Editor’s note: This article first appeared at Forbes.com.
Having written earlier this summer about the whack-a-mole regulatory state running wild under the presidency of Barack Obama, the biggest question in my mind was which of the myriad federal regulatory agencies would be the next to throw a monkey wrench into the economy. It was a foregone conclusion that the EPA would be one of those agencies, and they haven’t disappointed, but the other most egregious offender is the National Labor Relations Board.
The NLRB has issued a ruling that McDonald’s Corporation may be considered a joint employer of McDonald’s franchisees’ workers. If allowed to stand, this ruling will redefine the relationship between franchisors and franchisees by declaring both to be joint employers. This is bad law, bad for business, and bad for employment.
It’s bad law because it would unilaterally abrogate long-accepted contractual arrangements between thousands of franchisors and franchisees. It’s also bad law because it is an insult–no, a repudiation–of representative government. A major change in law that affects so many individuals and businesses is properly the province of Congress. By usurping the legislative prerogative, three unelected political appointees (a majority of the five-person NLRB) are presuming to make a decision that rightly should be made by at least 218 representatives and 50 senators elected by the people.
The NLRB ruling will be immensely disruptive to all the franchisors and franchisees in the country. Indeed, it would destroy the harmony between a franchisor and its franchisees.
Currently, franchisors exert no control over hiring, firing, assigning workers to different shifts, determining the length of those shifts, deciding which worker performs which functions, etc. and if franchisors are now to be deemed joint employers of those who work in each local franchise, they would need to hire additional workers to be on site. You can’t manage a workforce in Peoria or Mesa or Tupelo from Chicago (or, in the case of McDonald’s, Oak Park). How would a franchisor cover these additional costs? They would have to receive a larger percentage of the franchisees’ income. They also might find it expedient to enter into a nationwide bargaining agreement with a union that would represent the workers in all the franchises, figuring that it would be more manageable for them to deal with one collective bargaining agent than having to micromanage labor issues in a large number of franchises.
Franchisees, on the other hand, would find their profit margins squeezed if franchisors had to take a bigger bite out of their revenues. They could try to cover these new costs by raising their prices, but due to the elasticity of demand, this would likely result in a loss of customers. If their employees were unionized and the payroll were to go up, again the profit margins would be squeezed. What had been profitable local businesses employing local citizens could quickly be transformed into unprofitable businesses that have to close.
Clearly, the new NLRB ruling threatens to destroy jobs at a time when the overall job market remains less than robust. As is so often the case, government intervention in the name of helping America’s workers will end up imposing a severe toll on many of those workers.
Why, then, is the NLRB doing this? As I tell my economics students at Grove City College, anytime you want to understand why a law or regulation is adopted, ask the question “Cui bono”—Who benefits? The NLRB ruling may be bad law, bad for business, and bad for workers, but it’s a classic case of special interest politics. It is designed to help labor unions, a key element of President Obama’s powerbase.
Indeed, the NLRB’s ruling on a joint employer issue is a vivid illustration of bypassing Congress to rule by regulatory fiat. The anti-business, anti-jobs animus of our president has not abated. No wonder corporations want to relocate to other countries.