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A congressional subcommittee examined the merits and impact of the potential for franchisees and franchisors to be jointly responsible in cases alleging National Labor Relations Act violations.
In late July, National Labor Relations Board (NLRB) General Counsel Richard Griffin announced that his office intends to issue a complaint against a parent franchisor in cases before the NLRB involving alleged unfair labor practices committed by franchisees. In light of that announcement, the U.S. House Health, Employment, Labor, and Pensions Subcommittee held a hearing on Tuesday, Sept. 9 to discuss its impact. Unsurprisingly, members of the subcommittee differed on whether or not the General Counsel's action will have a major impact on franchise operations.
Subcommittee Chair Rep. Phil Roe (R-TN) expressed concern that the NLRB is considering changes to a long-established precedent. "Since 1984, the NLRB has applied a straight-forward test to determine whether two separate entities are joint employers of a business establishment," Roe said. "In recent months, it's become clear the Obama National Labor Relations Board is determined to rewrite a franchise model that has served workers, employers, and consumers well for decades."
But subcommittee Democrats such as Rep. Mark Pocan (D-WI), a former small business owner, defended the NLRB and said its review of the joint-employer standard is timely because of the shift toward increased employer use of temporary workers and independent contractors. "More and more," Rep. Pocan said, "businesses are relying on temporary and contingent workers, franchisees, and other non-traditional forms of employment to limit their labor costs and exposure to liability."
A franchisee and franchisor each testified and provided the subcommittee with their concerns about the NLRB's announcement. Jagruti Panwala, a hotel operator testifying on behalf of the Asian American Hotel Owners Association, said "any decision imputing liability for franchisees' employment decisions onto the franchisor, may cause franchisors to impose control over the daily operations of each business in an effort to mitigate against any claims. Essentially, I would no longer be in business for myself."
During questioning, Catherine Monson, Chief Executive Officer of FASTSIGNS® International, explained that if the NLRB decides to expand franchisor liability, then franchisor executives like her will "need to make a decision whether I go for more control over franchisees to protect myself, or whether I scale back my control, in which case my brand may be hurt. If I can't preserve high-quality customer service, my brand may deteriorate over time."
Some members were troubled that the federal government was second-guessing the contractual arrangements of franchisors and franchisees. "This is an operation that is $18 trillion in the red trying to tell people how to run their businesses," said Rep. Mike Kelly (R-PA).
But one witness disagreed that the NLRB was considering a major change to precedent. Harris Freeman, Professor of Law at Western New England University, said the rule being discussed by the NLRB would not apply to every franchise in every industry, but would rather be applied in a "fact specific" manner.
Freeman agreed with Rep. Pocan that parent franchisors are evading responsibility for labor and wage and hour issues. "Right now," Freeman said, "the [joint employer] standard has been interpreted in such a ridiculously narrow way that the only way the user employer is liable is if they are the one telling the employee to 'turn the screw.'"
Finally, the decline in labor organization membership was suggested as a motivating factor for the NLRB's action. Rep. Tom Price (R-GA) stated that "For years, franchisees have had a certain amount of regulatory certainty. But this joint employer ruling could throw all that to the wind." He then asked Ms. Monson why she believed the NLRB appeared to be moving forward with the change to the joint employer standard, to which Ms. Monson replied, "I believe this is an attempt to help build union membership."
A complete list of panelists and links to their testimony can be found here.