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Taking Time To Get Rules Right

Good rule-making – that is, a process that yields good rules – takes time.

Such a process requires not only care and a thorough understanding of the situation by rule-makers, but also the opportunity for public comment and debate. The Obama administration sometimes liked to take shortcuts, such as the Education Department’s infamous “dear colleague” letter to colleges regarding how to handle sexual misconduct allegations and the Labor Department’s “informal guidance” about joint employment.

But taking such shortcuts is a two-way street. While it allows bad rules to see the light of day, it also means such rules are apt to be transient. In 2017, both the Education Department and the Labor Department withdrew their respective mistakes. But in the case of joint employment – situations where more than one entity might share liability for violations of employment law – real rule-making was called for in the wake of the previous administration’s informal guidance. Employers sought assurance that standards would not continue to shift from one administration to the next.

It seems that the Labor Department may now be on the verge of proposing a new formal rule on joint employment. The Wall Street Journal recently reported that the department sent the proposed rule to the White House for review. Assuming the rule secures approval from the Office of Information and Regulatory Affairs, it will likely make its public debut later this year. The new rule will clarify when the Fair Labor Standards Act applies to multiple employers for a single worker; the Fair Labor Standards Act includes provisions such as federal minimum wage and rules on overtime. The details of the proposed rule are not yet public, but most observers expect the department to set a high bar for an employee to make claims against more than one business.

Assuming these expectations are correct, the new rule would bring the Labor Department in line with the National Labor Relations Board, which oversees disputes between businesses and unions. The NLRB, too, issued a badly conceived joint employer ruling under the Obama administration and then reversed its position in late 2017. The agency is now reviewing a new joint-employment rule, which it publicly announced in September. If adopted, the new rule will limit the instances in which a worker could legally claim to have two employers in the same job, effectively returning to a long-standing recognition that joint employers must exercise joint control over essential conditions of employment such as hiring and firing. Such a decision could have major ramifications, especially for organizations and activists hoping to unionize franchise employees across independent locations in order to collectively bargain with larger national companies.

Both the Labor Department and the NLRB have undertaken the time-consuming notice-and-comment process in order to give their proposed rules legal weight that the previous administration’s guidance lacked. Regulations adopted through this formal process have the force of law, unlike notices that simply inform employers as to how agencies plan to enforce existing regulations. While some businesses have expressed frustration at the length of time needed to enact rules this way, the result will be vetted regulations that will be difficult for future administrations to unravel. And assuming they survive future legal challenges, both rules will be stronger still.

There is a real cost to bad regulation and other misguided public policy. Often this cost comes in the form of jobs lost, as well as many more jobs that are directed elsewhere or never created at all. The goal of the prior administration, in both the Labor Department and the NLRB, was to promote unionization as an end in itself. Yet the private sector workers of this country have chosen, overwhelmingly and in increasing numbers, not to seek unionized workplaces or to unionize after they take their jobs. Overall union membership in the U.S. has declined since the mid-1950s; only 6.4 percent of private sector workers had union representation in 2018. While this trend has multiple causes, workers essentially don’t believe the benefits outweigh the costs, either for themselves or for their communities. The law already protects workers’ right to organize if they choose, as well as employers’ rights to try to persuade them that this might be a bad idea.

Appropriate regulation recognizes reality, one element of which is that a franchisor like McDonald’s (a favored target in these matters) is not in any real respect the employer of the people who work in its franchisees’ individual stores. McDonald’s does not even necessarily know who those people are. If you make McDonald’s liable for any mistakes committed by its franchisees, the eventual net result will be fewer franchises. That, in turn, means fewer opportunities for entrepreneurs and the people those entrepreneurs would hire.

Data from the U.S. Census Bureau’s Survey of Business Owners indicates that nearly 40 percent of franchise businesses were owned by racial minorities in 2012, the latest year of available data, while only about 19 percent of nonfranchised businesses had minority ownership. So groups that are less well-established in business, notably racial and ethnic minorities, will likely suffer disproportionately if opportunity is restricted and thus directed mainly toward long-established entities. Luckily, it seems that the Labor Department and the NLRB are willing to take the long way around in order to prevent this outcome.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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