Labor Board Threatens an American Tradition

By: Bernie Marcus

Appeared in Huffington Post on October 1, 2014


Mr. Marcus is co-founder and former CEO of The Home Depot and founder of the Job Creators Network, a business advocacy organization.

See Mr. Marcus’ Op-ed in the Huffington Post.

Here’s a quiz: Who owns the McDonald’s where you stopped for your breakfast sandwich this morning?

The answer may surprise you. In all likelihood, it’s not owned by the big corporate entity with its iconic golden arches. Rather, most McDonald’s restaurants – along with other recognizable and well-respected brands like Dunkin’ Donuts, Pizza Hut, Taco Bell, and Subway – are independently owned by local business people.

But now a federal regulatory body called the National Labor Relations Board (NLRB) wants to transform franchising. That’s terrible news for the country’s small businesses.

For decades, major American companies and small business owners have enjoyed a mutually beneficial business relationship called franchising. Small business owners pay an initial franchise fee and ongoing royalties to a larger company for the legal rights to use the larger company’s trademark and business model. These small business owners then have a generally free hand to run their operations themselves, as long as they adhere to the brand’s operations standards that protect consumers and the brand’s hard-earned equity.

It’s a good deal for both parties. As a result, there are over 750,000 franchised businesses in America today that support 18 million jobs. But not everyone’s happy: The franchise model frustrates labor unions, because it’s historically been very difficult to organize a franchised industry that lacks a large corporate entity to picket and pressure.

But now that’s all changed: The NLRB’s general counsel and its ominous-sounding Division of Advice has defied both legal precedent and common sense with a ruling that big companies are so-called “joint employers” alongside the small businessmen and women who own franchised locations.

The decision, if upheld, is a bounty for organized labor in its effort to unionize the service industry. Small businesses aren’t the only losers here: their employees have no say and may have their wages negotiated away for union payoffs. Big unions like the Service Employees International Union (SEIU) are known for cutting these deals.

Money will go missing from employees’ paychecks, directed to a union they didn’t vote for that does little or nothing to raise their wages. Franchise ownership, a path to the American dream for aspiring entrepreneurs for over 50 years, will be cut off. Young jobseekers without work experience will find fewer entry-level opportunities at their local restaurant. In the end, only big unions benefit from this scheme.

It’s a personal issue for me and millions of other Americans, for whom a restaurant job was the first rung on the career ladder. At the age of 15, all the way back when Harry Truman was president, I was bussing tables at Kutcher’s Resort in the Catskill Mountains. The paychecks I earned put me through college. The important skills I learned – discipline, customer service, and teamwork – carried through to my career as co-founder, CEO and chairman of The Home Depot.

What the NLRB – stacked with pro-union appointees – is recommending will quickly eliminate these valuable first-rung jobs and America’s young people will find it even harder to move out of their parents’ basement. In fact, the ruling will fundamentally change this nation. Hundreds of thousands of contracts between companies are likely now meaningless. Millions of jobs are at risk; hundreds of thousands of small businesses could close.

That’s why Sen. Lamar Alexander (R-TN) recently introduced The NLRB Reform Act. The bill would ensure the board is comprised of three Republicans and three Democrats to put an end to purely political decisions. And if the Republicans gain the Senate majority in November, GOP leader Sen. Mitch McConnell (R-Kentucky) promised the bill will be a top priority.

Either in Congress or in the courts, the NLRB ruling won’t survive. But this isn’t the first major challenge small businesses have faced from labor unions and the federal agency they control, and it won’t be the last. And that’s all the more reason for America’s small business leaders to strongly support efforts for reform.