[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXPANDING JOINT EMPLOYER STATUS:
WHAT DOES IT MEAN FOR WORKERS
AND JOB CREATORS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR, AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, September 9, 2014
__________
Serial No. 113-65
__________
Printed for the use of the Committee on Education and the Workforce
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Thomas E. Petri, Wisconsin George Miller, California,
Howard P. ``Buck'' McKeon, Senior Democratic Member
California Robert C. ``Bobby'' Scott,
Joe Wilson, South Carolina Virginia
Virginia Foxx, North Carolina Ruben Hinojosa, Texas
Tom Price, Georgia Carolyn McCarthy, New York
Kenny Marchant, Texas John F. Tierney, Massachusetts
Duncan Hunter, California Rush Holt, New Jersey
David P. Roe, Tennessee Susan A. Davis, California
Glenn Thompson, Pennsylvania Raul M. Grijalva, Arizona
Tim Walberg, Michigan Timothy H. Bishop, New York
Matt Salmon, Arizona David Loebsack, Iowa
Brett Guthrie, Kentucky Joe Courtney, Connecticut
Scott DesJarlais, Tennessee Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Larry Bucshon, Indiana Gregorio Kilili Camacho Sablan,
Lou Barletta, Pennsylvania Northern Mariana Islands
Joseph J. Heck, Nevada Frederica S. Wilson, Florida
Mike Kelly, Pennsylvania Suzanne Bonamici, Oregon
Susan W. Brooks, Indiana Mark Pocan, Wisconsin
Richard Hudson, North Carolina Mark Takano, California
Luke Messer, Indiana
Bradley Byrne, Alabama
Juliane Sullivan, Staff Director
Megan O'Reilly, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina John F. Tierney, Massachusetts,
Tom Price, Georgia Ranking Member
Kenny Marchant, Texas Rush Holt, New Jersey
Matt Salmon, Arizona Mark Pocan, Wisconsin
Brett Guthrie, Kentucky Robert C. ``Bobby'' Scott,
Scott DesJarlais, Tennessee Virginia
Larry Bucshon, Indiana Ruben Hinojosa, Texas
Lou Barletta, Pennsylvania David Loebsack, Iowa
Joseph J. Heck, Nevada Joe Courtney, Connecticut
Mike Kelly, Pennsylvania Jared Polis, Colorado
Susan W. Brooks, Indiana Gregorio Kilili Camacho Sablan,
Luke Messer, Indiana Northern Mariana Islands
Bradley Byrne, Alabama Frederica S. Wilson, Florida
Suzanne Bonamici, Oregon
(II)
C O N T E N T S
----------
Page
Hearing held on September 9, 2014................................ 1
Statement of Members:
Roe, Hon. David P., Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 3
Pocan, Hon. Mark, a Representative in Congress from the State
of Wisconsin............................................... 4
Prepared statement of.................................... 6
Statement of Witnesses:
Monson, Catherine, Chief Executive Officer, Fastsigns
International, Inc., Carrollton, TX........................ 8
Prepared statement of.................................... 11
Ehlers, Clint, Owner, Fastsigns of Lancaster and Willow
Grove, Lancaster and Willow Grove, PA...................... 16
Prepared statement of.................................... 18
Panwala, Jagruti, Owner, Multiple Hotel Franchises, Bensalem,
PA......................................................... 24
Prepared statement of.................................... 26
Freeman, Harris, Professor of Legal Research and Writing,
Western New England University School of Law, Springfield,
MA......................................................... 30
Prepared statement of.................................... 33
Duffield, Todd, Shareholder, Ogletree, Deakins, Nash, Smoak
and Stewart, P.C., Atlanta, GA............................. 40
Prepared statement of.................................... 42
Additional Submissions:
Chairman Roe:
American Hotel and Lodging Association, prepared
statement of........................................... 71
Coalition for a Democratic Workplace, letter, dated Sept.
9, 2014................................................ 74
International Franchise Association, letter, dated Sept.
9, 2014................................................ 75
National Restaurant Association, letter, dated Sept. 8,
2014................................................... 77
Chamber of Commerce of the United States of America,
letter, dated Sept. 23, 2014........................... 79
(III)
EXPANDING JOINT EMPLOYER STATUS: WHAT DOES
IT MEAN FOR WORKERS AND JOB CREATORS?
----------
Tuesday, September 9, 2014
House of Representatives,
Subcommittee on Health, Employment, Labor, and
Pensions,
Committee on Education and the Workforce,
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 10:01 a.m., in
Room 2175, Rayburn House Office Building, Hon. David P. Roe
[Chairman of the Subcommittee] presiding.
Present: Representatives Roe, Wilson, Price, Salmon,
Guthrie, Heck, Kelly, Brooks, Byrne, Pocan, Scott, Hinojosa,
Courtney, Polis, Wilson, and Bonamici.
Staff present: Ed Gilroy, Director of Workforce Policy;
Marvin Kaplan, Workforce Policy Counsel; Nancy Locke, Chief
Clerk; James Martin, Professional Staff Member; Zachary
McHenry, Legislative Assistant; Brian Newell, Communications
Director; Krisann Pearce, General Counsel; Lauren Reddington,
Deputy Press Secretary; Molly McLaughlin Salmi, Deputy Director
of Workforce Policy; Alissa Strawcutter, Deputy Clerk; Alexa
Turner, Legislative Assistant; Tylease Alli, Minority Clerk/
Intern and Fellow Coordinator; Melissa Greenberg, Minority
Labor Policy Associate; Eunice Ikene, Minority Labor Policy
Associate; Brian Kennedy, Minority General Counsel; Leticia
Mederos, Minority Director of Labor Policy; Megan O'Reilly,
Minority Staff Director; and Mark Zuckerman, Minority Senior
Economic Advisor.
Chairman Roe. A quorum being present, the Subcommittee on
Health, Employment, Labor and Pensions will come to order.
Good morning. Let me begin by welcoming our guests and
thanking our witnesses for joining us. We appreciate you
sharing your thoughts on a complicated and very important
issue.
Each day, more than eight million Americans go to work at
our nation's 757,000 franchisees businesses. The franchise
model has encouraged entrepreneurship, the growth of small
businesses, and job creation. Countless men and women invest
their tears, sweat, and savings to realize the dream of owning
their own business, and the franchise model has helped turn
those dreams into a reality.
For most franchise employers, it is tough staying afloat
even in the best of times. It is especially challenging when
Washington bureaucrats change the rules in the middle of the
game. In recent months, it has become clear the Obama National
Labor Relations Board is determined to rewrite a franchise
model that has worked and served workers, employers, and
consumers well for decades.
At the center of this effort is Richard Griffin. As the
agency's general counsel, Mr. Griffin has encouraged the board
to blur the lines of responsibility between franchisor and
franchisee. Most recently, he determined McDonalds, Inc., is a
joint employer with its franchisees, a decision that no doubt
sent shockwaves across the country. This radical effort is
detached from reality for two important reasons.
First, it pretends the franchise business model doesn't
exist. Since 1984, the NLRB has applied a straightforward test
to determine whether two separate entities are joint employers
of a business establishment. The board analyzes whether the
alleged employers share control over essential conditions of
employment, such as hiring, firing, discipline, supervision,
and direction of employees. Control over these matters must be
direct and immediate.
The current standard makes perfect sense when one considers
how the franchise model works in the real world. As a chief
executive officer of CKE Restaurants--a company that includes
iconic brands like Hardee's and Carl's Jr.--Andrew Puzder is no
stranger to the franchise business or this Subcommittee.
Here is how he has described the franchise business model:
``The franchiser/franchisee relationship is built on a division
of roles and responsibilities. The franchiser owns a unique
system, which it licenses and protects as a brand. The
franchisee operates an independent business under the brand's
trademarks at one or more locations as a licensee. Franchisees
independently choose who they hire, the number of people they
hire, the wages and benefits they pay, the training that such
employees undergo, the labor practices they use, how their
employees are monitored and evaluated, and the circumstances
under which they are promoted, disciplined, or fired.''
Make no mistake, the current standard reflects the way
franchise businesses have been owned and operated for decades.
So why the sudden effort to dismantle policies that work?
As the Wall Street Journal noted in reaction to Mr.
Griffin's decision, ``This is a bonanza for trial lawyers who
will be able to shake down the parent company for alleged labor
violations at franchisees whose pockets aren't as deep. The
other beneficiary is Big Labor. Under Mr. Griffin's law, they
can leap-frog their direct managers to corporate headquarters,
which are more vulnerable to the political pressure and less
sensitive to local markets.''
Which leads to the second reason why this radical effort is
so detached from reality: It fails to recognize the difficult
challenges facing workers in the Obama economy. Our nation
remains mired in a jobs crisis. Workers are frustrated. After
six years of President Obama's failed policies, I am
frustrated, too.
Let me--I just held a hearing, in Indiana, Greenfield,
Indiana, last week, and it struck me when I read the briefing
memo that in 2009, 159 million people in this country--that is
about 60 percent of us--got our health insurance through our
business. Today, after five years of recovery, 150 million
people get their insurance. We have lost--9 million people have
lost their health insurance during a ``recovery.'' I found that
astonishing, that number. And that is the Pew Family Research.
It is not me making that up.
Stocks prices on Wall Street are breaking new records while
the wages on Main Street remain flat. Meanwhile, the prices for
essential goods and services like food, gas, and health
insurance have gone up.
That is not right, and working families deserve better. Yet
today we are discussing an effort that will force small
businesses to close their doors, or at the very least
discourage new small businesses from being created. Workers
will once again be on the losing end of this Big Labor bailout
at a time they can least afford it.
I suspect some of my colleagues will protest today's
hearing. It will likely be noted the board hasn't rendered a
decision and suggest the Committee is once again putting the
cart before the horse. We have heard our colleagues sing this
tune before, and each time it has been followed by a radical
shift in board policy.
The American people deserve to know what the federal
government is up to and how it will affect their families.
Hiding the truth behind some process nonsense isn't fair to the
men and women who will have to live by the rules issued by this
federal agency. Today's hearing will help shine a light on
those consequences and I hope will encourage the NLRB to change
course.
With that, I will now recognize my colleague, Congressman
Mark Pocan, for his opening remarks.
[The statement of Chairman Roe follows:]
Prepared Statement of Hon. Phil Roe, Chairman, Subcommittee on Health,
Employment, Labor, and Pensions
Each day more than eight million Americans go to work at our
nation's 757,000 franchise businesses. The franchise model has
encouraged entrepreneurship, the growth of small businesses, and job
creation. Countless men and women invest their tears, sweat, and
savings to realize the dream of owning their own business, and the
franchise model has helped turn those dreams into a reality.
For most franchise employers, it's tough staying afloat in even the
best of times. It's especially challenging when Washington bureaucrats
change the rules in the middle of the game. 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.
