The National Labor Relations Board has issued a decision that could have severe implications for many types of businesses across the United States. Essentially the ruling states that companies are responsible for labor practices between contractors and subcontractors. The higher-level companies will be considered “joint employers” with their independent contractors.
What this means, on a practical level, is that it is suddenly much more costly and dangerous for a company to hire a contracting firm, knowing that they could be on the hook for all sorts of labor disputes over which they have little or no control. This could involve getting dragged into collective bargaining agreements with subcontractors, or even being the target of litigation.
Companies that operate a large number of franchises will be particularly affected. For example, McDonald’s operates over 3,000 franchises in the United States. Traditionally, these have been operated with a great degree of independence from the corporate headquarters, because the company recognizes that it would be ridiculous for a central authority to micromanage hiring, firing, and other labor practices for so many separate restaurants. Just like in government, the best results come from more decentralization.
In this setup, if an employee has a dispute with their boss, the franchise holder assumes responsibility and a resolution is reached without involving corporate headquarters or the thousands of other franchise holders in the country. But now, the NLRB wants McDonald’s as a whole to be where the buck stops on disputes of this nature.
This quickly becomes a logistical nightmare. How can anyone be responsible for so many subcontractors, when they have little to no control over the terms of their employment in the first place? For an established company like McDonald’s, it will mean increased centralization at a great deal of cost, likely to be reflected in higher prices for the consumer. For other, less well-established firms, the incentive to start franchising at all will be substantially diminished. The result is, as always, less job creation in an already difficult economy.
There is little doubt that the NLRB’s decision will be challenged in court, and with any luck it will be overturned, but we are witnessing the continuation of a disturbing trend of tightening regulations on labor, to the point where no innovation, no expansion, no job creation can reasonably occur. In an economy that continues to struggle with anemic growth seven years after a major recession, the government should be doing everything in its power to get out of the way and let people do what they do best – create. Instead, regulations are choking off the creative spark that made America the envy of the world in the first place.