“Joint Employment” and Unions Bad for Small Business: NCPA

The National Labor Relations Board’s expanded interpretation of “joint employment” could severely hurt small businesses and franchises, warns a new report by National Center for Policy Analysis Senior Fellow Pam Villarreal and Research Associate Laura Wiltshire.

“It would be costly for franchise owners to comply with union demands, and some may simply go out of business,” writes Villarreal.

The impetus for the expanded interpretation was to ease unionization of small businesses that are franchisees of corporations, such as restaurant and retail food chains. But unions have generally been found to lower profitability for firms. One such study on U.S. supermarkets found:

  • When controlling for other variables that affect profitability — such as market size, market growth, firm size, expenditures on entry and others — unionized supermarket profits were 76 percent lower than non-union supermarkets.
  • This effect was most pronounced in concentrated markets rather than more competitive markets.

Franchise restaurants could face a similar fate. “The franchise sector generates more than $2 trillion in economic activity and employs 20 million people,” write Villarreal and Wiltshire. “It would be a mistake to hamstring it with the costs and responsibilities of a poorly interpreted and overreaching rule that would provide no economic benefit to such a significant industry.”

Labor Unions and the Joint Employer Rule