At the center of this effort is Richard Griffin. As the agency's
general counsel, Mr. Griffin has encouraged the board to blur the lines
of responsibility between the franchisor and franchisee. Most recently,
he determined McDonalds Inc. is a joint employer with its franchisees,
a decision that no doubt sent a shockwave across the country. This
radical effort is detached from reality for two important reasons.
First, it pretends the franchise business model doesn't exist.
Since 1984, the NLRB has applied a straight-forward test to determine
whether two separate entities are joint employers of a business
establishment. The board analyzes whether the alleged employers share
control over essential conditions of employment, such as hiring,
firing, discipline, supervision, and direction of employees. Control
over these matters must be direct and immediate.
The current standard makes perfect sense when one considers how the
franchise model works in the real world. As chief executive officer of
CKE Restaurants - a company that includes iconic brands like Hardee's
and Carl's Jr. - Andrew Puzder is no stranger to the franchise business
or this subcommittee. Here is how he has described the franchise
business model:
The franchiser/franchisee relationship is built on a division of
roles and responsibilities. The franchiser owns a unique system, which
it licenses and protects as a brand. The franchisee operates an
independent business under the brand's trademarks at one or more
locations as a licensee. Franchisees independently choose who they
hire, the number of people they hire, the wages and benefits they pay,
the training that such employees undergo, the labor practices they use,
how their employees are monitored and evaluated, and the circumstances
under which they're promoted, disciplined or fired.
Make no mistake, the current standard reflects the way franchise
businesses have been owned and operated for decades. So why the sudden
effort to dismantle policies that work? As the Wall Street Journal
noted in reaction to Mr. Griffin's decision:
This is a bonanza for trial lawyers who will be able to shake down
the parent company for alleged labor violations at franchisees whose
pockets aren't as deep. The other beneficiary is Big Labor. Under Mr.
Griffin's law, they can leap-frog their direct managers to corporate
headquarters, which are more vulnerable to political pressure and less
sensitive to local markets.
Which leads to the second reason why this radical effort is so
detached from reality - it fails to recognize the difficult challenges
facing workers in the Obama economy. Our nation remains mired in a jobs
crisis. Workers are frustrated. After six years of President Obama's
failed policies, I am frustrated too. Stocks prices on Wall Street are
breaking new records while wages on Main Street remain flat. Meanwhile,
the prices for essential goods and services like food, gas, and health
insurance have gone up.
That's not right and working families deserve better. Yet today we
are discussing an effort that will force small businesses to close
their doors, or at the very least, discourage new small businesses from
being created. Workers will once again be on the losing end of this Big
Labor bailout and at a time they can least afford it.
I suspect some of my colleagues will protest today's hearing. It
will likely be noted the board hasn't rendered a decision and suggested
the committee is once again putting the cart before the horse. We've
heard our colleagues sing that tune before and each time it has been
followed by a radical shift in board policy.
The American people deserve to know what the federal government is
up to and how it will affect their families. Hiding the truth behind
some process nonsense isn't fair to the men and women who will have to
live by the rules issued by this federal agency. Today's hearing will
help shine a light on those consequences and I hope encourage the NLRB
to change course.
______
Mr. Pocan. Great. Well, thank you, Chairman Roe. I want to
thank the witnesses for their thoughtful testimony today.
I can't help but notice this committee has met more than 17
times over the last three and a half years for markups or
hearings on the activities of the NLRB. By comparison, this
Committee has not had a single hearing on raising the minimum
wage, equal pay, job creation, or how to lower unemployment.
The focus of this morning's hearing is the National Labor
Relations Board and the joint employer standard. Freedom of
association and negotiating for improved working conditions are
fundamental rights for all workers in this country, regardless
of what type of employment they are in. As an owner of a
specialty printing shop for more than 27 years, I understand
the challenges small businesses are facing. I also understand
the responsibilities businessowners have to their employees.
Splintered employment relations should not be a shield for
unscrupulous employers who want to deny workers their
fundamental rights. Joint employers should not be able to play
hot potato with their employees' livelihoods or the livelihoods
of their families.
As we turn the corner on the 17-plus NLRB hearings and
markups, it seems that we should move our discussion to
something more productive and recognize the realities facing
today's workforce. Too many Americans are trapped in
precarious, unstable, and low-paying jobs with little or no
recourse under the law. We must do more to address the serious
challenges workers face nationwide.
This hearing is another attempt by my friends on the other
side of the aisle to undermine the reputation of the NLRB and
interfere with its legitimate authority. At the last NLRB
hearing held two months ago, we focused on the case of
Browning-Ferris Industries. The board continues to deliberate
over the facts of the Browning case. The Board has called for
briefs as it reviews the joint employer standard. This is
completely within its jurisdiction, and this hearing is not the
appropriate place to try and adjudicate any board decision
currently under consideration.
A review of the joint employer standard is timely, given
the disturbing trends we are seeing in today's labor market.
More and more, businesses are relying on temporary and
contingent workers, franchisees, and other nontraditional forms
of employment to limit their labor costs and exposure to
liability.
While temporary employment is commonly seen as a path to
permanent employment, increasingly it is not the case. There
are now 2.87 million workers employed by temp agencies, and
these workers fare much worse than others in the private
sector.
Temporary workers make an average of $3.40 an hour less
than their full-time counterparts. Temp workers have
significantly less access to employer-provided benefits, with
only 8 percent receiving health care benefits and only 9
percent receiving pension benefits through their jobs. And
temporary workers are also more likely to go without sick days,
paid vacation, and other benefits.
Perhaps most troubling is temp workers are often given
insufficient job safety training. Forty-two percent of temp
workers perform light industrial work. These construction and
manufacturing workers have substantially higher rates of injury
and higher on-the-job death rates. This is simply unacceptable.
Indirect employment relationships are also very common in
the fast food industry, which almost exclusively uses a
franchise model. While franchisors claim to have no direct
control over the terms and conditions of employment, they can
prescribe a wide range of factors that affect one's workplace
conditions, such as the number of workers at a franchise, what
hours they work, and their training.
Some fast food chains, such as McDonald's, even provide
franchisees with scheduling software that sets and monitor
workers' schedules, tracks sales data, labor costs, the labor
needs of the franchise, and reviews wages. In many cases, fast
food franchise agreements are so extensive that the only
variable cost for a franchisee is labor.
In the few weeks we have remaining this session, I hope
this Committee and this Congress will focus on the incredibly
urgent priorities of the American people: raising the minimum
wage; renewing unemployment insurance for the millions who
still need it; stopping employment discrimination based on
sexual orientation; ensuring paycheck fairness for women; and
providing relief for the tens of millions of students and
parents with student loan debt.
Thank you, Mr. Chairman. I yield back.
[The statement of Mr. Pocan follows:]
Prepared Statement of Hon. Mark Pocan, a Representative in Congress
from the State of Wisconsin
Thank you, Chairman Roe.
I want to thank the witnesses for their thoughtful testimony. I
can't help but notice this committee has met more than 17 times over
the last three and a half years for hearings or markups on the
activities of the NLRB. By comparison this Committee has not held a
single hearing on raising the minimum wage, equal pay, job creation or
how to continue to lower unemployment.
The focus of this morning's hearing is the National Labor Relations
Board and the ``joint employer'' standard.
Freedom of association and negotiating for improved working
conditions are fundamental rights for all workers in this country-
regardless of what type of employment they are in.
As an owner of a specialty printing shop for more than 26 years, I
understand the challenges small businesses are facing. I also
understand the responsibilities business owners have to their
employees.
Splintered employment relationships should not be a shield for
unscrupulous employers who want to deny workers their fundamental
rights. Joint-employers should not be able to play hot-potato with
their employees' livelihoods, or the livelihoods of their families.
As we turn the corner on 17-plus NLRB hearings and mark-ups, it
seems that we should move our discussion to something more productive
and recognize the realities facing today's workforce.
Too many Americans are trapped in precarious, unstable, and low-
paying jobs with little or no recourse under the law. We must do more
to address the serious challenges workers nationwide face.
This hearing is another attempt by my friends on the other side of
the aisle to undermine the reputation of the NLRB and interfere with
its legitimate authority.
At the last NLRB hearing held two months ago, we focused on the
case of Browning-Ferris Industries. The Board continues to deliberate
over the facts of the Browning case. The Board has called for briefs as
it reviews the joint-employer standard.
This is completely within its jurisdiction and this hearing is not
the appropriate place to try and adjudicate any Board decision
currently under consideration.
A review of the joint-employer standard is timely, given the
disturbing trends we are seeing in today's labor market. More and more,
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.
While temporary employment is commonly seen as a path to permanent
employment, increasingly it is not the case. There are now 2.87 million
workers employed by temp agencies, and these workers fare much worse
than others in the private sector:
* Temp workers make an average of $3.40 an hour less than their
full-time counterparts.
* Temp workers have significantly less access to employer-provided
benefits, with only 8 percent receiving health care benefits and only 9
percent receiving pension benefits through their jobs.
* Temp workers are also more likely to go without sick days, paid
vacation, and other benefits.
Perhaps most troubling is temp workers are often given insufficient
job safety training. Forty-two percent of temp workers perform light
industrial work. These construction and manufacturing workers have
substantially higher rates of injury and higher on-the-job death rates.
This is simply unacceptable.
Indirect employment relationships are also very common in the fast
food industry, which almost exclusively uses a franchise model.
While franchisors claim to have no direct control over the terms
and conditions of employment, they can prescribe a wide range of
factors that affect one's workplace conditions, such as the number of
workers at a franchise, what hours they work, and their training.
Some fast food chains, such as McDonald's, even provide franchisees
with scheduling software that sets and monitor workers' schedules,
tracks sales data, labor costs, the labor needs of the franchise, and
reviews wages.
In many cases, fast food franchise agreements are so extensive that
the only variable cost for a franchisee is labor.
In the few weeks we have remaining this session, I hope this
Committee and this Congress will focus on the incredibly urgent
priorities of the American people-raising the minimum wage, renewing
unemployment insurance for the millions who still need it, stopping
employment discrimination based on sexual-identity, ensuring paycheck
fairness for women, and providing relief for the tens of millions of
students and parents with student loan debt.
Thank you. I yield back.
______
Chairman Roe. I thank the gentleman for yielding.
Pursuant to committee rule 7(c), all members will be
permitted to submit written statements to be included in the
permanent hearing record. And without objection, the hearing
record will remain open for 14 days to allow such statements
and other extraneous material referenced during the hearing to
be submitted for the official hearing record.
It is now my pleasure to introduce our distinguished panel
of witnesses. Our first witness, Ms. Catherine Monson, is the
chief executive officer of FASTSIGNS International,
headquartered in Carrollton, Texas. With more than 30 years of
franchising and digital printing experience, Ms. Monson was
named CEO of the International Signage and Graphic and Visual
Communications Franchise Company in December of 2008.
Welcome.
Mr. Clint Ehlers is the owner of two FASTSIGNS franchises
located in Lancaster and Willow Grove, Pennsylvania.
