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The NLRB’s Labor Market Mischief
Under last week’s decision by the Democratic majority on the National Labor Relations Board, we are about to see a dramatic shift in what constitutes an “employer.” Before this ruling, that term covered firms that hire their own workers, and the NLRB subjected those firms to the collective bargaining obligations under the National Labor Relations Act. Under its new definition, the majority expanded that term to cover any firm that outsources the hiring and management of employees to a second firm over which it retains some oversight function. In its decision, the NLRB refers to such firms and those to whom they outsource the hiring as “joint employers.” No longer, the majority says, must the employer’s control be exercised “directly and immediately.” Now “control exercised indirectly—such as through an intermediary—may establish joint-employer status.” As I note in my new column for Defining Ideas:
…[T]he new joint employer rules will likely batter today’s already grim labor market, as they will not only disrupt the traditional workplace but will completely wreck the well established franchise model for restaurants and hotels. As the majority conceded, the so-called joint employer does not even know so much as the social security number of its ostensible employees. It has no direct control over the way in which the current employer treats its workers, and yet could be hauled into court for its alleged unfair labor practices. That second firm knows little or nothing about the conditions on the ground in the many businesses with which it has forged these alliances, which eases the operations for both. Those advantages will be lost if the joint employer rule holds up in court. At the very least, the majority’s decision would require each and every one of these contracts and business relationships to be reworked to handle the huge new burden that will come as a matter of course, leaving everyone but the union worse off than before.
It would be one thing, perhaps, if the majority saw the light at the end of the tunnel. But over and over again it disclaims any grand pronouncements, making the legal question of who counts as an employer a work in progress that will be finished no time soon. Against this background it is irresponsible to undo the current relationships by a party-line vote. That point should also be clear to the courts and to Congress. The quicker this unfortunate decision is scrubbed from the law books, the better.
You can read the argument in full here.
Published in Economics, Law
We on the Right like to deride Obama as an incompetent clown but in reality he has been quite successful in his stated goal of fundamentally transforming America into a socialist utopia – utopia meaning a land of absolute government power and a populace hooked on freebies.
This ruling by the NRLB is just another blow to the once thriving American economy. Obama wants us to be just another nation and believes we have to be taken down a peg or three; both militarily and economically.
He has released his Progressive minions on our nation and they are gleefully tearing it down, piece by piece. But, as Jay Nordlinger is fond of saying, it’s what the American people voted for – twice!
Thanks for sharing this decision. I’ve passed it on to my management. We recently implemented a third party to handle independent contractors and other staff aug type employees so we could remove ourselves as the employer of record. Now it’s apparent that the NLRB will try their best to undermine this type of association. Managed services is a big industry at the moment and this could totally flip everything upside down.
It’s not a far stretch for this to encompass building contractors and subcontractors, in short, any business that hires services of any kind.
I expect this will be used to squeeze out non union plumbers, electricians and other skilled trades and force them under collective bargaining.
This change also has another possible implication:
Insurance.
A number of companies have been going the “1099” route: treat various workers as “independent contractors” when they’re nothing of the sort (banquet workers at hotels, for example). The workers file their taxes as self-employed, and the company doesn’t have to worry about the hassles of Obamacare. The IRS has announced they’re going after businesses that do this.
Similarly, a handful of companies have been hiring smaller companies that have less than 50 employees, and who only supply labor, often only to the one big company.
This will, obviously, be on the IRS radar too.
Wouldn’t this wreak havoc on prime and sub contractor relations as well?
It is similar to the EPA getting authority on any amount of collected water. They can then choose their targets according to the wishes of their donors.
IRS, EPA, NLRB, BLM are just extensions of the DNC and their donor class.
The only cure is prosecution and hard time for perpetrators. I am waiting for Obamas end of office amnesty and pardon grants, it may number into the millions of people.
While “everyone but the union [will be] worse off then before,” most of the suffering will be borne by small businesses and those they employ. Outsource of niche specialties and services such as janitorial, engineering, legal services, etc., will be brought back in house, at great loss of efficiency (compared to the current model, but more efficient than using subcontractors under the new model) and thus higher costs. This adds up to more friction in the gears of commerce to hamper growth and further erode American competitiveness.
The Japanese use a system of Red Hat, Yellow Hat. The Yellow Hats are contract, temporary workers who report to a third-party and often work inside the main plant, not just in satellite facilities, performing preparation, component assembly, maintenance and in some cases final assembly. They pay the Yellow Hats about 1/3rd to 1/2 less. The jobs are typically easy to master in 1 or 2 weeks. This gives companies like Toyoda, Honda and Sony great flexibility (downsizing if demand fluctuates) and much lower costs. While many manufacturing functions have been moved to SE Asia, the Japanese can retain essential operations in Japan. This gives them a strong base from home to retain manufacturing know-how skills and experience.
If they lost Red Hat, Yellow Hat, they would move about half their remaining factories overseas.
This decision will slow or bring to a halt the inbound trend of manufacturing back to the U.S. Donald Trump rants about Ford’s new $2.5 billion plant in Mexico, but with this ruling you can expect more. Go to Mexico and avoid the NLRB.
I’m a contractor that works for a power company – but put the image of a guy in a hard-hat out of your head. I work in an office as a Business Analyst, have an MBA, and I’m now wondering how about half the company’s workforce, being contractors, would be affected by this ruling.
The contractors are very well paid, and most of the agencies that we are paid directly from provide health insurance (premiums are higher at 50% of the total but not unreasonable), dental insurance, life insurance, etc. The pay rate is so high that even these additional costs borne by the employee are negligible.
This ruling gets in the way of that, I think, but I won’t pretend to understand it very well even with Prof. Epstein’s layman-friendly explanation.
But I do understand that politics is meddling with markets again, and it doesn’t take a guy with a camera shooting pics of empty warehouses in Venezuela to understand how perfectly awful and self-interested these actions are.
Shameless, self-interested politics. That’s just lovely. We raise the best and brightest kids to be selfish jerks, and then elect some of them to public office. Twice.
This is the same National Labor Relations Board that tried to stop Boeing from opening a factory in South Carolina a couple years ago. Boeing sells airplanes all around the world and could have built their new factory in any number of countries. The administration should have sent flowers and a Thank You card to Boeing for building a new factory anywhere in the US. But instead they sought to punish them for building the factory in a right-to-work state. It’s like the organization is run by communists whose goal is to ruin the American economy by any means necessary.
Bingo!
In related news,
Uber now faces class action lawsuit in California over expenses, tips
These tech guys think they are above all this. But no one is immune. At least Silicon Valley will deserve whats coming to them.