ashington is a town built on virtue signaling and hypocrisy. Recently, the biggest culprit was none other than the White House itself. President Biden said all the right things during Small Business Week, but his action on a key issue impacting millions of small businesses told a far different story.
With the president's May 3 veto of a bipartisan Congressional Review Act (CRA) resolution that would have overturned the expansion of the joint employer rule, the Biden Administration showed that it cares more about special interests than small business owners, who face an onslaught of costs and uncertainties from the ceaseless regulatory assault. Incredibly, the presidential veto message included no mention of the looming harm to the franchise model, a stunning oversight of the small business community whose future hangs in the balance — as evidenced by a recent petition of more than 5,300 franchise stakeholders who appealed to the White House to sign the legislation.
Expanded rule
At issue is the expanded joint employer rule announced by the National Labor Relations Board (NLRB) last October. This rule threatens to upend the relationship between franchisors (brand companies such as McDonald's, Anytime Fitness or Dunkin') and the individual franchisees (the local small business owner who operates the establishment). Under the previous 2020 standard, a company could only be considered a joint employer by exercising "direct and immediate control" over workers' employment. Under the new expanded rule, a company that merely possesses the vague authority to control will be considered a joint employer.
The new threshold is a much lower bar to clear, and that is precisely the motivating force of its supporters. Joint employers are required to bargain over essential 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 to a business community still finding its post-pandemic footing.
Negative consequences
Should this rule take effect, there will be negative consequences for entrepreneurs and employees alike. Franchisors are apt to increase their oversight of these local businesses to reduce their legal risks. Or they will withdraw resources entirely and let their franchisees fend for themselves. Even worse, many may choose not to expand through franchising – closing the doors to business opportunities for thousands of prospective entrepreneurs. None is a positive outcome.
Employees, meanwhile, are thrown into a state of uncertainty with competing bosses, and unclear lines of authority. It brings to mind the film Office Space, when a mid-level employee laments to one of the consultants brought in to improve efficiency: "I have eight different bosses right now. So that means that when I make a mistake, I have eight different people coming by to tell me about it."
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 nearly one-third (32%) of franchise owners would not own a business without franchising, and more than double the rate of franchises are owned by minorities compared with non-franchises. On average, Black-owned franchises earn more than double their counterparts in non-franchise businesses, making franchise ownership a compelling pathway for creating generational wealth.
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