No, Congress should act to help franchisers, small businesses
By JOHN KOHLER
It is difficult to understand how our lawmakers expect our state’s economy to flourish when unelected bureaucrats in Washington are changing the rules at the expense of small businesses.
This summer, the National Labor Relations Board, a presidentially-appointed group, made a decision which has left an uncertain future for small business owners like me.
In August, the NLRB ruled that Browning-Ferris Industries, a recycling company that used a staffing agency for some workers, was a joint employer and therefore responsible for employment working conditions of subcontractors. The ruling reversed 50 years of precedent and risks the underlying business model of franchises by holding the relationship between the small-business franchise owners and their corporate parents at the whim of NLRB rulemaking. The question the NLRB raised is the following: Do I run my business, or does my corporate parent run my business?
As a franchise owner, I can assure you I run my business, which is why the Browning-Ferris joint employer rule has sent shockwaves through the far more economically-dynamic community of small-business owners like me who operate using the franchise model. In Illinois alone, there are 36,106 franchise businesses representing 412,000 jobs. However, the ruling has put an enormous strain on this essential business model that represents $890 billion of economic output and has an employment growth rate that is double that of the labor market as a whole.
Now, according to an independent report by FRANdata, 40,000 franchise businesses, affecting more than 75,000 locations, are at risk of failure due to the new joint employer rule. Future franchise development is jeopardized as brands are forced to expand using a corporate ownership model, or not expand at all.
The chairman of the NLRB has said he believes another case will be needed to address the franchise issue directly to create clarity. A pending case against McDonald’s and its franchisees may take years to resolve. In the meantime, Illinoisans who have taken the risk to own their own businesses face diminishing control over their establishments and a potential lack of corporate support to run them. Other entrepreneurs interested in opening franchises will be discouraged to do so. The equity value of franchise businesses is expected to drop by a third to a half, making it harder for us to receive financing and in some instances forcing us to close.
Congress had the ability to simply put a temporary delay on implementation of the joint employer rule through the recently passed appropriations bill. Unfortunately, Senator Dick Durbin, D-Ill., the second-ranking Senate Democrat, with the backing of the White House, rejected a bipartisan solution in the appropriations bill to press pause on this damaging regulation.
Our unemployment rate, currently at almost 6 percent, remains above state and national levels. Our percentage of population on food stamps, 15.6 percent, is still the highest in the Midwest. Our rate of entrepreneurship has been below the national average since 1996. But there is still a beacon of hope. According to numbers from the Small Business Administration, one of the few things aiding our economy is small business. As of 2014, small businesses made up 98.2 percent of all employers in the state and employed more than 2 million people. We, the small business owners, are the entrepreneurs and job creators of this state.
Fortunately, Congress can help us in the next year. The Protecting Local Business Opportunity Act, bipartisan legislation introduced in the House and Senate, would reverse the joint employer rule and restore the 50 years of precedent and provide us a clearer future. It would give us a chance to continue to grow the small business economy that has been compromised by unelected regulators. As our economy, particularly in Illinois struggles, we must hold elected leaders accountable. If President Obama can restore the hope he campaigned on and Sen. Durbin can work across the aisle, we can create a clearer future for small-business owners and get our economy back to work.
John Kohler is the owner of Sport Clips locations in Illinois. He wrote this piece for the Illinois Business Journal through his relationship with the International Franchise Association.