Previously, he owned FASTSIGNS franchise in Culver City,
California.
And welcome, Mr. Ehlers.
Our next witness is Mrs. Jagruti Panwala, Bensalem,
Pennsylvania, is the owner of multiple hotel franchises. Mrs.
Panwala has spent many years in various positions within the
hospitality industry from administration to owner-operator.
Welcome.
Mr. Harris Freeman is a professor of legal research and
writing at Western New England University School of Law in
Springfield, Massachusetts. Professor Freeman's professional
experience includes working in the private sector litigating
employment, civil rights, and personal injury claims. In 2009,
he was appointed to the Commonwealth Employment Relations
Board, an appellate agency body that oversees public-sector
labor relations in Massachusetts.
Welcome, Mr. Freeman. And from an obstetrician, a personal
injury lawyer makes my palms sweat. So--
[Laughter.]
Mr. Todd Duffield is a shareholder with Ogletree, Deakins,
Nash, Smoak & Stewart, PC. Mr. Duffield's practice includes
union organizing campaigns and elections, unit clarifications,
collective bargaining negotiations, grievance arbitration, and
contract administration under the National Labor Relations Act
and the Railway Labor Act.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. You have five minutes to
present your testimony. When you began, the light in front of
you will turn green. When one minute is left, the light will
turn yellow. When your time is expired, the light will turn
red.
At that point, I will ask you to wrap up your remarks as
best you are able. And I am not going to cut you off in the
middle, but go ahead and wrap up. And after everyone has
testified, members will each have five minutes for questions.
And with that, I will begin with Ms. Monson. You are
recognized for five minutes.
STATEMENT OF MS. CATHERINE MONSON, CHIEF EXECUTIVE OFFICER,
FASTSIGNS INTERNATIONAL, INC., CARROLLTON, TX (TESTIFYING ON
BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION)
Ms. Monson. Thank you very much, Chairman Roe, Mr. Ranking
Member, and distinguished members of the subcommittee. My name
is Catherine Monson, and I am CEO of FASTSIGNS International.
And I am here today both as the CEO of this franchisor and also
as a member of the board of directors of the International
Franchise Association.
With over 30 years in franchising, I have been very active
in the International Franchise Association for over 20 years on
many committees, board membership for six years, and a frequent
speaker at their events. The International Franchise
Association is the oldest and largest trade association devoted
to representing the interests of franchising. Its membership
includes franchisors, franchisees, and suppliers.
Its mission is to protect, enhance, and promote
franchising, and we do that through government relations,
public relations, and educational programs. IFA membership
spans 300 different industries, more than 11,000 franchisee
members, 1,100 franchisor members, and 575 supplier members.
Far too often, franchising is confused as being fast food
and hotels. In fact, many more business lines are involved in
franchising than fast food and hotels, including accounting and
tax services, automotive aftermarket, batteries, business
services, campgrounds, childcare, clothing, retail, shoe
stores, fitness and gyms, hair salons, hair cutting, handyman
services, home improvement services, home inspection, lawncare.
It goes on and on and on.
The reason fast food is so visible is everybody eats three
meals every single day. Signage not so visible, because only
people who need signage buy it, and they only buy it five to
seven times a year. And that is why franchising is often seen
as fast food.
I am absolutely passionate about franchising. I have seen
franchising allow people to achieve the American Dream of
business ownership. I have seen franchisees, like my franchisee
here, Clint Ehlers, create jobs for employees, promote them,
give them training and opportunities, provide a valuable
service in the local marketplace, and through all that, build
wealth for his family, save for his kids' college education, et
cetera.
Franchising is a large community of diverse businesses, all
that operate under a franchise model that is based on the
franchisor, creating a brand operating systems, standards, et
cetera, selecting great franchisees who then own, operate, and
manage the businesses. We often say in franchising that the
franchisee is in business for himself, but not by himself. He
benefits from the brand, the training, the supply chain, the
resources, the benefits of talking with other franchise owners,
et cetera. But it is the franchisee who owns the business, runs
the business, hires the employees, manages and motivates the
employees, has his own employer identification number, and pays
the taxes.
Successful franchisees determine the profitability in their
own enterprise by how well they implement the business plan,
the business model, and how well they motivate and manage their
employees. It is the franchisee that creates the jobs and
trains its employees. The employees work for the franchisee and
not the franchisor brand.
The franchisee handles all areas of supervision,
scheduling, discipline, promotion, wage changes, et cetera. The
franchisor, FASTSIGNS International, has no input on the
franchisee's labor relations. Franchising is an outstanding
American success story, creating jobs and economic growth. Last
year, in 2013, there were 759,000 franchise establishments in
the United States employing over 8,327,000 employees,
generating $803 billion of economic output.
The 2014 estimate is that franchise jobs will increase 2.6
percent--in other words, franchise establishments are going to
generate 221,000 new jobs this year, and what we need now in
the United States is more jobs. Many American franchise
businesses have become world-renown brands and are a
substantial asset in the trade balance of the United States,
all without exporting a single job. Franchising truly is a
great American success story.
The franchisor/franchisee relationship is built on a
division of roles and responsibilities. The franchisor, like
myself, creates the brand, the training, the tools, but then
constantly improves it and refines it with the best practices
we learn from our franchisees. The franchisee operates the
independent business and manages every single one of the day-
to-day operations.
As you are all aware, on July 29, the NLRB's general
counsel announced he has authorized complaints against numerous
McDonald's franchisees and McDonald's corporate as joint
employers for alleged unfair labor practices. This marks a
drastic change in the franchisee/franchisor relationship and a
drastic change in law, as it has been understood.
Under the current standard, only legally separate entities
that exert a significant degree of control over employees are
considered joint employers. Under this new standpoint, it will
completely change and I think destroy the franchise model.
Typically franchise agreements are 20 years in term. Our
average length remaining in FASTSIGNS is 11-1/2 years. And
these contracts were negotiated while relying on the current,
existing NLRB joint employer standard.
What the GC is attempting to do by enacting a new standard
of who is and who is not an employer amounts to an impairment
of contracts, and we and many, many others freely entered into
these long-term contracts. The GC is essentially becoming an
arbiter for those contracts by telling the parties,
``Surprise!'' That is not what our legal system is about. Our
legal system stands for certainty, so businesses and business
people can make informed decisions.
If the NLRB's new proposed joint employer standard becomes
the law of the land, it will be tantamount to re-writing
hundreds of thousands of contractual relationships by
government fiat in ways the parties never contemplated to their
mutual disadvantage.
As I look at my franchise--
Chairman Roe. Ms. Monson, could you go ahead and wrap up,
please?
Ms. Monson. As I look at my franchise business, if I think
what I would have to do to protect myself if this new joint
employer decision becomes law, I am going to have to quadruple,
quintuple my workforce to be controlling and checking and
auditing my franchisees. I am going to be demotivating my
franchisees. I am going to be laying extra cost onto them. I am
going to be taking on extra risk, possibly extra legal bills
and lawsuits. It could be the demise of my organization and,
thus, the 489 franchisees of FASTSIGNS in the U.S. may no
longer have a brand to fly their flag under.
Thank you very much, Mr. Chairman and committee members,
for allowing me to give my testimony.
[The statement of Ms. Monson follows:]
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Chairman Roe. Thank you.
Mr. Ehlers, you are recognized for five minutes.
STATEMENT OF MR. CLINT EHLERS, OWNER, FASTSIGNS OF LANCASTER
AND WILLOW GROVE, LANCASTER AND WILLOW GROVE, PA (TESTIFYING ON
BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION)
Mr. Ehlers. Chairman Roe, Mr. Ranking Member, and members
of the committee, thank you for inviting me to testify today on
the impact that an altered joint employer standard will have on
franchise businesses such as mine.
My name is Clint Ehlers, and I am the owner and operator of
two FASTSIGNS locations--one in Lancaster and one in Willow
Grove, both in Pennsylvania. I am testifying today on behalf of
the International Franchise Association.
The recent announcement by the National Labor Relations
Board Division of Advice that it would allow labor complaints
to proceed against McDonald's Corporation, as well as against
its franchisees, worries me a great deal. My concern is that my
franchisor, in response to the NLRB's changes to longstanding
joint employer standards, will take measures to protect itself
that will end up reducing my autonomy as a franchise owner.
In 2006, I left a 17-year career in advertising and
strategic marketing to fulfill my dream of becoming an
entrepreneur and small-business owner. I spent many months
researching different types of businesses and industries, both
independently-owned and franchised. I decided to invest in
FASTSIGNS. Not only was FASTSIGNS the leader in the sign and
graphics industry, but it also had an excellent team of
dedicated professionals with one goal in mind: to help me be as
successful as I wanted to be.
Owning my own business lets me be the steward of my
resources and impact the lives of my employees, as well as the
members of the communities in which we operate. In 2007, I
opened my first FASTSIGNS in Culver City, California, which we
quickly grew into one of the top centers in the nation. I sold
that center in 2012, October of 2012, and I moved my family to
Pennsylvania, where we purchased FASTSIGNS of Willow Grove in
2013 and FASTSIGNS of Lancaster earlier this year. We currently
have 14 full-time employees and two part-time employees, and I
am hoping to expand my operations in the coming years.
In order to understand the impact of the NLRB's
announcement, it is essential to understand the fundamental
difference in the roles of franchisees and franchisors. The
franchisor enforces brand standards that maintain the quality
of the products and services, but it is the franchisee that
manages the day-to-day operations of the business, including
the hiring and the firing, wages, benefits, work schedules, and
working conditions. Examples of the support that franchisors
provide include assistance in site selection, sales and cost
benchmarking, and purchasing power with various suppliers. Most
importantly, they help me to monitor my product quality.
I agree that this type of support is necessary for the
collective good of the system and it benefits each franchise
that operates under the FASTSIGNS brand. The role of daily
management of a franchise location, however, falls to me and
decisions regarding those operations are mine alone. It is my
decision to pay my hourly employees a fair wage, and I pick the
health insurance plan that I offer my workers.
I recently had an employee who was struggled to manage
childcare over the summer for his 12-year-old son, while he was
working full-time at one of our stores. We were able to rework
his scheduled hours on some days to accommodate summer camp,
and on other days, we decided that he could bring his son to
work. In fact, we later hired his son for a summer job doing
various things like sweeping, cleaning, and taking the trash
out.
This is the type of action that only an independent small-
business owner can take to address this issue. If a large
corporation were presented with a similar workforce management
challenge, it would most likely consult its human resource
teams to determine the policies of the company.
To the casual observer, the NLRB's decision could appear to
be a good thing for a franchise owner like me, that if I screw
up, my franchisor will be there to save me. Not only is this
incorrect, but it reflects a fundamental misunderstanding of a
franchise owner's motivations for starting a franchise
business.
In almost every other aspect of my business, I am
considered an independent owner. I have my own accountants, and
I file my own taxes. I assume the financial risk when I start a
business, and I take out loans for working capital. Similarly,
if I were to get into any legal trouble, I would need to hire
my own counsel.
