Obama Should Rein In the NLRB

In President Obama's State of the Union address, he echoed a theme that has been constant throughout his tenure: "How do we give everyone a fair shot at opportunity and security in this new economy?"

One way President Obama could work toward this goal in his final year in office would be to rein in the National Labor Relations Board. During Obama's tenure, the NLRB has imposed costly regulations that threaten to seriously disrupt workplaces around the nation and the greater economy.

A key example is the NLRB's recent change to the rules governing franchise businesses. For purposes of labor law, a franchisor and franchisee — think McDonald's corporate vs. the owner of a few McDonald's restaurants — were for decades considered two distinct entities. This was common sense. A franchisee is an independent small-business owner who hires and fires employees and creates their schedules, and thus should be responsible for any labor violations.

It was also a good deal for all stakeholders. In return for running the business and taking responsibility for labor relations, entrepreneurs were able to use the franchisor's brand name and benefit from the parent company's marketing efforts and tested business methods.

Workers profited as well as the franchise business model thrived. Franchises accounted for 10 percent of new jobs in 2013 and 2014. Projections from the International Franchise Association show that the "gross domestic product (GDP) of the franchise sector will increase by $521 billion or 5.2 percent in 2015, an increase over the $496 billion generated in 2014."

But in August of last year, the NLRB decided in its Browning-Ferris case that franchisors are "joint employers" of the workers their franchisees hire, and thus can be held liable for labor violations. And instead of fighting the decision, the Obama administration threatened a government shutdown over a Republican effort to defund enforcement of the new standard. This is the same president who claimed, in his address this week, that "I believe a thriving private sector is the lifeblood of our economy. I think there are outdated regulations that need to be changed, and there's red tape that needs to be cut."

Browning-Ferris could could have dire consequences for the franchising industry. In the future, parent companies will have to decide whether the additional risk is worth it. Franchisors may choose to operate stores themselves instead of franchising, which will limit opportunity for entrepreneurs and reduce job creation. A new report from FRANdata finds that "at least 40,000 small businesses operating in more than 75,000 locations are at risk of failure" because of the new standard.

Unfortunately, we know why the Obama administration issued the decision: to ease union organizing campaigns. When a union organizes a franchise's employees, the parent company will now have to negotiate alongside the franchisee. McDonald's is already being charged with labor violations as a joint employer, and the NLRB's general counsel has admitted that the "sole reason why our agency is involved in the McDonald's situation is because there is a national campaign that's called the 'Fight for $15' that is being run by a fast-food workers alliance that is seeking to raise wages in the fast food industry to $15 an hour."

Wider unionization would not be in workers' best interest. For example, an analysis by my colleagues at the Competitive Enterprise Institute emphasizes that unionization causes "deadweight loss": "By raising the cost of labor, unions decrease the number of job opportunities in unionized industries. That, in turn, increases the supply of labor in the nonunion sector, thereby driving down wages in those industries." Further, a recent Gallup poll shows that non-union workers are more satisfied than their union counterparts with various aspects of their jobs — safety conditions, recognition for a job well done, flexibility of hours, and job security.

So if President Obama truly wants American workers to be successful and have a fair shot, then it is time for government to step aside and remove harmful regulations. Especially when the motive behind such regulations is to prop up the special interests of labor unions at the expense of job opportunities.

Trey Kovacs is a policy analyst for the Competitive Enterprise Institute, a free-market public-policy group in Washington, D.C.