It is probably the biggest change in American employment law since the National Labor Relations Act and its reform in the 1930s and ’40s, but it could happen without the general public realizing it. The National Labor Relations Board (NLRB, a product of that 1930s legislation) is expected to rule any day now in a case that will affect thousands of businesses. Firms are bracing themselves for the fall-out.
The case in point relates to Browning-Ferris Industries (BFI), which owns a recycling plant that hires employees from a staffing agency. The local Teamsters Union petitioned the NLRB to designate BFI as a “joint employer” of the workers alongside the staffing agency. Designation as a joint employer would mean that BFI would be liable for the employees’ working conditions alongside the staffing agency. That means they could be sued over contractual matters and working conditions.
If the NLRB rules in favor of the Teamsters, it would have far-ranging effects for companies of all shapes and sizes. The start-up that employs a receptionist from a staffing agency would find it now “jointly employed” that receptionist. Your office that has cleaning staff come in from a different firm at night could easily find it jointly employing those cleaners.
The whole American business model of contracting out non-essential services would be overturned overnight. Firms that have spent decades flattening their structures would be forced to vertically integrate. One employment owner told The Hill, “Every company will have to reexamine their business relationships… I’d rather be responsible for my own company than someone else’s.”
It is not just staffing and contracting that are threatened by the NLRB’s actions on joint employers. Other targets include franchise businesses like McDonald’s. If franchise businesses are designated joint employers, then that business structure will also be overturned, with significant effects on one of the main avenues for American entrepreneurs.
Again, companies will probably vertically integrate to cut down on transaction costs between franchises and corporate management. As a spokesman for the National Federation of Independent Businesses also told The Hill, “All of the sudden, a local business person who has built a franchise up for 20 years is a middle manager.”
The joint employer cases are the subject of a recent paper from CEI, “The NLRB Joint-Employer Cases: An Attack on American Business.” In it four main consequences are identified:
First, joint employers can be sued more readily because they share liability for an employee’s actions. More parties and deeper pockets to sue translate into more business costs and hampered job growth.
Second, joint employers are unionized more easily because both businesses must negotiate with a union. To unionize one business is effectively to unionize the other. Recent research shows that unionization means a 15 percent wage loss for workers and, for publicly traded companies, a reduction in overall valuation by as much as 14 percent.
Third, Griffin and Weil intend to give unions “economic weapons”—pickets, protests, and boycotts— that have been prohibited for use against the third parties that would be redefined as joint employers. Unions then could pressure third parties into labor peace agreements—which grant union recognition via signed cards rather than secret ballots, give unions access to business premises, and prevent employers from opposing union organizing—in exchange for unions not deploying their weapons.
Fourth, the NLRB’s proposed joint-employer standard would force major employers to bring more services in-house, leaving small business with fewer opportunities.
Viewed this way, the joint employer cases can be seen as a way of rewarding the administration’s political allies in the union movement. To do so, the last four decades or so of American business development need to be written out of history in a move that will force the readoption of monolithic corporate structures that were shown to be inefficient in the 1970s and ’80s. That appears to be a small price to pay in the eyes of the NLRB and the administration.
This article first appeared on the Competitive Enterprise Institute’s blog.