I bought a franchise so that I could run my own business,
not so that I could be a part of someone else's. I take pride
in my successes, and I hold myself accountable for my failures.
I work diligently to build lasting relationships with customers
and integrate my business into the local community. The real
impact of a new standard that considers my franchisor the joint
employer of my workers is that I will have less independence
and less control over the business that I have worked so hard
to build.
If franchises are not independent, entrepreneurs will not
seek to open new franchise locations at a time when our economy
is thirsty for growth and expansion. Franchise small-business
owners operate on almost every Main Street in America. My
motivations are simple, and my intentions are sincere. I hope
to succeed for my family, my employees, and my community.
I cannot imagine what I would do if I were stripped of my
independence because another franchise owner hundreds of miles
away is facing a lawsuit that has nothing to do with me. If the
NLRB's recent joint employer determination is upheld, franchise
owners everywhere would lose their autonomy.
The purpose of this proposal seems not to be to increase
the accountability of those most responsible for employment
decisions, but rather to find deeper pockets to pay higher
damages from potential lawsuits. That is wrong and should not
be allowed.
I thank you for inviting me to testify today, and I look
forward to answering any questions that you have.
[The statement of Mr. Ehlers follows:]
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Chairman Roe. Thank you,
Mrs. Panwala, you are recognized for five minutes.
STATEMENT OF MRS. JAGRUTI PANWALA, OWNER, MULTIPLE HOTEL
FRANCHISES, BENSALEM, PA (TESTIFYING ON BEHALF OF THE ASIAN
AMERICAN HOTEL OWNERS ASSOCIATION)
Mrs. Panwala. Thank you.
Chairman Roe, Ranking Member Tierney, and distinguished
members of the subcommittee, thank you for the opportunity to
testify before you today.
My name is Jagruti Panwala. My family and I are owners and
operators of five hotels in the northeastern United States. And
we employ over 200 people. I am also a first-generation
American, an entrepreneur, and franchisee. I come before you
today to discuss a significant threat to my livelihood and the
livelihood of those I employ, many of whom I consider to be my
family.
When I was only 22 years old, my husband and I bought our
first Economy Inn, an independent motel with 35 operational
rooms, in Levittown, Pennsylvania. We borrowed money from
family and friends to make the down payment and secured a loan
to get started.
In addition to working at the motel for more than 100 hours
a week, I was also living at the hotel with my husband in room
201. Not only was I an owner and operator, but I was also a
desk clerk, housekeeper, plumber, security guard, handyman,
landscaper, and janitor.
Even after all of our efforts to build our business, it was
still difficult to make ends meet, particularly in that market.
In order to succeed as hoteliers, we realized it was not enough
simply to run the operation efficiently, but we need to attract
more customers. We found that we could do so by affiliating
with a nationally recognized brand.
After Choice Hotels accepted our franchise application, we
converted our Economy Inn into the Comfort Inn hotel. This was
our first experience with franchising, or raising a flag of a
national brand, as it is known in the industry.
Ultimately, franchising appealed to us because we still
controlled our own business and simply paid fees for the use of
a brand name. Since that time, I have worked with four
different franchisors.
In addition to running my own family business, I also serve
as a board member of the Asian American Hotel Owners
Association, which is AAHOA. AAHOA members own over 40 percent
of all hotels in the United States and employ over 600,000
workers, accounting for nearly $10 billion in payroll annually.
Approximately 80 percent of the more than 20,000 properties
AAHOA members own are franchised businesses. My story is nearly
identical to those of nearly 13,000 members of this great
association.
I am here today to explain my perspective as a franchisee
and describe how an expanded definition of a joint employer
status will have a devastating effect on my businesses, my
employees, and the lodging industry.
The franchising model for hotels is straightforward. As a
hotelier, it is my responsibility to identify the market,
secure the financing, purchase the land, establish contracts,
set prices, determine staffing needs, and run the daily
operations of my business.
Conversely, hotel franchisors' responsibilities include
providing construction guidelines, conducting marketing
campaigns, developing training for management, and generally
offering guidance to ensure the quality of their brand remains
consistent from one hotel to the next.
In my role as a hotel operator, I determine the working
environment. I assess the overall staffing needs for each
property and make hiring decisions accordingly. I also set
wages, benefits, hours, promotions, raises, and disciplinary
procedures.
Mr. Chairman, it is for these reasons I am extremely
alarmed by the radical decision of the NLRB general counsel to
create joint employer status for franchisors. Assigning
liability for employment decisions to the franchisor may cause
franchisors to impose control over daily operations of each
business in an effort to mitigate against claims. Especially, I
would no longer be in business for myself.
Instead of acting as a licensor and providing guidance from
time-to-time, the franchisor would likely feel the need to
become a partner and try to have influence on my business and
staffing decisions. In an effort to protect against liability,
franchisors would likely have to take an active role in basic
employment decisions like hiring, firing, wages, hours, and
benefits. The franchisors may also try to dictate policies for
promotions, raises, and advancement within my own company.
It is important to remember that most franchisors are
public companies with different goals and morals than I have as
a small-business owner. If this were to happen, I would
essentially become the employee of a parent corporation and no
longer an entrepreneur.
To be completely honest, if these were the conditions of
the franchising model before I became an hotelier, I would have
never entered into this business.
Mr. Chairman, Ranking Member Tierney, and the members of
the committee, I sincerely thank you for the opportunity to
share my story with you, because I have worked too hard and
have overcome too many obstacles as an entrepreneur and as a
first-generation American to sit by while bureaucrats and
lawyers attempt to undermine my success and status as an
employer and a business-owner.
I strongly urge this committee and the National Labor
Relations Board to consider the tremendously adverse impact on
franchisees and workers when deliberating policy proposals
associated with the definition of a joint employer.
Thank you.
[The statement of Mrs. Panwala follows:]
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Chairman Roe. Thank you.
Professor Freeman, you are recognized for five minutes.
STATEMENT OF MR. HARRIS FREEMAN, PROFESSOR OF LEGAL RESEARCH
AND WRITING, WESTERN NEW ENGLAND UNIVERSITY SCHOOL OF LAW,
SPRINGFIELD, MA
Mr. Freeman. I would like to thank Chairman Roe,
Congressman Pocan, and the entire subcommittee for this
opportunity.
If I may begin with a little bit of a disclaimer that I
hope won't detract from my time, given the chairman's
introduction, I am not here today as an administrative law
judge who functions in the public sector. I am speaking here as
a professor and researcher who has done extensive work looking
at contingent work and precarious employment, including under
NLRB law. Nor am I here to deal with tortious conduct and
personal injury, so rest assured, Chairman.
My testimony addresses the economic realities and legal
issues relating to joint employer status in workplaces where
extensive subcontracting of core business functions depends on
temporary staffing services and franchising.
The National Labor Relations Board is looking to revive its
traditional joint employer test as one means of making
fundamental labor rights available to workers experiencing the
precarious consequences of the profound transformations now
occurring in the modern workplace. By re-examining its joint
employer test, the board is fulfilling the responsibility that
the Supreme Court has entrusted to it, that is, to adapt the
Act to changing patterns of industrial life.
In my lifetime, no change in the workplace has been more
upending than the rapid expansion of precarious low-wage work
and subcontracting that has irreversibly fissured the 21st
century workplace. In this context, temporary staffing and
franchising account for a disproportionate share of economic
growth, following the Great Recession of 2008. Last year,
staffing services generated $109 billion in sales and a full 2
percent of the total jobs in the workforce.
Profits are high in this industry. In the first quarter of
this year, True Blue, the largest U.S. staffing agency, had
quarterly profits of $120 million on gross revenues of $453
million. Franchising is equally profitable, as evidenced by the
fast food sector where, in 2012, the 10 largest franchises
employed over 2.25 million workers and earned more than $7.4
billion in profits.
Unfortunately, soaring profits and substantial job growth
in temping and franchising has advanced hand-in-glove with
poverty-level wages and extraordinarily high rates of wage
theft and health and safety violations.
For example, in metro Chicago, temp workers comprise over
two-thirds of the 150,000 employees in the warehouse sector.
They average $9 per hour, $3.48 an hour less than direct hires.
Two-thirds of these workers exist with income under the poverty
line.
A well-documented national epidemic of wage theft in the
staffing industry is only making matters worse. Furthermore,
OSHA complaints and protests by temp workers unearthed major
health and safety issues facing these individuals.
In franchising, 75 percent of America's 3.5 million fast
food workers are employed in franchise outlets. Numerous
studies indicate that underemployment, poverty-inducing
earnings, and wage theft are the norm. Households that include
fast food workers are four times as likely to live below the
federal poverty level. This is a failed and unsustainable
business model that is subsidized by hardworking taxpayers. It
is far different than the franchise model that has been
discussed here today by the business individuals who are here
representing their industries.
U.S. taxpayers now shell out about $3.8 billion a year to
cover the cost of public benefits received by fast food workers
employed at the top 10 franchises, because these workers must
rely on government welfare programs to supplement their
poverty-level wages.
These workplace ills are unquestionably subject to
improvement, and that is why the board in the Browning-Ferris
case is now re-examining the joint employer test. That is the
case involving a recycling center where all of the workers are
temps.
According to the Supreme Court, the NLRB's traditional
joint employment test is designed to determine whether a
putative joint employer possesses sufficient control over the
terms and conditions of a workforce to qualify as a joint
employer with the actual employer. Absolute control is not the
standard. Rather, it recognizes that there might be a co-
determination of terms and conditions of employment by two
business entities.
In temporary staffing arrangements, the user employer, not
the temp agency, controls the work environment of the temp
workforce. For this reason, the contracts governing the temping
arrangements typically cede to the client employer, management,
and supervisory roles for the temp workers. This gives them a
major role in co-determining the work conditions.
Staffing agencies only control wage payments, payroll,
workers compensation, and the like. User clients, on the other
hand, are contractually assigned all other employer
responsibilities, including the right to remove any temp worker
from the workforce. Many franchising arrangements are rather
similar, in that it is virtually impossible to have a
meaningful labor agreement without both the user client and the
franchiser at the bargaining table.
Tightly controlled top-down franchising, unlike what is
discussed here today, has expanded so that major franchisors
like Burger King and other fast food corporations can maintain
uniformity of brand, product and operations. Under these
agreements, the terms and conditions of franchisee workers are
co-determined by franchisors through operating manuals and
communications with franchisees.
Sophisticated management systems allow the franchisor to
dictate the number of workers required to do the job, the
manner and pace of work, the supplies on the job, how equipment
is used, not to mention grooming standards. Every one of these
contract provisions is a condition of employment subject to
collective bargaining.
