September 28, 2015
Protecting Arkansas' Small Businesses
By: Senators Tom Cotton and John Boozman
As many Arkansans know, the franchise model has been one of the greatest examples of economic success in history. The benefits of franchises are widespread and shared by investors, business owners, employees and nearly every American.
There are more than 770,000 franchises nationwide employing about 8.5 million people, almost three times the population of Arkansas. Our state has nearly 10,000 franchises that provide jobs to approximately 100,000 Arkansans. Franchises span almost every industry, including fast food, barbershops, automobile dealerships and even health care firms.
This business model works because it offers entrepreneurs the chance to use an established, well-known brand while keeping control of operational decisions. Franchise owners — not corporate headquarters — know their local area best, and they hire employees and set wages, hours and working conditions. Franchisees are responsible for the success or failure of the business. They file their own taxes and are accountable for following all local, state and federal laws.
For decades this model has relied on a joint employer standard that is fair and reflects reality. This standard, set by the National Labor Relations Board, deems businesses as joint employers only when they share direct and immediate control over essential terms and conditions of employment. For instance, if a McDonald’s employee at a Little Rock branch had an issue with pay or working conditions, that employee could address the issue with his or her manager, not the corporate headquarters in Illinois more than 600 miles away that has no control over any employment decision at the Arkansas location.
But a recent decision by the NLRB puts this entire model at risk. In its 3-2 Browning-Ferris ruling, the NLRB decided that the joint employer definition includes liability for businesses that don’t exercise any control over the terms and conditions of employment.
In the example above, if a Little Rock employee had an issue with his working conditions, that employee could now bring a lawsuit against the McDonald’s headquarters — even if the headquarters had nothing to do with the challenge facing the employee. Shake’s Frozen Custard, based in Fayetteville, would potentially be liable if the owner of one of its franchise stores in Florida was found guilty of violating labor laws.
This will lead to one of two outcomes, both disastrous for Arkansas businesses.
First, corporate headquarters may start taking control over personnel decisions made at local franchises. This means the McDonald’s headquarters in Illinois will tell Arkansas managers who they can hire or fire.
Alternately, corporate headquarters may decide to end their entire franchising model entirely. No business wants to be liable for decisions that are out of its control.
Unfortunately, this decision is just another example of harmful changes to longstanding labor policies instituted by the Obama administration. Over the last six years, the NLRB has restricted the ability of employers to give workers adequate time and information about union elections, while the Department of Labor has attempted to limit the ability of financial advisers to assist families with investment and retirement decisions. And now, the NLRB threatens to undermine one of the most important small-business models in the country.
That’s why we’re working to stop this ruling and protect Arkansas franchisors.
The Senate Committee on Appropriations included a provision to restrict NLRB regulatory overreach by prohibiting any funding for enforcement of this rule.
Additionally, we are proud sponsors of the Protecting Local Business Opportunity Act, legislation that would overturn this ruling. We will work closely with our colleagues on both sides of the aisle to pass this legislation and will continue to seek ways to prevent the Obama administration from destroying Arkansas businesses.
Rest assured, we’re committed to stopping the worst excesses of the Obama administration. Returning to the original standard of joint employment, which has maintained decades of precedence, is essential for business owners, employees and any Arkansan who enjoys the convenience of local franchises.