In 2015, under President Barack Obama, the National Labor Relations Board (NLRB) opened the floodgates for lawsuits against businesses by making employers liable for labor violations committed by another company’s employees. The ruling was a gift to trial lawyers because it allowed them to implicate multiple companies, or so-called joint employers, in violations alleged by the same worker.
Let’s say, for example, that a property management firm hires a local company to clean its office buildings. Under the Obama-era rule, an employee of the cleaning company could sue not only his boss for failing to pay him overtime, but the building management firm as well since it had “indirect control” over the workplace conditions. That overly broad standard put millions of businesses at risk of lawsuits for employment practices over which they had no real control. It also threatened to destroy business opportunities for many small companies by making it riskier for larger firms to engage them in countless types of relationships.
The franchise model is an obvious example. Despite that almost all chain businesses are locally-owned and independently run, they have licensing and marketing agreements with larger firms that make them juicy targets for frivolous lawsuits. It’s not just franchises that are threatened, however. Any business that hires subcontractors is also a potential target.
Thankfully, the NLRB last year returned to a more sensible standard. With new members appointed by President Trump, it reversed the 2015 decision and restored the traditional “direct control” definition of employer. Last week, however, the board reversed itself again because one of its members was accused of having a conflict. If you’re confused, imagine how hard it must be for local businesses to keep up with the dizzying changes.
Small businesses need a sensible, predictable standard. The House last year passed the Save Local Business Act, which sought to define employers as companies that have direct control over workers. Unfortunately, the measure hasn’t moved in the Senate. The confusion triggered by the NLRB last week makes that reform urgently necessary.
It’s important in the short term to protect business owners from potentially devastating lawsuits even if they’re not directly liable for labor law violations. In the long run, Congress must create certainty for businesses. Even if the NLRB pirouetted again and restored the common-sense standard, that ruling could be reversed under the next administration. Businesses can’t operate that way. The Senate should immediately pass the Save Local Businesses Act to protect local job creators from predatory lawsuits that are damaging to them, their employees, and the economy.
Heidi Ganahl is founder of Camp Bow Wow, the country’s largest pet care franchise, and a member of Job Creators Network, a non-partisan advocacy group for American entrepreneurs.