When this is the reality, fundamental labor rights cannot
be exercised without the franchisor's participation in
collective bargaining or the remediation of unfair labor
practices. Given these realities, the board is well within the
authority granted to it by Congress to adapt its traditional
joint employer test of temporary staffing and franchising. The
statutory text of the NLRA and well-reasoned precedent plainly
allow the board the discretion to craft the appropriate unit
for collective bargaining purposes, including units of more
than one employer.
In fact, the Labor Act's definition of employer is
intentionally broad and gives the board wide latitude in
determining whether a staffing agency is--
Chairman Roe. Mr. Freeman, if you could wrap up. You are a
couple minutes over.
Mr. Freeman. I will certainly do that, Mr. Chairman. A
return to the board's traditional better-reasoned standard is
now necessary to achieve both the flexibility employers seek in
their business plans and the fair treatment and decent wages
that workers are now demanding.
A failure to do so runs the risk of rendering labor law
irrelevant in the low-wage economy, obstructing the efficacy of
collective bargaining, and increasing the potential for strikes
and other forms of industrial unrest. It takes little
imagination to foresee the potential for industrial strife when
large concentrations of underemployed low-wage temps and
franchised fast food workers are unable to meaningfully
exercise their fundamental right to bargain and form unions.
Thank you for the opportunity to address your subcommittee.
[The statement of Mr. Freeman follows:]
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Chairman Roe. Thank you.
Mr. Duffield, you are recognized for five minutes.
STATEMENT OF MR. TODD DUFFIELD, SHAREHOLDER, OGLETREE, DEAKINS,
NASH, SMOAK & STEWART, P.C., ATLANTA, GA
Mr. Duffield. Thank you. Good morning, Chairman Roe, and
members of the subcommittee. We have all heard the phrase, ``If
it ain't broke, don't fix it.''
Well, for the past three decades, the board has adhered to
the same standard for determining if two separate businesses
are joint employers. The test is clear, it makes sense, and it
has worked for 30 years. The standard provides a bright-line
test that everyone-- employers, employees, unions, the board,
and the courts--can all apply.
Under the current standard, two separate entities are
treated as joint employers if they share or co-determine
essential terms and conditions of employment. In making this
determination, the board evaluates whether the putative joint
employer meaningfully affects matters such as hiring, firing,
discipline, supervision, and direction of employees, and
whether the putative joint employers' control over these
matters is direct and immediate.
By tying joint employer status to direct and immediate
control over fundamental aspects of the employment
relationship, the board's current standard ensures that the
joint employer is actually involved in or has actual authority
over matters within the scope of the National Labor Relations
Act.
Now, the general counsel for the NLRB has taken the
position that the board should abandon the current test and
replace it with one that focuses on indirect control or
potential control, even if that control has never been
exercised, and focusing on industrial realities that they claim
otherwise make the business, or the putative joint employer, an
essential party to meaningful collective bargaining.
The general counsel claims that this was the prior
standard, but, in fact, prior to 1984, the board itself called
the standard amorphous and appeals courts routinely could not
find clear principles underlying the board's decisions. It was
a mess that the board wisely cleaned up 30 years ago.
The general counsel's proposed standard ignores the common
law agency principles that Congress directed the board to apply
when it passed the Taft-Hartley Act in 1947. Instead of
focusing on the relationship between the employees and their
employer, the proposed standard focuses on the business
relationship of two separate entities or two separate
companies.
The general counsel's proposed standard also would overturn
longstanding congressional policies not to enmesh employers in
each other's labor disputes. Congress rejected a similar
attempt in the mid-1970s, when legislation was proposed to
amend the Act to allow common-situs picketing.
The proposed standard would virtually eviscerate secondary
boycott protections in the Taft-Hartley Act. Section 8(b)(4) of
the act is designed to protect secondary or neutral employers
from being enmeshed in the labor disputes of the primary
employer. The general counsel proposed standard would blur the
concept of neutrality and make these protections useless.
Even more fundamentally for the nation's economy, the
proposed standard would destroy or at least create a massive
upheaval of established highly successful business models
involving franchisors and franchisees throughout the country.
Large-scale franchisors who retain only the control required to
protect their brand, trade name, and trademark could be drawn
into hundreds of collective bargaining relationships where they
have little or no involvement whatsoever with the workplace.
Additionally, joint employers would be required by Section
8(a)(5) to execute bargaining agreements and subject themselves
to contractual and unfair labor practice liabilities without
having any control over the day-to-day operations of myriad
locations throughout the country.
Rather than accept such liabilities, many companies
undoubtedly will opt to cancel these arrangements, thus
displacing small businesses and the millions of jobs that they
create. As the California Supreme Court recently stated, to use
control of business matters to infer control of personnel
matters would stand the franchise relationship on its head.
But it is bigger than that. Beyond destroying franchise
relationships, the proposed standard would disrupt many other
established contractual business relationships like staffing
operations, contractor, sub-contractor relationships, and a
host of possible supply chain relationships.
The result would be a loss of jobs and a loss of
entrepreneurial business opportunities which fuel the economy,
including many minority business opportunities. Why would we
change a bright-line standard and well-established black letter
law, where there is no evidence of widespread abuse? Some have
suggested that the change is intended to create negotiated
leverage for labor unions, or to open new platforms for the
plaintiff's bar.
To date, the Service Employees International Union, SEIU,
has been unable to organize franchise operations, so some have
suggested that the board is looking to rewrite the law to make
it easier. Proponents of the change to the board's standard
argue that the change is necessary because there cannot be
meaningful bargaining when the primary employer's business
partners are not at the bargaining table--there is no evidence
for this thesis.
Congress should understand that these are not small
technical legal changes to labor law. The consequences of
changing the current joint employer standard threatens
established business relationships and will cause significant
economic upheaval.
It is well that Congress examines the effects of the
board's proposed actions on national economic and labor policy
through oversight hearings. Should the board move forward with
this new standard, I would urge Congress to consider corrective
legislative amendments.
Thank you very much.
[The statement of Mr. Duffield follows:]
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Chairman Roe. Thank you.
Mr. Byrne, you are recognized for five minutes.
Mr. Byrne. Thank you, Mr. Chairman. And thank you,
everybody, that gave your testimony today. That was really
good. I know that when the ranking member was speaking, he was
talking about whether we should be having hearings on
employment. And I can't think of anything that gets more to the
issue of employment than your testimony. You create jobs.
Congress doesn't create jobs. The NLRB doesn't create jobs. You
do. And we should be listening to you, so thank you for being
here today.
Ms. Monson, I have got a question for you. I am a former
management attorney with over 30 years' experience, and it
truly boggles my mind that we are even talking about a joint
employer relationship in the franchise industry. We were here
three months ago to discuss the joint employer status as a
result of the Browning-Ferris case, which we are all so
familiar with, and the discussion of franchise joint employer
relationship was brought up.
My colleagues on the other side of the aisle couldn't
understand why the franchise industry was worried about their
status as independent contractors. That was three months ago.
Just one month later, the general counsel of the NLRB has
defined McDonald's joint employer before the board, and it has
had a chance to make a decision of its own in the Browning-
Ferris case. So this is a directly relevant issue for our
committee.
Ms. Monson, as a franchisor, how much control do you have
over who your franchisees hire? How do you think a joint
employer relationship will change your ability to grow as a
business? And do you think this will help the employees of the
franchisees when all is said and done?
Ms. Monson. Thank you, Mr. Byrne, for that question.
First, I have zero - FASTSIGNS International has absolutely
no control over who our franchisees hire. We establish brand
standards for customer service, for response time, and quality
of product, and the franchisee handles everything else.
If this new definition of joint employer becomes law, I am
concerned that it is absolutely going to destroy the franchise
model. I don't even understand how to protect my company from
that kind of a slippery slope. As I struggle to maintain
FASTSIGNS International with those kinds of increased costs and
expenses and risks, I am going to have to put more and more
controls on my franchisees. It is going to make it more
difficult for them to run their business. It is probably going
to increase their costs, and as costs increase, something has
to give, and that could very well be pay raises and it could be
headcount cuts.
I don't see any--
Mr. Byrne. Headcount cuts means people lose their jobs?
Ms. Monson. Exactly right, people losing jobs. If Clint has
to maintain his profitability because I have put a new layer of
cost on him because I have got to protect myself, he is not
going to be able to necessarily raise his prices. His
independent sign company competitors are going to be paying
different wages or having different costs of doing business.
And I think it is going to hurt employees.
I think it is also going to hurt future job growth, because
franchising creates jobs, and good jobs. And even entry-level
jobs lead to the next job, the next job, and the next job.
Mr. Byrne. Mr. Duffield, let me ask you a question. I was
fascinated by what you were saying. We heard when the ranking
member was speaking that this somehow detracts from the
reputation of the NLRB. Do you think the NLRB, taking 30 years
of precedent and ripping it up and throwing it away, do you
think that helps its own reputation?
Mr. Duffield. Certainly not. Certainly not. Businesses,
employers, employees, everyone depends on knowing what their
rights are and how to conduct themselves. And when the law has
been in place for 30 years, people can rely on that. It is
predictable. It is a bright line test. And reverting back to an
amorphous standard that is vague and hard to understand does
not help anyone, and especially not the reputation of the
National Labor Relations Board.
Mr. Byrne. Right. You and me and other people that are
practitioners in this field, we have developed an understanding
over a very long period of time as to what the law is. And we
may fuss and fight with one another over exactly how it applies
in a given case. We know what the law is. Now we are going to
change the law, and it is going to directly affect franchise
contracts, thousands and thousands of them in America. What
will that do legally to people in this industry and other
industries?
Mr. Duffield. Well, it is going to create more litigation.
There are going to be lots of fights and lots of uncertainty.
And the ultimate downside could be the loss of business.
Mr. Byrne. Thank you, Mr. Chairman. I yield back.
Chairman Roe. Thank the gentleman for yielding.
Mr. Pocan, you are recognized.
Mr. Pocan. Sure. Thank you, Mr. Chairman. And, again, thank
you to the witnesses.
First off, you know, we are just so far ahead of ourselves.
We don't even know what the specific cases are they are looking
at within the McDonald's sample. And I think, again, this
committee having 17 hearings on this is, I think, looking at
perhaps a different mission, specifically trying to undermine
the NLRB across the board.
Let me just say this. I have spent 27 years of my life
running a small printing--a sign shop, screen printing--
couldn't be any more understanding of--especially on the
FASTSIGNS industry than someone who has done what I have done
and my dad did before me as a small-business owner and my mom
as a small-business owner.
So I certainly understand the concerns that you have.
However, I think what is happening here is some are trying to
build a base to help against the folks who aren't doing a good
job in the employment area. They are trying to fan the fire,
use the scrupulous to defend the unscrupulous, and I think that
is what is really happening here, is you are finding that some
people are trying to exaggerate--first of all, go after the
NLRB, second, try to exaggerate the extent of this.
And I think there are new labor landscapes that we have in
the 30 years. And very specifically, when you think about the
use of temp hiring, the issue of wage theft, the low-wage
workers, the chronically low-wage workers, the other shady
employment practices, I doubt any of your franchises would tell
you that you are paying an employee too much. That is just not
how the franchise model works.
