The PRO Act: Special-Interest Politics Aiming to Destroy Small Businesses and Economic Freedom

By SBE Council at 2 August, 2021, 9:44 am

by Raymond J. Keating –

Labor unions in the U.S. offer a fascinating case study of special interest politics. And it comes to the forefront with the Protecting the Right to Organize Act, or PRO Act, passing the U.S. House of Representatives and being pushed by President Biden.

The Decline of Union Membership

Labor union membership has been on a long decline. For example, labor union membership peaked at about 30 percent of U.S. workers in the mid-1950s. That fell to 20.1 percent by 1983, and continued its long descent to 10.3 percent in 2019, while inching up to 10.8 percent in 2020, with the 2020 data obviously affected by the enormous job losses related to the pandemic.

Meanwhile, in the private sector, union membership declined from 24.2 percent in 1973 to a mere 6.2 percent in 2019, while inching up slightly to 6.3 percent in 2020.

Yet, while union membership has become nearly inconsequential in the private sector, the political influence of labor unions certainly has not waned, and perhaps has even strengthened in recent times. Labor unions provide significant resources to political campaigns – such as an estimated $259 million during the 2020 election, with 88 percent going to Democrats, according to OpenSecrets.org.

It is not surprising, therefore, that the political positions of labor unions and the Democrats align. That becomes glaringly obvious with the PRO Act, which amounts to a public policy wish list for labor unions. At the same time, the PRO Act ranks as an aggressive attack on small businesses and the economy through forced union membership.

The PRO Act’s Eight Anti-Small Business Points

Just consider the following eight points, for example, which are not, by any means, comprehensive in terms of the PRO Act’s impact.

First, the work of independent contractors would be placed in serious peril as the PRO Act includes a more severe version of California’s independent contractor test.

Labor unions don’t like the fact that independent contractors cannot unionize, so they wish to make it far more difficult to be classified as an independent contractor. Therefore, the ability to be classified as independent contractor under the PRO Act would be greatly narrowed or restricted. That, in turn would mean limiting independent entrepreneurs’ abilities to participate in the gig economy, for people wishing to launching a business through self-employment, and making it far more difficult for small businesses to hire independent contractors and therefore to compete with larger firms.

Second, the franchise business model would be undermined by imposing a “joint employer” standard.

That is, franchisors could be held responsible for employee decisions made by separate legal entities, that is, by franchisees, such as relating to hiring, firing and discipline. The potential to end the independence of local franchisees, and in fact, to limit or terminate the franchise business model in general, are quite clear. Franchising, or course, is an avenue for business ownership and entrepreneurship for thousands of individuals across our economy. In fact, there are some 785,000 franchise establishments in the U.S., according to Statista.com, and their businesses would be placed at risk with the PRO Act.

Third, the PRO Act would overrule state laws, including parts of various state constitutions, by abolishing “Right to Work” laws that prevail in 27 states.

This would open a revenue stream for labor unions by forcing non-members to hand over union dues and fees as a condition of employment. Given that labor unions raise costs, and restrict dynamism and flexibility in the workplace, while also limiting options for workers, it should surprise no one that right-to-work states tend to fare better economically than non-right-to-work states. For example, a NERA Economic Consulting study found that economic, income, business and private-sector job growth were faster in right-to-work states. Unfortunately, such matters apparently are of little concern to labor unions.

Fourth, this legislation would allow for secondary boycotts, whereby labor unions would be free to, for example, boycott and/or picket small businesses that have nothing to do with the union other than doing business with a firm involved in a labor issue.

These are simply efforts by labor unions to coerce third-party businesses – again, very much including small businesses – that have nothing to do with the labor dispute. The potential for disrupting and undermining other businesses, their workers, and the larger economy is clear.

Fifth, much to the pleasure of labor unions, the PRO Act would effectively silence employers when it comes to expressing their views on labor union issues to their employees.

Staff meetings would be prohibited whereby employers express their views on union issues, even as such meetings are being held on company time with employees being paid. Therefore, claims made by labor unions would go unanswered.

Sixth, intermittent strikes – where unions plan to strike, go back to work, strike again, and so on, that is, engage in a series of short-term walkouts – are not protected by law. While allowed, employers have the right to discipline such activity. The PRO Act would protect intermittent strikes, and therefore, create opportunities to disrupt business operations for the targeted business, as well as other businesses, including small businesses, that do business with the targeted firm.

Similarly, the PRO Act would disallow the ability of employers to replace workers who are engaged in an economic strike, such as over wages and benefits, as opposed to striking over unfair labor practices. Again, the opportunity to disrupt business operations for the targeted firm and related businesses would be clear.

Seventh, businesses targeted by labor unions would face additional costs with the PRO Act’s imposition of reporting requirements related to getting advice from a labor consultant, even when that consultant has no interactions with employees.

This mandate exists to limit advice being given to businesses being targeted by labor unions. This is particularly troublesome for small businesses seeking legal advice regarding on labor issues.

Eighth, the PRO Act would force employers to hand over employee information, such as addresses, email addresses, and cell phone numbers, for no other reason than to make it more convenient for labor unions to organize, with consequences including labor unions being better able to strong arm workers into supporting the union.

Indeed, the list goes on. In the end, whenever government seeks to impose increased regulations, no matter the claims, those costs always fall heaviest of smaller businesses.

Keep in mind that the U.S. is a small business economy. According to the latest Census Bureau data, there are more than 32 million businesses in America, and 98 percent have fewer than 20 employees. Meanwhile, there are only a little over 20,000 that have 500 or more employees. If you’re going to empower labor unions via unreasonable and costly legislation like the PRO Act, directly or indirectly, small and mid-size businesses will bear the brunt of the costs.

So, the PRO Act not only serves as a case study in special interest politics, but also an example of how government regulation, whether intended or not, undermines entrepreneurship and small business, which in turn, of course, takes a real toll on economic, income and employment growth.

It seems President Biden and the Democrat congressional leadership are all-in on getting the PRO Act passed. It’s up to entrepreneurs, the self-employed and small business owners to speak up in order to push back on this real attack on economic freedom and opportunity.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.