What if you could get in legal trouble simply because you knew somebody else who got in trouble? You didn’t do anything wrong with them. Or tell them to do anything wrong. Or even know that they were going to do something wrong and fail to tell others. But, theoretically, you could have stopped them if you had known.
It seems ludicrous, and yet that is what federal labor regulators want to do to American businesses nationwide with a new policy called “reserve control.”
The National Labor Relations Board has a new regulation that potentially holds one business responsible for the workplace violations at another business if the former has “reserved control” over the latter. “Reserved control” is the potential power to influence another. You don’t have to have actually exercised it; you just might, someday.
This was part of the agency’s updated “Joint Employer” rule issued late last month. “Joint employer” is the term for when one business can be said to control another business, such as a contractor hiring a subcontractor, triggering responsibility for any labor violations by the other business. Traditionally, this type of liability required the first business to have “direct control” over the second business’s decisions.
That changed during the Obama administration, when Democrats grew frustrated with the proliferation of franchises, contractors and freelancers that were difficult to regulate or organize for union purposes. Democrats appointed to the NLRB began pushing to make “indirect control,” a term of art with no clear definition, the new standard. In theory, any company could be said to have indirect control over any other company it does business with — which could be anything regulators deem it to be. Indirect control drastically lowers the standard a NLRB regulator would need to bring a case.
But the situation has suddenly become worse.
Indirect control (theoretically) requires a business to have done something to influence the other business. Reserved control eliminates even that. As the NLRB said in a fact sheet accompanying the rulemaking, “Including reserved control is important to account for situations in which an alleged joint employer maintains authority to control essential terms and conditions of employment but has not yet exercised such control.” In short, they’re not going to let the fact that the business didn’t do anything pertaining to employment decisions prevent it from holding the business accountable for what it didn’t do.
The NLRB has made clear that it will stretch the rule to fit the circumstances. “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard,” NLRB Chairman Lauren McFerran said upon its release. This is classic regulatory creep.
Corporations are likely to react by pulling back from franchising altogether because the legal risk is too high. They’ll either limit franchise opportunities and/or limit their independence and run them directly. That will cut off a major opportunity for young entrepreneurs, especially in minority communities.
Unions have pushed for the expansion of the joint employer rule for decades. The expansion will make it easier for unions to mount organizing campaigns against major franchise chains like McDonald’s. Most franchisees are independent businesses that merely rent out the corporate brand. Under the expanded joint employer rule, franchisor corporations are much more likely to be found responsible for violations at franchisees because the parent company arguably has theoretical control over the franchisees through those contracts. If that is the case, then the corporation can also be said to be the employer. That opens it up to a potential campaign by the union where they pressure the franchisor to agree to unionize all its workers.
In short, joint employment is a possible means for unions to organize major corporations all at once, rather than the piecemeal process of organizing workers at one location at a time.
Incidentally, two of the board’s three Democrat majority members are David Prouty, former general counsel of the service employee union UNITE HERE, and Gwynne Wilcox, a former lawyer for the Service Employees International Union. Chairwoman Lauren McFerran served as a staffer of former Sen. Tom Harkin, a longtime union ally.
It’s probably a coincidence.
Sean Higgins is a research fellow for the Competitive Enterprise Institute, a free market public policy organization based in Washington, D.C.