And we--actually, we almost went to a franchise model in
the sign business, so I actually have researched this, because
we were a step--a hair away from doing it ourselves. So if I
could ask Mr. Freeman a question specifically, one of the other
witnesses mentioned, if it is not broke, don't fix it. And from
the little example of the changing labor landscape that I have
mentioned, it seems to me that the joint employer standard is
broken in many areas.
Could you expand on some of the ways that workers are not
served well by that standard, especially around the temporary
workers?
Mr. Freeman. Yes, certainly, Congressman. The broken
character of the joint employer standard is entirely related to
major shifts in the demographics of the workforce now. We now
have businesses that are routinely contracting out core
business functions to temp agencies or franchisors are
contracting out all of the work to franchisees while
maintaining--through contractual relationships--very tight
control over the terms and conditions of the franchisee
employees.
This means that if you want to sit down and bargain over
the terms and conditions of employment, whether it be grooming
standards, whether it be the hours of work, you do not have
everybody at the bargaining table unless you have both the
temporary staffing agency and the user employer.
You have a triangulated employment relationship now that is
routine in our economy. Unless you have all the players talking
to each other, you can't have a meaningful conversation that
gives voice in the workplace and that can raise living
standards and improve conditions, especially when you have this
kind of triangulation that is really making it difficult to
understand the lines of legal responsibility for workplace
problems.
That is what has occurred with some forms of franchising,
particularly in fast food and, of course, with temping, which
is now taking place in manufacturing, logistics, food
processing, recycling. It is even taking place among lawyers.
We now have temping as a normative way of pursuing core
business opportunities. Unless we have the temp agency and the
user employer at the table, we are going to have a problem.
The joint employer test the board is discussing putting in
place is merely a revival of a test that has been in place
since the Supreme Court addressed it in Boise v. Greyhound,
which requires the board to look at what is actually going on,
on the ground, including the contract rights that are given to
both parties and how those rights play out in practice?
What you really have here is a number of employers who are
calling the shots, but have no responsibility. That, I think,
is what the board is looking at. And it is doing so on a fact-
specific basis.
This is not rulemaking by the board, where the board will
say all franchisors are joint employers. That, frankly, is
ridiculous. That is not what the board does. It is not their
function. They really adjudicate on a factual basis. And that
is all the board wants to do, is look and see where these
problems arise, whether you need to have everybody at the table
to resolve a workplace problem.
Mr. Pocan. And real briefly, so what you are saying
essentially is all franchises are not the same?
Mr. Freeman. No, certainly not. All franchises are not the
same. And if you run a franchise where the franchisor basically
says, I will take 6 percent because you use my name and my
brand, I don't think you have a problem with joint employment.
Mr. Pocan. Great. Thank you, Mr. Chairman.
Chairman Roe. Thank the gentleman for yielding.
Dr. Heck, you are recognized.
Mr. Heck. Thanks, Mr. Chairman. Thank you all for taking
the time to be here.
And I spent a fair amount of time over the August work
period visiting with a lot of businesses in my district, many
of which are franchises, in part preparing for this hearing to
get--to understand what their concerns were. Several of them
were hoteliers.
So, Mrs. Panwala, what effect would joint employment have
on the efficiency, productivity, and morale of your employees?
Mrs. Panwala. As an independent business owner, I have a
great relationship with my employees. I have employees that
have been with me for last 15 years. I know their family. I
know about their kids. I know where they go to school. And
bringing a third partner into this relationship, I think it
would diminish the morale. It would definitely hurt the worker-
relationship that we have between myself and employees.
We also--you know, a few of our employees who started with
us 15 years ago, now they are business partners. So there is an
opportunity for them to be in the hospitality industry. Having
a franchisor as a partner and now they are getting involved in
daily operations would definitely hurt our relationship with
franchisor and the employee. And I certainly would not feel
like I own my business anymore.
Mr. Heck. You mentioned the term third-party in reference
to the franchisor. In your opinion, is there any value to
forcing the franchisor to the bargaining table with the
franchisee and union in the event of some type of organizing
activity? And what would be the costs or problems associated
with that to you?
Mrs. Panwala. Like Ms. Monson mentioned, there would
definitely feel like now they have more liability on their
hands, so they would charge us probably more of a fee, but even
more than that, I think they would have to be involved in a
daily operations, just like setting wages, saying who I can
hire, who I can fire, schedules.
Pretty much I am the one who is taking a financial risk
when I started by business, and now 10, 15 years later, I have
a partner who did not take any financial risk and now is my
partner without a choice.
Mr. Heck. All right. Thank you. Thank you, Mr. Chair. I
yield back.
Chairman Roe. I thank the gentleman for yielding.
I believe our next is Ms. Bonamici. You are recognized.
Ms. Bonamici. Thank you very much, Mr. Chairman.
I wanted to start--well, first of all, by thanking all of
our witnesses today for being here. Many years ago in one of my
other lives and when I was in the private practice of law, I
actually had a practice in franchise law, and I represented
franchisees, typically in disputes with franchisors. So I was
particularly interested in this hearing today.
And I wanted to start by saying that, you know, the NLRB
general counsel--he has authorized a complaint. That action
doesn't say or even imply in my opinion that every franchisor
is a joint employer or would be a joint employer. There are
likely hundreds, if not thousands of franchisors in dozens of
sectors across the country. In fact, the chairman said
something about 557,000 franchisees across the country. And
even though their basic business model is similar, we know that
they operate differently.
We have heard that so much this morning. A tax service
franchise isn't necessarily going to be the same as a vending
machine franchise. And a sign franchise is not necessarily
going to be the same as a fast food franchise. So as this case
moves forward, and procedurally, if the general counsel's
position is upheld through many procedural steps and appeals,
and whether or not there is a joint employer status would
depend on the totality of the circumstances.
That would include, of course, how the relationship is
structured and how much influence or control there is over the
franchisees' employment practices.
So, Mr. Duffield, you said that large-scale franchisors who
retain only the control required to protect their brand, trade
name, and trademark could be drawn into hundreds of collective
bargaining relationships where they have little or no
involvement in the workplace. So my question is, if they have
little or no involvement in the workplace, and they only retain
the control needed to protect their brand and trademark,
wouldn't the totality of the circumstances show that they are
not a joint employer?
Mr. Duffield. Well, it should. And under the current
standard, it does. However, the general counsel's proposed
standard not only focuses on this potential control, but also
on an economic dependence. And all franchisees economically
depend on the franchisor. Therefore, they could be brought into
collective bargaining under that standard.
Ms. Bonamici. Well, I am going to ask Mr. Freeman in just a
minute to follow up on that, but I wanted to really follow up
on Mr. Ehlers' and Ms. Monson's testimony, because, Mr. Ehlers,
you said that your franchisor in response to the potential
change in the joint employer standard--and here is what you
said in your testimony--``will take measures to protect itself
that will end up reducing your autonomy as a franchise owner.''
Now, I am a little bit baffled by Ms. Monson's testimony
that she would be ramping up control if this were the standard.
So it seems that if franchisees and franchisors are both so
concerned about the prospect of joint employer status, wouldn't
it be more likely that the franchisor would take measures to
increase your autonomy so that it would be less likely that you
would be a joint employer?
Both of you. I was baffled by what your testimony said. It
seems to me contrary to what common sense would be.
Ms. Monson. Do you want me to try first?
Mr. Ehlers. You go ahead.
Ms. Bonamici. Go ahead.
Ms. Monson. First off, we are at a little bit of a
disadvantage in that we don't know all of what the general
counsel's opinion is based on. We can only infer from the
Browning-Ferris amicus brief. But in the Browning-Ferris amicus
brief, it tends to indicate operational control, system-wide
control, brand standard control.
So as a franchisor, I need to make a decision, and I think
every franchisor will have to make that decision on their own.
Whether I go for more control over my franchisees to protect
myself from increased risk, vicarious liability, all kinds of
issues like that, or whether I scale back my control, in which
case my brand may be hurt. If I can't maintain good brand
standards, high customer service, high-quality product, high-
quality production within the centers, then the FASTSIGNS
brand-name will be deteriorated over time.
So each franchisor will make their own decisions. Either we
will give less support so that we won't be seen as joint
employers, which could hurt the brand, leading to declining
sales, or we give more.
Ms. Bonamici. And I am going to have to ask you to--I want
to ask Mr. Freeman to follow up on this, because it seems like
the franchisors want to have it both ways. They want to have--
your testimony said that fast food workers, they referred to a
high level of control over the workers and conditions of
employment. You laid out specifics. They control their--every
one of the contract provisions, dictated by the franchisor,
directly impacts terms and conditions of employment that are
the core of collective bargaining issues.
So I wondered if you could say, do you agree with the
general counsel's directive that does not indicate that every
franchisor will be a joint employer? It would be--
Chairman Roe. Mr. Freeman, you have to hold up on that and
someone else is going to have to follow up. Time is expired.
Ms. Bonamici. And I will follow up on that and ask you to
respond in writing.
Chairman Roe. Mr. Kelly, you are recognized.
Mr. Kelly. Thank you, Chairman, and thank you all for being
here. I am a franchisee. I am a Chevrolet, Cadillac, Hyundai,
and Kia dealer. And as such, I have watched this evolve over
the years. My father actually started our business in 1953
after being a parts picker before the war in a Chevrolet
warehouse, then coming back and being able to start with a
little one-car show, with about five service bays, and building
into something we are very proud of.
So, Mr. Ehlers, Mrs. Panwala, thank you so much for what
you do, because it is the American Dream you are talking about.
And I have got to tell you, I have never had one month at the
end of the month, when everything is over and done with, that
Chevrolet, Cadillac, Hyundai, or Kia have ever called me and
said, ``You know what, Kelly? Tough month. You didn't make any
money. What can we do to help keep you open?'' Just doesn't
happen.
Mr. Ehlers. Not at all.
Mr. Kelly. And this idea that somehow we have this joint
relationship is absolutely ridiculous. Now, Chevrolet,
Cadillac, Hyundai and Kia determined for me, because of our
market size, what we have to do to serve our customer base. I
think that makes sense. We do rely on collective information,
on collective experience over the years in how we would run a
successful business model.
Professor, you made a statement that franchises equally
profitable as evidenced by the fast food sector of the
restaurant industry, where in 2010 the largest franchises
employed over 2.25 million workers, earning more than $7.4
million--or billion in profits, and distributed another $7.7
billion in buybacks and dividends to shareholders.
Would it be your assumption that these profits--there was a
tax paid on those and that these shareholders paid a tax on
these? Because here is the problem. Where does the money come
from to run this wonderful organization we call the U.S.
government? Where does the money come from that supplies the
safety net for all these people, if it were not for profitable
businesses and people making money?
