Back in 2015, the National Labor Relations Board under Barack Obama essentially redefined the word “employer” when talking about franchise agreements by altering definitions in what’s known as the joint employer standard. At the time, I looked over the final changes and simply concluded, “this is going to be bad.”
And it was bad. By allowing labor unions to hold franchisers like McDonald’s responsible for labor practices of their franchisees, despite having no direct control over those policies, they opened the door to all manner of lawsuits, government fines, and other mischiefs. Analysts at the time predicted that it would have a trickle-down effect on the franchisees, creating a harsher business climate and leading to uncertainty in hiring and other policies. The NLRB under Donald Trump finally blocked that change and began to unwind it in 2017, but much of the damage was already done. Just how bad was it? A new study from the International Franchise Association and Chamber of Commerce reveals that it led to job losses numbering in the hundreds of thousands. (Free Beacon)
An industry study found that the Obama administration’s crackdown on franchising has cut hundreds of thousands of job openings and dealt a $33.3 billion blow to the economy each year dating back to 2015.
A report put out by the International Franchise Association and a Chamber of Commerce found that the Obama administration provoked an “existential threat” to the franchise model in which small business owners operate under the umbrella of a national corporate brand. The Obama administration departed from decades of precedent when the National Labor Relations Board held that parent companies could be held liable for labor violations committed by franchisees. The report estimated that the new joint employer standard set curtailed expansion in the industry, leading to between 142,000 and 376,000 lost job opportunities—a 2.55 to 5 percent reduction in the workforce.
Even going on the conservative side of the report’s estimates, we’re talking about somewhere in the neighborhood of a quarter million job opportunities lost at a time when the nation was still struggling through one of the more anemic recoveries on record. And, as the report’s authors concluded, all of this was both predictable and avoidable. In fact, many industry analysts did predict it when the rule change went into effect. We just failed to avoid it.
The real reason that some of those NRLB changes were put in place under Barack Obama was the fact that he needed to do some favors for the labor unions. They wanted to apply pressure to large franchisers like McDonald’s, seeking to force them to raise wages or bring class action lawsuits against them. Hence the move to make the franchise owner responsible for the policies of the franchisees even though their agreement provided the owner with no ability to dictate those policies beyond brand maintenance instructions.
This made the position of potential employers looking to start up franchise operations untenable in some cases. They responded by either passing on opportunities to expand their chains or simply not starting up operations in the first place. This led to the massive lost opportunities in new jobs. We’re now on course to correct that situation (assuming a Democrat doesn’t take office next year and reverse course again) but the lingering effects of that 2015 decision are still with us.