Biden's veto bodes ill for the US economy and job market

What does Biden have to gain from all of this? Union votes.

The Biden administration's National Labor Relations Board recently adopted a new and ideologically charged standard on joint employment. This new joint-employer rule, which threatens to create uncertainty and multiple new burdens for employers who contract out part of their work, is currently mired in litigation.

Congress, on a bipartisan basis, recently attempted to settle the issue by passing a resolution under the Congressional Review Act that would have just scrapped the new rule. Unfortunately, President Biden just vetoed their effort last week.

Biden's veto represents a significant policy shift that will adversely affect the business landscape, particularly in a time when economic stability is paramount. This veto not only rejects clear bipartisan legislative action but also imposes additional burdens on businesses already navigating a challenging economic environment.

The NLRB’s revised joint employer standard notably lowers the threshold for determining when two businesses are considered joint employers. Under the previous administration, the standard required that a company must have “direct and immediate” control over the terms and conditions of employment to be considered a joint employer.

The new rule broadens this definition, allowing a business to be deemed a joint employer even if it has only indirect influence over the employment conditions of another company's workers. The old standard provided clarity and stability for businesses engaging with contractors and franchisees, but the new standard seems to create ambiguity on purpose.

What does Biden have to gain from all of this? Union votes. But how many votes will he lose if this new rule dampens the economic recovery in an election year?

The bipartisan resolution under the CRA aimed to maintain the previous, stricter standard. The support for it from both sides of the aisle underscored a shared understanding of the importance of a stable and predictable legal environment for businesses. However, with Biden's veto, the resolution was blocked, paving the way for the implementation of the NLRB’s very clearly anti-business criteria.

The veto will have significant implications. First, the new joint employer standard will certainly lead to increased litigation, as the boundaries of "indirect" and "potential" control are tested in courts. The resulting legal uncertainty will burden businesses with additional costs and discourage the formation of beneficial business relationships, particularly in sectors like franchising and contracting, where such relationships are common.

As the U.S. Chamber of Commerce has pointed out, this rule change could "result in decreased business formation and growth, and create significant costs for both large and small companies."

Moreover, in an economy still recovering from the COVID-19 pandemic, the timing of such a regulatory shift seems particularly counterproductive. Businesses are currently facing a myriad of challenges, from supply-chain disruptions to inflationary pressures. The added uncertainty and potential liability under the new joint employer standard could hinder recovery efforts.

During economic recoveries, it is crucial for policies to foster an environment of growth and stability, not increase the regulatory burdens on businesses that are the backbone of the economy.

The broader implications for labor relations cannot be overlooked either. While supporters of the new standard argue that it will ensure more businesses are accountable for labor violations and provide greater bargaining power to workers, this perspective does not consider the negative effects it will have on the labor market. Increased liabilities could lead employers to tighten control over their business practices, potentially leading to fewer job opportunities and less flexibility in employment arrangements.

The veto also speaks to a larger trend of regulatory changes being pushed through without sufficient legislative backing. This rule undermines the role of Congress and the legislative process in shaping labor and employment law. When such significant changes are made through regulatory agencies rather than through legislation, it bypasses elected representatives and the constituents they serve, weakening the democratic process and potentially leading to a governance model that relies too heavily on executive action and regulatory interpretation.

In conclusion, Biden’s decision to veto the bipartisan CRA resolution is a mistake — a missed opportunity to reinforce a bipartisan approach to labor and employment issues. It imposes a regulatory framework that will doubtlessly have deleterious effects on the economic landscape, increasing costs and legal risks for businesses, and potentially stifling economic recovery and growth.

This veto not only affects businesses, but also sets a precedent for future regulatory actions that might prioritize expediency and partisanship over consensus, further polarizing our political and economic environment.

As we move forward, it is crucial for policymakers to consider the broader economic effects of such regulatory changes and strive for solutions that foster business stability and growth, particularly in uncertain times. Engaging with all stakeholders to find a balanced approach should be the priority rather than unilateral decisions that will have far-reaching consequences for both businesses and workers alike.

John-Paul S. Deol is a partner and head of the employment law practice at Dhillon Law Group.