A rule currently pending before the National Labor Relations Board (NLRB) could fundamentally alter the small business landscape in America. Last week, Sen. Lamar Alexander (R-TN) stated in a Senate hearing he believed the ruling could destroy 700,000 small businesses. The cause for concern is over the definition of “joint employer,” and the decision could upend franchised businesses. Now, a group of small business owners is making their case that the NLRB is threatening their investment and hard work.
The Coalition to Save Local Businesses launched on Tuesday. Some of its members have already begun meeting with Members of Congress to explain how the NLRB ruling could harm their small businesses.
John Sims, the franchisee of a child care center employing around 40 people in Richmond, Virginia, told reporters on a conference call, “It doesn’t make sense to grow a business when we can’t be certain what the future of our business will be.” He took that same message to the Capitol last week when he testified in a Senate hearing.
At issue is a rule with over 30 years of legal precedent that the NLRB is seeking to change. If the definition of “joint employer” is broadened, as the NLRB wishes to do, many franchisors would face liability for decisions made by franchisees. Since 1984, the NLRB has used a “significant control” standard to determine whether businesses functioned as joint employers. If this standard changes, as the NLRB is aiming to do, franchisors and franchisees will often find themselves at odds, and franchisors will be forced to exert control over businesses owned by the franchisees.
“At the end of the day, we have a very symbiotic relationship with [the franchisors]—they control the brand, and we control our stores and our operations. They do not manage or own our stores,” said Matthew Patinkin, a franchisee for over 20 years. Patinkin now owns 72 franchises, comprised of Auntie Anne’s Pretzels, Red Mango Frozen Yogurt, and Jamba Juice. He employs 700 people.
“If the NLRB expands its definition of joint employer, we would lose our autonomy and our ability to make decisions about what is best for our local stores. In essence, it takes our ownership away from us,” explained Patinkin. Corporate brands would be forced to manage the entire franchise system.
Some proponents of the rule change argue that the NLRB will look at franchise relationships on a case-by-case basis, so there should be no immediate concern for most small businesses. But Michael Lotito, a lawyer with Littler’s Workplace Policy Institute, explained to the media on the call, “Each case involves a lawsuit. Each case involves a charge. Each case involves lawyers. Each case involves a lawyer for the franchisee, a lawyer for the franchisor. Potential appeals. This is very disruptive of business relationships. These are all increased costs.”
Patinkin, who says he would like to continue growing his business, worries about widespread ramifications by altering the franchise relationship. “I became a franchisee based upon the existing model for franchising, and that model has been in place for decades,” he said. The new uncertainty created by this rule and the rise in legal costs are likely to leave many franchisees unsure whether to continue investing and growing their businesses.