Kelly Sloan, The Business Times

Business groups oppose a labor ruling they warn could have far-reaching implications, particularly for franchise operations and subcontractors.

“This is a horrendous decision that will kill franchise businesses,” said Tony Gagliardi, Colorado director for the National Federation of Independent Business.

Diane Schwenke, president and chief executive officer of the Grand Junction Area Chamber of Commerce, also decried the ruling for its potential for creating unintended consequences, including what could be higher prices to purchase franchises. “Overall, it is a bad deal for small business owners who aspire to own a franchise.”

In 3-2 vote along party lines, the National Labor Relations Board ruled on Aug. 27 that corporate parent companies could be considered joint employers under some circumstances.

The case involved the waste management company Browning-Ferris Industries and Leadpoint Business Services, a staffing company that supplied workers to Browning-Ferris for a recycling facility. In ruling that Browning-Ferris is a joint employer with Leadpoint Business Services, the board said it would consider such factors as whether a company exercises indirect control over employees through an intermediary or reserved authority. The ruling was a result of a challenge by labor unions insisting Browning-Ferris was a joint employer of the contract workers.

Prior to the ruling, companies were only deemed to be a joint employer if they exerted direct and immediate control over employees and their working conditions and were directly involved in day-to-day decisions involving such employment matters as hiring, firing and work hours.

The ruling is expected to face legal challenges by various business groups as well as prompt legislative action on a state level.

While franchises weren’t mentioned in the written ruling, the two dissenting members of the NLRB cited franchise operations among the business relationships that could be affected.

Gagliardi agreed. “If a corporation has to accept joint responsibility with the franchise owner for that owner’s employees, what corporation will want to franchise? They will just directly hire their own employees instead,” he said. “Down the road this will be very detrimental and will change the entire employment model in the U.S. The employment process will never be the same.”

The ruling also has implications for union activity.

Under the franchise model, an employee is hired and managed directly by the franchise owner, who makes decisions regarding hiring, wages and employment policies. Since employees weren’t hired by the parent corporation, a union could only bargain with the franchise owner.

Gagliardi said the ruling could have wide-ranging consequences. “Say you own an office building and hire a cleaning company to come clean it, and an employee of the cleaning company files a discrimination claim against the cleaning company after being fired. Now the building owner is jointly responsible in that claim.”

Even as the ruling discourages companies from franchising, companies similarly could become reluctant to hire contractors, he said. “Business owners would much rather accept responsibility for their own employees than for someone else’s. This will put a lot of small contracting businesses out of work.”

Schwenke said the ruling creates unintended consequences. “A parent company could be named in any employee actions, leading to additional legal fees and possible settlement fees unrelated to the actions of the parent company.”

Schwenke also foresees other financial effects for individual franchise owners, particularly in rural areas. “The parent company may also be seen as the deep pocket for lawsuits. In order to cover those risks, I could see franchises going up in price and therefore being unaffordable for prospective small business owners, leading to less accessibility to such franchises, particularly in less urban areas such as ours.”

Some see the NLRB ruling as the latest effort of the Obama administration to restrict the use of contract labor that in turn allows companies to avoid paying taxes, benefits and other expenses normally associated with direct employees and limit the rights of workers to unionize.

But Gagliardi said the ruling confuses the employer-employee relationship and in turn makes it harder on small business owners. “What this administration did was provide full employment for lawyers instead of empowering people to move up the ladder and be the best they can be.”