OPINION:
Despite triumphant proclamations from some politicians about the “greatest economic recovery in U.S. history,” there is still much uncertainty for American businesses. Even the nation’s biggest companies are not immune to today’s tumultuous economic climate. One of the most recognizable brand names in the world — McDonald’s — is no exception. The company recently announced the shuttering of a number of field offices and pay cuts for thousands of employees.
All of this comes at a time where the Senate is considering Julie Su to be the next secretary of labor. Instantly, America’s business community reacted negatively to the nomination. In particular, companies that use a franchise model or make use of independent contractors spoke up. The International Franchise Association — of which McDonald’s is a member — issued a statement of opposition, citing Ms. Su’s “track record of policies harmful to franchised businesses and her history of advancing new law rather than enforcing existing law as the role was intended” as reasons for their skepticism.
This fear is warranted. Prior to her time as deputy secretary of labor, Ms. Su was the head of the California Labor and Workforce Development Agency. In that role, she pushed policies designed to overregulate employers and force them to reclassify independent contractors as employees, effectively creating an unbearable burden that ultimately costs jobs.
One of these laws, the Fast Food Accountability Standards Act, holds fast-food parent companies liable for local wage violations and overtime pay. It also established a council partially run by fast-food employees and government officials to oversee decisions made by fast-food employers.
In another instance, Ms. Su championed passage of the disastrous California Assembly Bill 5, now decimating independent journalism and ride hailing in the state by requiring companies to classify workers who would otherwise be contractors as employees instead.
Franchise businesses run on a model where a corporate entity leases out its proprietary information to a franchisee to sell their products under their name. For example, McDonald’s would give its recipes, processes and trade secrets to a Midwestern family who wants to open a McDonald’s franchise. They are not full-time employees of the McDonald’s corporation per se, but are able to expand the business and have a reasonable amount of autonomy and flexibility as they run their store. The corporate side can grow without taking on the typically bloated costs associated with expansion. It’s a win-win.
If bureaucrats like Ms. Su get their way, however, this flexibility will be a thing of the past. There will be new requirements regarding employee pay and overtime. There will be new regulations regarding who qualifies as an employee and what benefits they are entitled to if they do qualify. The benefits of a corporation choosing a franchise model will cease to exist, bringing the whole nation under a one-size-fits-all regulatory model.
This would be disastrous. According to recent estimates, franchise businesses employ 8.4 million people. Last year, a reported 31.9 million more worked at some point as an independent contractor. Ms. Su and her allies in Congress may posit that her preferred policies will adversely affect only super-rich corporations. However, the livelihoods of tens of millions of people hang in the balance.
The flexibility that comes with franchising and independent contracting also benefits future generations of potential members of the workforce. Companies are far less likely to take a chance on someone potentially risky — like a recent college graduate or a rehabilitated former inmate — if the requirements of hiring them for their services is a barrage of costs. They will go with a safer option, or pursue automation — something becoming increasingly prevalent in certain industries.
When AB 5 was passed under Ms. Su’s time in California, it became almost impossible for anyone to qualify as a contractor. Everyone was essentially categorized as an employee instead. This raised hiring costs for businesses, costing them opportunities to hire more people. Naturally, this also deprived many of the opportunity to be hired and to make a living on their own terms.
With Ms. Su as secretary of labor, progressive activists would have a better chance at trying to make this legal framework the law of the land. This would be a disaster. Congress has already tried and failed to pass such a proposal — the PRO Act — in recent years. There is a reason it has not gotten enough traction to become law. Nominating Ms. Su indicates that the Biden administration intends to enact this agenda by executive fiat, rather than engaging in substantive debate on the issue.
The McDonald’s layoffs show that no company is immune to tumultuous economic times. This is especially true for companies with nontraditional business models. For some, that model works wonders. Others opt for a more regular arrangement. It is not incumbent upon unelected bureaucrats to determine which is best. Unfortunately, Julie Su would bring the notion that it is for the government to decide into office with her. That is something the nation just cannot afford.
• Dan Savickas is director of policy at the Taxpayers Protection Alliance.
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