Biden administration quietly steps up its war on small businesses
The Biden administration is quietly stepping up its war on small businesses through a series of new labor rules that make entrepreneurship more difficult and, in some cases, illegal.
Last week, the National Labor Relations Board announced a new joint employer rule that reduces franchising and contracting opportunities. This is in addition to a rule the Department of Labor is about to finalize that would ban many forms of freelancing and independent contracting.
As its name implies, the NLRB’s new standard makes franchisees and contractors joint employers with their corporate parents. It expands the definition of employer from the commonsense one of a business that has “direct and immediate” control over employees to one that exercises mere “indirect” or “reserved” control.
As a result, corporations will curtail franchising and contracting opportunities due to liability concerns. If, for example, a restaurant or hotel franchisee improperly calculates an overtime payment, or if a janitorial contractor on a job site misses a safety regulation, greedy plaintiff lawyers can sue the corporation, which is now jointly responsible.
Existing franchisees and contractors would become mere middle managers who report to corporations, rather than entrepreneurs and owners of their own business. That’s some reward for years of hard work building a business.
Almost one-third of franchise owners say they would not own their business without franchising.
This new dynamic will disproportionately hurt minorities, who have long used the franchise system to punch their ticket to the middle class. Moreover, minority-owned franchisees tend to operate in minority-owned neighborhoods and hire minority workers, meaning this standard also would reduce minority job opportunities.
We don’t have to look far to see the consequences of this regulation. Former President Barack Obama’s NLRB also implemented this joint employer standard in 2015 before former President Donald Trump overturned it. According to the International Franchise Association, this change cost franchise businesses $33 billion per year in operational costs and 376,000 jobs while nearly doubling the number of lawsuits. The rule threatens the overall franchise system, which is responsible for 13.3 million jobs and $1.6 trillion of GDP.
Why does the Biden administration and its NLRB flunkies support this disruptive change? Because it’s a way to pay back Democrats’ prominent plaintiff lawyer and labor union donors, whom Biden is relying on to step up and give him the funds needed for his reelection campaign.
A joint employer standard makes it far easier for unions to organize entire corporations. Similarly, the Department of Labor’s forthcoming final independent contracting rule, which bans certain types of freelancing, will turn some independent small business owners into employees who can unionize, boosting the power of big labor, which can, in turn, help Democrats further. It’s a naked back-scratching exercise.
Limiting independent contracting limits entrepreneurship and small businesses. This regulation especially hurts people who can’t work standard employment hours because they have other responsibilities, such as child care or elder care.
Again, we don’t need to speculate about the effects. In 2020, California enacted strict state regulation on independent contractors, and it significantly affected industries that rely on freelancers. California trucking company Cal Cartage Express, for example, was forced to close, putting 200 independent drivers out of work. The Lake Tahoe Music Festival cited AB 5 in its decision to shut down after 40 years. And Vox Media terminated approximately 200 freelance writers.
Curtailing franchising, contracting, and freelancing job opportunities weakens America’s small business backbone. This regulatory onslaught is just another example of the unaccountable fourth branch of government that must be reined in by the courts or voters at the ballot box next year.
Alfredo Ortiz is president and CEO of Job Creators Network, author of The Real Race Revolutionaries, and co-host of the Main Street Matters podcast.