I think sometimes we forget, it is not the government that
provides one single penny to run this machine. It is
hardworking taxpayers. Mrs. Panwala, you described what you
went through to start your business. Mr. Ehlers, you described
what you went through to start your business. Thousands upon
thousands of Americans have been able to live the American
Dream and been able to employ thousands upon thousands and
millions of American workers and allowed them that first step
into getting to be an entrepreneur, your own entity. Why in the
world would we try to upset the apple cart?
Mr. Duffield, you really make a great statement: if it
ain't broke, don't fix it. We should have started this decades
ago in this entity here, in government. Keep in mind, this is a
process that is working at $18 trillion in the red and is going
to go out and tell you how to run your business. Doesn't that
make sense? Anybody hiring them as business consultants?
So my question to you, Mr. Ehlers--and I know, Mrs.
Panwala, you already said it, would you ever put yourself out
the way you have put yourself out to go into business for
yourself if you knew you were going to have the heavy hand of
the government come down, put its heavy boot on your throat,
make it harder for you to breathe? Would you still do it? Would
you still go out and move from California to Pennsylvania?
Mr. Ehlers. Well, one of the main reasons I actually moved
from California to Pennsylvania was several local regulations
that the state was trying to implement having to do with my
business, state income tax, all sorts of other things. It is--
to your question, no, I wouldn't.
I would do something else. I am an entrepreneur, and I am
out there doing things, but I wouldn't--I certainly probably
would not sign up for the franchise model because when I wanted
to go into business for myself, I wanted to go into business
for myself. I wanted the value of what FASTSIGNS brings to the
table with a proven business plan and also the network of other
independent businessmen that own FASTSIGNS, that have done and
been through the trenches and have come out successful and
others not so successful to learn from that.
What is great about FASTSIGNS is that they collect best
practices from our franchise system. They pull all that
together, and they disseminate that back to us. It is one of
the benefits of not being an independent sign shop like you,
Mr. Pocan, is that we have a collective knowledge that they
offer us.
It does not make us joint employers. It does not make them
tell me what I have to do for my employees.
Mr. Kelly. And just excuse me, because we are running out
of time, but the reality of it is, you moved from California to
Pennsylvania because of an opportunity.
Mr. Ehlers. Yes, sir.
Mr. Kelly. All right. And we really say about America,
there is equal opportunity, not equal outcome, but there is
equal opportunity, and that is all we are looking for.
Mr. Ehlers. Yep.
Mr. Kelly. But you are always looking for a place that you
can do business more successfully, because the true value of a
business is being able to be profitable and stay in business.
Otherwise, you go by the wayside.
Mrs. Panwala, I really admire what you have been able to
do, you and your husband, to come here and start with what you
started and to continue to grow it. That is America.
Mrs. Panwala. Just to say a couple of things, you know, it
is an American Dream to own your own business. Somebody like
me, who came from India at age 15 with a family, with my dad
having $6 in his pocket and working hours and hours, while
going to school and to get our first hotel at age 22, it was an
American Dream.
If I knew at that point that the government or somebody is
going to come to me and say, nope, this is not your business
anymore, now you have somebody else as a partner, even though I
took all the risk at age 22, I probably would have been very
hesitant to enter into the hotel business.
So, yes, to answer your questions, I would not have, and I
would not have been a person who created, personally, many jobs
and reinvesting back into my business.
Mr. Kelly. Thank you so much for being here. My time is
expired.
Chairman Roe. Gentleman's time is expired.
Mr. Scott, you are recognized.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Freeman, as I understand your testimony, the new
joint--the new standard would not require all franchisees and
franchisors to be considered joint employers. Is that right?
Mr. Freeman. That is completely correct. This is not a rule
that is being discussed by the board to apply to every
franchisor/franchisee relationship. It is a fact-specific
inquiry that will include looking at the contractual
relationship both in writing and in practice between a
franchisor and a franchisee to see whether there is the level
of extensive control such that it affects core terms and
conditions of employment that require all three parties to be
at a bargaining table or to hold them liable for an unfair
labor practice.
Mr. Scott. If the total control is exercised by the
franchisee, there would be no joint status. Is that right?
Mr. Freeman. That is completely correct. But in other
circumstances, you have terms and conditions that are being
imposed by franchisees that are really undermining--
Mr. Scott. Franchisors.
Mr. Freeman.--the American Dream.
Mr. Scott. Imposed by?
Mr. Freeman. Imposed by franchisors--I am sorry, I
misspoke--that are really undermining the American Dream. When
you have a fast food franchisor that encourages its employees
to go apply for food stamps or to go on welfare in order to
make ends meet, that is not the American Dream. When a temp
worker has no future or long-term job and no opportunity for
vacations or any forms of benefits, that is not the American
Dream.
And every employer who has a say in that person's terms and
conditions of employment should be at the bargaining table to
give these workers the opportunity to bargain, to rectify those
sorts of problems. That is where the joint employer test that
the board, in my view, is looking to apply to look at
situations where you have co-determination of the terms and
conditions of employment.
I don't agree with Mr. Duffield and I don't think that this
is about a question of the board determining economic
dependence. It is really about co-determination of terms and
conditions of employment on the ground, in the workforce.
Mr. Scott. And I think you said in practice, if that
franchisor technically has the right to intrude and make--
impose standards, but in practice doesn't, would that--how
would that play out?
Mr. Freeman. Well, I think, Mr. Scott, what you are asking
is, what would the fact-finding actually be like at the board?
And I don't want to venture an opinion on any particular set of
facts. I think those kinds of questions is what the inquiry is
actually about.
How does the relationship on paper shake out in practice?
And I think that the totality of circumstances, analysis that
the board has engaged in, in its traditional test--and I think
that is what the board is looking to do again. Right now, the
test has been interpreted in a ridiculously narrow way such
that the only time you have joint employment is if you are the
business that actually tells the worker to turn the screw or
fill the drink.
That is not the way the modern workplace works. Direct
control over terms and conditions of employment are exercised
by contractual relationships, by monitoring, by checking, by
all sorts of high-tech devices that allow franchisors and user
employers to control the terms and conditions, even though they
may not be the party that is actually handing out the paycheck.
Mr. Scott. Now, everybody has talked about protecting the
brand. What kind of conditions of employment can be imposed
under the auspices of protecting the brand?
Mr. Freeman. Well, I think it is rather extensive in
certain industries. In order to protect the brand, a fast food
franchisor may want the food to taste exactly the same, the
uniforms to look exactly alike, the hours of work to be the
same. They may want workers to only work certain shifts at
certain times. All of those questions are things that workers
have a right to bargain about with the employer who controls
those terms and conditions.
When you have those sorts of circumstances, joint
employment may certainly arise. Merely telling someone what
size the letters should be on their sign outside the door isn't
what we are talking about. We are talking about things that
affect workers, and particularly workers, many of whom are in
very low-wage occupations who cannot alter the circumstances of
their life, unless they really talk to the user employers in
the temping industry or to the franchisor in the franchising
sectors.
Mr. Scott. The gentlelady from Oregon asked a question that
you didn't have time to respond to. It says about the doomsday
predictions that would change if we changed the standard. Do
you want to respond to that?
Mr. Freeman. I don't think it would lead to the downfall of
Western civilization or the free enterprise system in any way
at all. In fact, it has been the case in recent years that
other government agencies have been much more aggressive in
applying the joint employment standard--
Chairman Roe. Mr. Freeman, could you hold up for the next--
Mr. Freeman. This is true--
Chairman Roe. Mr. Scott's time is expired.
Mr. Freeman. I am sorry, Chairman.
Mr. Scott. Could he finish that sentence? Just that
sentence? Okay.
Mr. Freeman. I will do it. It is just one sentence. We now
have the Fair Labor Standards Act in the Department of Labor
enforcing joint employment. It is enforced under Title 7. It is
enforced in many states in areas of unemployment insurance.
This is nothing extraordinary, except bringing up the standard
with respect to the modern workplace.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Roe. Thank you.
Mr. Wilson, you are recognized.
Mr. Wilson of South Carolina. Thank you, Mr. Chairman. And
thank you for this very important hearing. What we are talking
about is economic freedom, the ability to operate your own
business successfully. And, Mrs. Panwala, I have had the
opportunity to live your dream, and that is my dad served in
the Flying Tigers during World War II. And so as the little
guy, as I was growing up, he told me how entrepreneurial and
capable the people are of India, South Asia, and it exciting to
me when the Desai family came to our community to start a tiny
little motel.
I said, ``I know who you are.'' And then I worked with the
Patels, the Shahs, the Shevastavahs, Sindhas, and I saw the
success. And in my home state of South Carolina, it is just
extraordinary the economic opportunity that has been provided
due to the success of Asian-Americans creating entry-level
jobs. It has just been a marvel.
So I want to thank you. And it seems we have had a good
success, Mr. Chairman, we are very thankful to the Mondello
family; we have had Benny Cayetano here--the second Asian-
American governor in the United States; Also, very significant,
in the United States, the first female governor in 340 years--
But in the Asian-American community, it makes such a
differnce, because you can run your hotel on the family
members--they did everything, they didn't just start out as a
high income community in the United States. They didn't start
out having the highest-percentage of millionaires. It was
because you could run your business--and then you made that
clear, and I want to thank you.
In your testimony, you said you paid particular attention
to what you expect from your franchisor--after reading the
contract, what were your expectations from the franchisor? You
didn't expect the relationship to change--
Mrs. Panwala. Thanks so much. You know, basically what I
just said is that it is not just for me, it is for hotel owners
who have gone through the same situation--gone through the same
thing as myself--corporations have different motives as an
individual hotel owner, from one hotel to the next. I want to
make sure I am involved in that--involved in that business. And
that is--I think that is what the issue is, that if franchisors
are all of a sudden a joint employer with the franchisee, they
will feel that they have more liability and they will want to
be involved in day-to-day operations, plus making sure that who
you are hiring, who you have at your hotel, in pretty much
daily activity, which for me as an independent business owner,
I would lose that independence.
Thank you.
Mr. Wilson of South Carolina. It is independence. It is
opportunity, entry-level jobs, it is so meaningful in the
communities I represent. And also, the International Franchise
Association, Ms. Monson, I want to thank you, Mr. Ehlers. You
all make a difference.
Is there any--and, Ms. Monson--in your opinion, is there
any value in forcing the franchisor to the bargaining table
with the franchisee and union? What are the costs and problems?
Ms. Monson. Well, first, I understand that unions are
challenged these days to grow membership. And I know that is
part of what is trying to be accomplished here.
But I go back to what has worked for FASTSIGNS and what has
worked for the prior franchisors that I have been involved with
and what has worked for so many different franchise companies.
If FASTSIGNS International was required to come to the
bargaining table, it would certainly increase our costs, it
would increase--it would be a drain on our resources. And it
would limit my ability to service and support our franchisees,
to help our franchisees be more successful.
I see no positive outcome at all. I see it as a slippery
slope, a dark abyss, and I have no idea where it would end.
