The Time is Now to Fix Joint Employer Rule

The joint employer rule is an infuriating issue to write about because the issue ought to be SO cut-and-dry. The previous rule existed for a very long time and was easy for everyone to understand. If you worked at a McDonald’s, you didn’t work FOR McDonald’s, you worked for the owner of that store who bought the franchise rights from McDonald’s. If something went wrong, you filed a complaint or a lawsuit against the owner of that store. The guy who signed your paychecks. Your actual boss.

But then the Obama administration came in and tossed precedent and common sense right out the window as a payback to unions and trial lawyers. For the purposes of lawsuits and possibly unionization, you were now magically jointly employed by your actual boss and by McDonald’s.

This led to chaos in the franchise industry. Countless jobs that would have been created went right out the window as franchisers and franchisees looked for ways to avoid liability. Of course, lawsuits skyrocketed. According to research by the International Franchise Association, there has been a 93 percent increase in litigation, leading to costs of about $33 billion a year between franchisers and franchisees. The best estimate is that this has suppressed the creation of about a third of a million jobs.

Now that the Trump administration is trying to do the sensible thing and reinstate the old rule, various groups acting on behalf of unions and trial lawyers are basically mass spamming the National Labor Relations Board (NLRB) comment box to prevent a return to common sense. And because of bureaucratic Marquis of Queensbury rules, the NLRB has extended the deadline for comments three times.

Enough is enough. Some defenders of the disastrous joint employer rule would dismiss franchised businesses as McJobs, but this overlooks three important facts.

One, the number and variety of franchised businesses is truly extraordinary. Entrepreneur magazine maintains a list of only the “top 500” franchised businesses. These include, yes, fast food restaurants, but also Anytime Fitness, Ace Hardware, Keller Williams, and Hilton Hotels, to pick a few.

Two, the businesspersons who benefit most from franchises are usually quite small, with a heavy skew toward legal immigrants. Franchising helps give them the support and training that they need to make the American dream a success. The joint employer rule does a whole lot to block that dream-enriching relationship.

Three, franchises are job-creating machines at the very level that a lot of low-income, low-skilled people most need jobs: at the entry level. To get better jobs, people need skills and experience. They get those at franchised businesses. Sometimes they stick around in the franchised businesses and move up into management. Sometimes they leverage their experience to move into good positions at more established businesses.

By enacting the joint employer rule, the Obama administration slammed the door on many franchises and sawed off the lowest rung of the ladder for people who need to start climbing. The NLRB can finally reverse that and should delay no further.