What does the Browning-Ferris Decision Really Means for Small Business?

Date: September 04, 2015

Last week the National Labor Relations Board handed down yet another decision that further complicates life for small business owners. In Browning-Ferris Industries, NLRB announced new rules for determining whether separate businesses should be viewed a joint-employer. After thirty years, the Board is now abandoning rules that had previously given clear-cut guidance to small business operators—rules that had allowed companies to work collaboratively.

Previously businesses could freely contract with other companies without fear of assuming the other’s liabilities. Under the old regime, the employees of one company would only be counted as employees of the next if the latter exerted control over the other’s management decisions on questions of hiring, firing, and disciplinary measures. (Example: If the ABC Company told XYZ Firm who to hire and fire). But the Browning-Ferris decision changes all that.

Now NLRB says that it will consider all aspects of the company’s business relationship—meaning the Board will treat XYZ Firm’s employees as ABC’s if it determines that ABC has exerted significant control over how their service agreement should be performed. This not only makes it easier for Big Labor to organize unionization campaigns, but it results in practical difficulties for small business operators. For one, it makes it harder for small businesses to enter into service agreements with other companies without assuming the others’ liabilities. Of course, a business seeking to enter a service contract can still do so; however, NLRB’s new approach makes it risky to include the sort of terms and conditions that companies have—until now—relied on to ensure that the services are performed adequately, and up to standard.

Still more concerning is the reality that NLRB’s new rules will affirmatively discourage established companies from working with small business contractors. If a larger business faces the risk of assuming a smaller company’s liabilities when it enters into a collaborative relationship (e.g., a joint venture, an extended service agreement, or a sub-contracting relationship), the fall out will be severe for smaller firms. Indeed, larger companies will feel pressure to internalize their operations, which means less business for the smaller companies with whom they might otherwise work. For the same reasons, the Browning-Ferris decision threatens the vitality of the franchiser-franchisee business model.

Of course, this is consistent with a disturbing trend we’ve seen in labor and employment law in recent years. Advocates of labor interests have increasingly pushed for rules that will discourage businesses from working with independent contractors. Indeed, the Department of Labor recently issued a somewhat controversial guidance on how to classify workers—pronouncing a broad presumption that most workers are employees, not independent contractors. But there again, the practical fall out is that established businesses are now discouraged from working with smaller firms for fear they might assume liability for their employees. The reality is that established firms will opt to simply hire their own employees, rather than working with independent businesses. That’s bad for small business, and it’s bad for workers who genuinely want the autonomy—and the opportunity for profit—that comes with operating as an independent contractor.

To be sure, the question of how and when to classify a worker as an independent contractor is distinct from the question of when two companies may be deemed joint employers. But, the practical implications are the same in many ways. In both cases, when business formalities are ignored, small business is put at a competitive disadvantage. Ironically, those supporting these pro-labor policies often say they’re concerned about the role of big business in America; however, the policies they advocate only make it more difficult for small businesses to survive.

 

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