Is the ‘Joint Employer’ Rule Hurting Small Businesses?

Is the ‘Joint Employer’ Rule Hurting Small Businesses?

Over the past year, the US Department of Labor has been putting pressure on businesses whose relationship with an employee is mediated through another entity, such as a franchise, contractor, or temp agency—and holding them responsible for the compensation and work conditions of these employees. The department contends that an organization in this type of relationship exercises enough control over workers to be considered a “joint employer,” meaning that these employees may be entitled to bargain collectively with that organization, take it to court for labor law violations, or benefit from wage and hour protections afforded to employees of large enterprises but not small ones. Employers and business associations, obviously, disagree. The department’s interpretation is not law—and several states have since passed laws clarifying that franchisers are not joint employers—but its theory is being tested in court.

While the conversation about this new rule has mostly centered on what it means for large organizations, some of the franchisees and other small business owners caught in the middle tell the Wall Street Journal’s Melanie Trottman that they are worried about what it means for their ability to expand:

Franchisees … say they could lose their independence to hire, fire and manage workers as they please. They are also concerned about becoming too independent: Some say their franchisers have scaled back worker training tools and other guidance, fearing regulators would view such involvement as joint-employer-like control. Businesses say they are in a regulatory limbo because the new standard is vague about what constitutes control. The previous test measured the direct control one business had over working conditions of people employed by another business. Now, even indirect control can count.

So far the impact seems to be largely on the franchisees. A home health-care business in Wisconsin is taking on $10,000 in annual recruiting costs because its franchiser stopped providing assistance to steer clear of regulators, and a small hotelier in Florida is abandoning expansion plans in small markets because one of its franchisers scaled back worker training it provides. A printing business owner in Washington state said he canceled plans to open an eighth store because he doesn’t want to risk the investment until it is clear his franchiser wouldn’t be considered a joint-employer.

“I could lose my ability to control my business,” said Chuck Stempler, an owner of the seven printing stores that operate under the AlphaGraphics brand in Washington and California.