Joint Employer Reform Will Protect Small Businesses

Joint Employer Reform Will Protect Small Businesses
AP Photo/David Goldman

Operating a small business successfully involves a number of challenges. Restaurant owners, for instance, enter into service contracts with staffing agencies, cleaning services, and the like in order to serve their guests well. Under the previous administration’s controversial “indirect” and “potential” control joint employer standard, however, businesses can be held liable for another entity’s workplace violations or unfair labor practices. This vague standard has created turmoil and uncertainty for restaurants and other businesses who are now exposed to unlimited and unpredictable joint employment liability. 

As a result of this standard, your favorite restaurant owner opens up his or her business to increased operational and legal costs and less compliance assistance.  The impacts are real.  Many restaurants and other small businesses are struggling to manage the risk, forcing them to make hard decisions about how to pull back on subcontracted services and in some instances whether services can be brought back in house and absorbed internally. 

Thus the National Restaurant Association welcomed Labor Secretary Alexander Acosta’s withdrawal of the previous administration’s informal guidance on joint employment. This is a step in the right direction. But to resolve this issue once and for all —  and provide clarity for restaurateurs and millions of other small business owners across the country — Congress must also establish a legislative fix. 

For more than three decades, the “direct” and “immediate” control joint employer standard provided clarity about the legal obligations of businesses and fairness for owners and operators of all sizes. Yet under the previous administration, that certainty was eliminated. No contractual relationship is safe from a joint employer finding. Following the National Labor Relations Board’s (NLRB) 2015 Browning-Ferris decision, joint employer is now defined as any business that exercises indirect, potential, or even reserved control over the practices of another business and its employees. This standard has quickly been expanded beyond the National Labor Relations Act (NLRA) to other federal statutes, including the Fair Labor Standards Act. The new joint employer standard is an unprecedented reinterpretation of the NLRA. The vague “indirect” and “reserved” control doctrines provide no clarity for business owners and no guide for determining whether a joint employer relationship exists under the NLRA.

The impact of the new standard is being felt by businesses in all industries, from construction companies and small franchise employers to the over 1 million restaurant locations in the country. Service contracts used by small businesses and restaurants, such as staffing agencies, human resource firms, and cleaning services all fall under the umbrella of this standard. Thus the myriad of day to day operations involved in owning a restaurant are subject to the joint employer standard, making restaurant owners potentially liable. Nearly any business could run afoul of such unlimited joint employer liability, not just those operating under the franchise business model.

The restaurant industry is the second-largest private-sector employer in the country, employing over 14.7 million Americans. Restaurants face high operational and legal costs and less compliance assistance as a consequence of the new standard. A recent report from the American Action Forum found that the U.S. labor market could see “1.7 million fewer jobs in the entire private sector” and “500,000 fewer jobs in the leisure and hospitality industry” due to joint employer. It’s not just the restaurant industry that is adversely affected. Any regulations or laws that negatively impact our industry also impede our ability to create jobs and support a growing U.S. workforce, with detrimental effects for the entire U.S. economy. 

Congress can resolve the damage already done to locally owned businesses and slow the frequency of joint employer litigation as well as the rising operational and legal costs facing restaurant owners. The decision by the NLRB expanded into a number of federal and state statutes that can now only be undone by Congress. The National Restaurant Association encourages Congress and the administration to pass legislation to resolve this issue. All members of Congress should be fighting for this legislation to provide clarity and certainty for the small businesses throughout their communities’ back home.

Shannon Meade is the Director of Labor and Workforce Policy at the National Restaurant Association.

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