The PRO Act’s many cons

House expected to take up a bill that would hurt millions of small businesses and workers

UNITED STATES - JANUARY 23: Storm clouds pass over the dome of the U.S. Capitol building on Tuesday, Jan. 23, 2018. (Photo By Bill Clark/CQ Roll Call)
UNITED STATES - JANUARY 23: Storm clouds pass over the dome of the U.S. Capitol building on Tuesday, Jan. 23, 2018. (Photo By Bill Clark/CQ Roll Call)
Posted December 6, 2019 at 6:00am

OPINION — In a divided Congress, Republicans and Democrats often pass legislation to signal what they’ll pursue if they gain complete control over the levers of federal power. That’s why the Protect the Right to Organize Act demands attention. The Democrat-controlled House is expected to pass the bill in the coming weeks, even though in its present form it would hurt millions of small businesses and workers and upend one of the most important parts of the American economy: the franchise industry.

The PRO Act, as it’s called, is a Frankenstein bill that cobbles together more than 20 dangerous provisions, some new and some rejected numerous times by previous Congresses. The trouble with each of these provisions is they tip the scales against small businesses in solution of a problem that doesn’t exist — employees already have the right to organize small businesses under federal law. One section mandates that companies provide workers’ personal information to unions; another would repeal state right-to-work laws by forcing all employees to pay union dues as a condition of employment. Across the board, the bill rolls back balanced protections for workers and employers while tilting the playing field decisively toward unions.

Yet two provisions are worse than the rest for franchising — an industry that empowers new entrepreneurs to operate under a national brand, letting small businesses and national companies grow faster and contribute more to local communities and the wider economy. In its push to unionize these firms, the PRO Act would all but prevent national brands from partnering with small businesses.

First, the bill would enshrine in federal law the Obama administration’s “joint employer” rule. The National Labor Relations Board ruled in 2015 that franchisors — the national firms — can be held responsible for actions taken by the small businesses that use their brands. This puts franchisors at risk of being sued for things they never did and had no power to stop. Faced with this reality, franchise companies are much less likely to partner with local entrepreneurs, lest they open themselves up to a slew of lawsuits.

The NLRB’s 2015 action led to a 93 percent increase in litigation against franchise businesses, according to my organization’s research. We also found that the rule cost the industry $33.3 billion and prevented the creation of 376,000 new jobs in less than four years. While the NLRB is in the process of rolling the rule back, the PRO Act would make it permanent, resulting in higher losses and lower job creation and small-business formation.

The bill’s second provision is worse. It would institute a so-called ABC test to determine when individuals can be classified as independent contractors. The purpose is to classify more workers as direct employees, thereby making them easier to unionize. Yet the bill’s language is so broad that it would likely define franchisees as employees of the national brand, instead of the owners that they really are. This would eliminate the distinction at the heart of franchising — and the point of the entire industry.

Enterprising individuals want to open franchises in large part because they hope to run their own businesses. They make the decisions that keep the doors open, even though the name on the door isn’t their own. If the law defines them as employees, then fewer people will want to be franchisees.

Those who still do probably won’t have the chance anyway: If the franchise brand technically employs franchise operators, then they may as well stop franchising and simply open their own fully owned stores. Companies are already considering this option in California, which instituted the ABC test in September.

These two provisions — the joint-employer rule and the ABC test — will upend a time-tested industry. Franchising currently accounts for more than 733,000 businesses, employing more than 7.6 million American workers. These are overwhelmingly small businesses run by determined entrepreneurs who saw an opportunity and took it. If this bill passes, those opportunities will dry up and so will the countless jobs that could be created. For these reasons, my organization believes the PRO Act is among the most anti-small-business bills in congressional history.

It’s also in danger of passing. The PRO Act is only a handful of votes short of a majority, if it doesn’t already have one. More than 40 Democrats have signed on to its companion legislation in the Senate. Democratic presidential candidates from Elizabeth Warren and Bernie Sanders to Pete Buttigieg support it as well.

It’s not too late for lawmakers and candidates to realize the consequences and avert course. Millions of workers and companies, and not just franchises, will be harmed if the PRO Act ever becomes law. Regardless of how the House votes now, under no circumstances should it be a preview of policies to come.

Robert Cresanti is the president and CEO of the International Franchise Association.