipartisan Congressional Review Act (CRA) resolution that would have overturned the expansion of common employer rule, the Biden administration showed it cares more about special interests than small business owners, who face an onslaught of costs and uncertainties from the relentless regulatory onslaught. Incredibly, the message of the presidential veto included no mention dangerous damage to the franchise model, a stunning oversight of the small business community whose future hangs in the balance—as evidenced by a last petition of the more than 5,300 franchise stakeholders who approached the White House to sign the legislation.
Extended rule
At issue is the expanded joint employer rule promulgated by National Labor Relations Board (NLRB) last October. This rule threatens to disrupt the relationship between franchisors (brand companies such as McDonald's, Fitness at any time OR Dunkin') and individual franchises (the local small business owner who runs the enterprise). Under the previous 2020 standard, a company could be considered a joint employer only by exercising “direct and immediate control” over the employment of workers. Under the new expanded rule, a company that merely possesses vague authority to control will be considered a joint employer.
of new threshold it's a much lower hurdle to clear, and that's precisely the driving force behind its proponents. Joint employers are required to bargain on the substantive terms and conditions of their employees, while also being liable for unfair labor practices committed by the other joint employer. The rule injects added uncertainty into a business community still finding its footing after the pandemic.
Negative consequences
If this rule goes into effect, there will be negative consequences both for entrepreneurs and employees. Franchisors are keen to increase their oversight of these local businesses to reduce their legal risks. Or they will pull resources completely and let their franchises fend for themselves. Even worse, many may choose not to expand through franchising—closing the door to business opportunities for thousands of would-be entrepreneurs. None is a positive result.
Employees, meanwhile, are thrown into a state of uncertainty with competing bosses and blurred lines of authority. It reminds me of the movie Office space, when a mid-level employee complains about one of the consultants brought in to improve efficiency: “I have eight different bosses now. So that means when I make a mistake, I have eight different people coming to correct me said about him.
Franchising has been an entry point into entrepreneurship for minority- and women-owned businesses, and evidence shows that minority-owned franchises are some of the most profitable ventures to pursue. In fact, Oxford Economics found that almost a third (32%) of franchise owners would not own a business without a franchise, and more than twice the rate of franchises are minority-owned compared to non-franchises. On average, black-owned franchises earn more than double their counterparts in non-franchise businesses, making franchise ownership a compelling path to generating wealth.
'High level of concern'
With increased uncertainty, potentially unlimited liability and litigation risk, it's no wonder that 74% of franchisors expressed a high level of concern with the new common employer standard, according to data collected by the International Franchise Association. Franchisor Survey 2024. The threat is not hypothetical to many of these individuals. They have experienced a previous recurrence and experienced devastating consequences.
During the joint employer's last expansion in 2015, franchise businesses were lost 33 billion dollars per year, according to data from Oxford Economics. approximately 376,000 franchise jobs were never created due to diverting legal fees and compliance costs, and lawsuits against franchisees multiplied.
Meanwhile, expanding the common employer rule will stifle opportunity and exacerbate the racial wealth gap that candidate Biden pledged to address. It also comes as troubling new data shows that nearly 17% of black US mortgage applicants were rejected in 2022, compared to 6.7% of white applicants, according to the latest data from Consumer Financial Protection Bureau. Franchising and home ownership are two key ingredients towards building generating wealth.
NLRB Appeal
A federal court recently struck under the expanded joint employer rule, but the NLRB has appealed the decisionwhich means the extended rule can still be put into effect.
While IFA is confident in our legal position, Biden's signature on the CRA would have provided some permanent relief. This would also have helped his political standing. With a recent CNN poll showing this 70 percent of voters feel negative about the economy, the Biden administration also needs a win.
Connected: The common employer rule will destroy the franchise. Here's how to protect your business
Bosses benefit
The only groups that benefit from the extended joint employer are work bosses – and not to benefit the workers, but to increase their ranks and political power. While that of Biden the veto message did not mention small businesses, he took time to declare himself the “most pro-union president” in history.
The president's actions on the joint employer revealed his priorities, and they are not with the small business community, which week his administration ALLEGED to celebrate. With the election around the corner, this move will be remembered, especially if the president intends to stop the campaign on his favorite. ice cream OR sandwich shops.
Matt Haller is the President and CEO of International Franchise Association