Just when it seemed impossible for things to get tougher for small businesses, the federal government decided to make things worse.
Small businesses have had a tough run for the last few years. Record inflation, high interest rates, and workforce shortages have led to widespread pessimism among small businesses. The last thing they need is more government interference, but that is exactly what is happening.
The latest regulation from the National Labor Relations Board is yet another blow for small business owners who run franchised companies. The new rule, which is scheduled to take effect on March 11, prevents franchise owners of your favorite local restaurant, gym, or hotel from simply running their own businesses. Instead, they will be demoted from owners to employees — and minority franchise owners will bear the brunt of the harm.
Under current law, most franchise owners are essentially independent small business owners. While they use the same branding as their corporations, they make their own decisions about who to hire, how to market their business, what materials to stock, how to engage with their communities, and more. Because of the true entrepreneurial spirit that these franchise owners embrace, they gladly accept all the challenges and risks that come with the benefits of owning your own business.
But now this rule would take away all the incentives of entrepreneurship and force these risk-takers into functioning as a very small part of a much larger corporation. Though the National Labor Relations Board claims that this rule will protect individual owners — because the liability will roll up to the large corporation — the reality is that bureaucrats in Washington will now decide who can and cannot be their own boss.
While this approach will hurt most franchise owners, minority communities will be disproportionately harmed. Almost one-third of franchise businesses are minority-owned, compared to 18.8% of non-franchised businesses. With the new rule, two-thirds of franchisees said it would be harder for new entrepreneurs to start a franchise, with women and minorities facing the biggest challenges.
The worst part about this impending regulatory change is that the government already knows that it is a bad idea. It is a concept recycled from the Obama Administration that was done away with under President Trump. When it was first introduced in 2015, franchise owners complained that their family businesses no longer felt like their own, that they had minimal incentive to be creative and entrepreneurial, and that corporate micromanagement became the norm. The data supported this anecdotal evidence. At the time, industry surveys demonstrated that 92% of franchised businesses said they received less support from their brands after the rule went into place. Moreover, it is estimated that it destroyed over 376,000 franchise jobs and cost franchise businesses over $33.3 billion every year that it was in place.
As Americans continue to suffer under “Bidenomics,” this latest rule is simply a massive overreach that turns a free and capitalistic economy on its head and impacts so many hardworking Americans and their families. It is yet another example of the disastrous economic policies that have led to a nearly 20% increase in costs since 2021 — with the result that almost half of the American people believe that they are worse off today than before the pandemic.
Thankfully, legislators in both chambers of Congress have introduced a Congressional Review Act resolution to overturn this destructive regulation. A broad coalition of organizations, including the National Black, Hispanic, and Asian/Pacific Islander Chambers of Commerce, have all lined up in support. If passed, it would restore a prior joint employer standard that allowed small businesses to grow and thrive.
When small businesses thrive, America thrives. Policymakers should listen to entrepreneurs when they tell us that a new policy will create an existential threat to their ability to succeed — especially when they are speaking from previous experience. Instead of rules like this one, policymakers ought to be encouraging entrepreneurship and all its benefits for our workers and our communities.
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