Business leaders also said the report shows that the revenue produced by increased Unfair Labor Practice (ULP) fines would be vastly offset by the reduced economic activity it causes.

Washington, D.C. – A new study conducted by George Washington University Adjunct Professor of Economics Diana Furchtgott-Roth found that the provisions in the U.S. House budget reconciliation bill creating new penalties under federal labor laws could put thousands of U.S. employers out of business and result in a $33 billion revenue loss in the franchise industry alone and a significant reduction in the federal government’s tax base due to companies moving operations off shore. The labor provisions, which are politically driven and constitute fundamental change to 85-year old statutory framework of the National Labor Relations Act, were tucked into the massive reconciliation bill as organized labor’s number one legislative priority, the Protecting Right to Organize (PRO) Act, stalled.

Key findings of the study:

• Imposing new civil penalties of $50,000 to $100,000 would not gain $39 million over 10 years but would lose revenue, because some employers would move offshore, and others would become less productive and/or hire fewer workers, resulting in a loss of Federal, State, and Social Security tax revenue from the erosion of the tax base and from lower corporate profits and income levels.
• The average franchise would lose up to $142,000 in profits if the employees of a franchisee were required to be employed by a unionized franchisor, affecting 233,000 small business franchise owners across the country.
• Corporate tax losses for franchised businesses would range from $360 million to $2.1 billion annually.
• Federal, State, and Social Security losses in tax revenue for franchised businesses would range from $2 billion to $6 billion.
• This reduced economic activity and commensurate decline in tax revenues would surpass the $39 million CBO estimate over 10 years of revenue generated from increased civil penalties for ULPs.
• The provision would disproportionately disadvantage small businesses, who may make more unintentional errors because they do not have the human resources departments or the legal expertise of larger corporations – putting tens of thousands of small businesses at risk.

Kristen Swearingen, Chair of the Coalition for a Democratic Workplace (CDW), composed of more than 600 major business organizations, said the report illustrates how the proposed increase in fines would hinder the nation’s economic recovery and potentially put thousands of small businesses out of business, especially with unions now in control of the National Labor Relations Board.

“This report shows that the poorly-vetted and radical changes to labor laws come with a big cost and would cripple small businesses, shrink the U.S. tax base and derail our country’s fragile economic recovery. With former union employees now controlling the NLRB and deciding who gets fined, we could see a massive wave of businesses closing or moving their operations and jobs overseas,” stated Swearingen.

Swearingen said the fines would cause significant economic impact on the franchising industry alone.

“An average franchise owner profits $433,000 annually, so a few of these fines would wipe them out. These fines also disincentivize entrepreneurs from starting a franchise in the first place. Bottomline, these fines are expected to wipe out up to $33 billion in revenue for franchisers and put the 233,000 small business franchise owners at risk of shutting down for good, negating any benefit of the increased fines.”

Swearingen went on to say that these fines will cause further economic damage and hurt workers by forcing companies to move operations and jobs offshore.

“In the end, it will be American workers and consumers that will pay the price for these increased and unnecessary fines,” said Swearingen. “Manufacturing and service companies, which often use union labor, will be forced to consider moving their operations outside of the U.S. to avoid these fines and drastic changes to established labor law. The ones that do stay may choose to operate in a diminished capacity in order to avoid the fines for small and technical infractions. These fines will result in untold economic damage from reduced economic activity from businesses across the U.S.”

 

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About The Coalition for a Democratic Workplace

CDW is a broad-based coalition of hundreds of organizations representing hundreds of thousands of employers and millions of employees in various industries across the country concerned with a long-standing effort by some in the labor movement to make radical changes to the National Labor Relations Act without regard to the severely negative impact they would have on employees, employers, and the economy. CDW was originally formed in 2005 in opposition to the so-called Employee Free Choice Act (EFCA) – a bill similar to the PRO Act – that would have stripped employees of the right to secret ballots in union representation elections and allowed arbitrators to set contract terms regardless of the consequence to workers or businesses.

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