Mr. Wilson of South Carolina. Well, I share your concern.
And--because running your own business, that is the key, and
being a franchisee, that is so beneficial. But you have got to
run your business, and we should surely understand that every
community is different and things change.
So thank you, again, for being here. And I am just so proud
of you all's success. And appreciate the chairman's leadership.
Chairman Roe. I thank the gentleman for yielding.
Mr. Hinojosa, you are recognized for five minutes.
Mr. Hinojosa. Thank you, Chairman Roe.
The focus of today's hearing is a real disappointment to
me. Unfortunately, my colleagues on the other side of the aisle
have once again chosen to use this subcommittee's time to
undermine the NLRB. It is worth noting that Republicans have
held no less than 17 hearings or markups aimed at undermining
the NLRB's decisions and policies and procedures while ignoring
the key issues affecting the lives of American workers.
As a senior member of this committee, I believe that we
should spend more of the committee's time on helping to
strengthen the middle class.
Is it not on?
[Hearing suspended while Mr. Hinojosa moves to a working
mic.]
Mr. Hinojosa. Mr. Chairman, can you hear me?
Chairman Roe. Yes.
[Laughter.]
Mr. Hinojosa. Well, I certainly wanted to be on the record,
and I was concerned. At this time, I have questions for some of
our distinguished panelists. Professor Freeman, in your expert
testimony, you indicate that the NLRB's decision to take a hard
look at its joint employer standard is both reasonable and
practical as a means of considering how millions of low-wage
workers can meaningfully exercise their fundamental right to
collectively bargain with their employers.
Can you describe for me how employers using temporary
staffing firms co-determine the terms and conditions of
employment for those workers?
Mr. Freeman. Certainly. Today, temporary staffing is no
longer structured to simply have a temporary worker come in and
fill in for an administrative assistant who is out of work for
a week or a few days. What we now have is large concentrations
of temporary staffing workers that many people call perma-
temps, because they are employed regularly and routinely doing
the core business functions of a user employer.
What this means on the ground is that the supervisory and
management staff of the user employer is directing on a day-to-
day basis the work conditions of these temporary workers. They
are responsible for health and safety. They set the line speed
in a manufacturing setting. They may require certain forms of
equipment and training of this temporary workforce.
Yet under current board standards, there is no obligation
to have that user employer at the table when discussing any of
the wages or working conditions of those temp workers. It makes
absolutely no sense when you disaggregate employer functions
not to require everybody to come together to actually talk
about how to fix problems.
All we are doing here is putting everybody at the table who
actually has a say and a role in the production or services
that are being rendered. The reason the joint employment
standard has become controversial is not because the board is
seeking to employ a standard that is in any way radical or new.
Rather, it is simply wanting to revert a standard that was long
in existence to address rapidly shifting demographics in the
workplace. That is the board's obligation under the powers
granted to it by this Congress and approved by the Supreme
Court of the United States.
Mr. Hinojosa. Professor, I understand that contingent or,
as we call them, temporary workers are, on balance, paid less,
have inferior access to benefits, and oftentimes suffer health
and safety violations at a greater rate than other workers in
the private sector, but by the same token cannot bargain for
better conditions due to the current joint employer standard.
So can you also discuss how the current narrow standard
prevents the workers from engaging in meaningful collective
bargaining?
Mr. Freeman. The narrow standard is preventing having the
user employers at the bargaining table because the standard
requires that there be this form of direct and immediate
supervision. The standard--when you look at the temporary
staffing industry and how it functions--makes little sense
given that the temporary staffing industry is often not on the
job site at all. They don't really have any role, except
administerially, administering payroll, workers' compensation
benefits, and the like.
In that regard, you have actual control being exercised
completely by an employer who under current board standards
plays no role in the process of collective bargaining. I don't
see where that makes sense in the modern workplace.
You have right now major manufacturing centers of the
United States--in auto and other sectors--where you have half
the workforce being sent there by a temp agency. They make less
than the workers who are direct hires. They are doing exactly
the same things. Yet the user employer has to bargain with
respect to the direct hires, but not the temps.
Mr. Hinojosa. My time--
Mr. Freeman. Now that is pretty irrational.
Mr. Hinojosa. My time has expired. And I thank you for
responding to my questions.
Mr. Freeman. Thank you.
Chairman Roe. Thank you the gentleman for getting through
his testimony today. It--
Mr. Hinojosa. Thank you for helping me.
Chairman Roe. Dr. Price, you are recognized.
Mr. Price. Thank you, Mr. Chairman. And I want to thank you
for holding this hearing. I want to thank the witnesses. I
apologize for not being here for the entire portion of the
hearing. I was able to read some of the testimony before.
My friends on the other side talk about the NLRB and say,
well, why are we having all these hearings? Seventeen hearings
on the NLRB, why--why on Earth would we be doing that? Well, to
quote my good friend, these are actually, ``key issues'' that
affect workers. What we are trying to do is to build the middle
class, is to make certain that jobs are being created out there
across the economy.
And so when we see activities and rulings and decisions by
the NLRB that actually harm job creation and decrease economic
vitality in this country, then it is incumbent upon us to have
hearings and talk about it and educate our colleagues and the
American people about what is going on in this administration.
Mr. Duffield, I have been really impressed with the
remarkable success of the franchisee business. Each and every
day, hardworking entrepreneurs across this country go to work,
they provide for their families, they offer jobs to the
community, and they create, again, that much-needed economic
growth in our communities.
For years, franchisee owners have had a degree of
regulatory certainty that they could rely upon in building
their business. However, as many of us believe, this joint
employer ruling will throw all that to the wind.
I want to ask you, how does this ruling affect the value of
a franchisee business? And could this ruling effectively end
the franchisee business model?
Mr. Duffield. I think that is a serious risk. As we have
heard already from Ms. Monson and Mrs. Panwala and Mr. Ehlers,
if the franchisor is going to be held responsible for the
unfair labor practices in a workforce where they are not
involved, they are going to have to get involved. They are
going to want to be there and provide some oversight. That is
going to increase their costs and it is going to affect their
business model.
On the franchisee side, Mrs. Panwala has testified several
times today that the reason she got into this business is
because she has got an entrepreneurial spirit about her. And if
that gets taken away from her because somebody else is coming
in and looking over her shoulder, I think fewer and fewer
minority business owners are going to want to embark on that
endeavor.
Mr. Price. Mr. Freeman just told us that nothing about this
ruling is, ``radical or new.'' Your opinion?
Mr. Duffield. I disagree. I think this could radically
change the economic landscape for not only just franchisors,
but lots of other industries. You know, we focused a lot today
on the franchisor/franchisee context and industry, but I think
the implications here expand much broader than just that. We
are looking at staffing agencies. He has talked about the temp
services situation. We are looking at, you know, the
contractor/subcontractor situations, you know, lots of other
industries other than just franchisors and franchisees.
Mr. Price. Yes, we would agree. And goodness knows the
economy needs to be helped, not harmed, and so many of us
believe that this is actually harmful. If McDonald's is a joint
employer, is anybody not a joint employer?
Mr. Duffield. Right.
Mr. Price. Ms. Monson, I appreciate your comments. You also
said that there was no positive outcome that you could see
coming from this joint employer ruling. Why do you think they
are moving forward with this?
Ms. Monson. I believe that this is an attempt to help build
union membership.
Mr. Price. Pretty stark, isn't it?
Ms. Monson. Yes.
Mr. Price. I have a gentleman in my district, in the Sixth
District of Georgia, who owns 23 franchise restaurants--he
communicated with our office. He doesn't want his name to be
divulged, because of some other concerns we have had about the
administration punishing folks that step up and express their
concerns.
He has been extremely concerned and petrified with what
this joint employer ruling would do to his business. He started
with one franchise and grew it into 23 stores. Why do you think
so many franchise owners from my district, and across this
country, are concerned about the potential fallout from the
decisions that the NLRB general counsel has made as it relates
to McDonald's and the franchisee joint employers?
Ms. Monson. Franchisees around the country are fearful of
losing their independence, having the value of their franchise
decrease. Every person who owns a business today plans to sell
it at some point in the future or pass it on to their family,
and they don't want to see valuations decline because of this
increased risk and change in the law.
Mr. Price. Mr. Chairman, what we have here is a red flag
being waived in front of the country that says, ``This is going
to harm job creation.'' It is going to harm businesses across
this country. It is time to stop this ruling. Thank you.
Chairman Roe. Thank the gentleman for yielding.
I am going to ask a few questions. And, you know, we asked
why we had 17 hearings on the NLRB. This NLRB is the most
activist NLRB in anybody's memory. We look at the Boeing
situation. In the great state of South Carolina, where a
billion-dollar investment was almost snuffed, and there was no
job loss in Everette, Washington. Now there are thousands of
people with good-paying jobs taking care of their families.
They would have done away with--I found that absolutely
astonishing to me.
Ambush elections, where you can have--look, we have a
system that has worked for a long time, where both sides get a
chance to put their testimony out there and make their case. We
had that election in Volkswagen in Chattanooga in my state not
six months ago. And the people decided what they wanted to
have, after they were fully informed. But it didn't happen in
10 days, I can tell you that.
Micro-unions. And, you know, I--we have 30 years, as Mr.
Duffield has pointed out, of bipartisan agreement with the NLRB
about this. And yet now there is some big emergency that is
going on. We should be looking in this country about how we
create jobs for people.
As I stated when I opened up, nine million people don't
have health insurance that did since 2009 during this, quotes--
``recovery.'' And we are having a hearing today that I hear
right now may stifle job creation. I am just a simple doctor
from East Tennessee. But I tell you how I knew who my employer
was: who wrote my check. That is who I worked for.
And I heard Mr. Ehlers say that basically he had to go out
and borrow the money. His banker didn't call Ms. Monson for the
payment at the end of the month. It called you for that. Am I
right about that?
Mr. Ehlers. Yes, sir.
Chairman Roe. And you very clearly stated it, did they help
you fill out your taxes at the end of the year to find out what
your tax liability is? You were able with the--and I was an
employer for over 30 years. And you are absolutely right. When
you describe this family was having some issues about, how do I
help that--it is a good employee, obviously.
Mr. Ehlers. Yes, sir.
Chairman Roe. A great employee. And with 14 people, you
know all the--you know when they get married, when they go to
the hospital, whatever happens to them. I guarantee you do.
And so you work with this good employee to make sure that
their son could get to what they needed. Maybe it was a single
parent. I don't know. Would you just comment on those things?
Mr. Ehlers. Yes. I mean, I am very involved--as much as a
friend/owner/boss can be--in my employees' lives. I fully
understand, especially with this employee, he is a very valued
employee of mine. He has a 12-year-old son who he did not want
to leave at home by himself with a computer during the
summertime. His wife makes more money than him. She has a great
job, so she obviously couldn't take off.
And they had to make arrangements, albeit late in the
season, to find daycare. And we worked it out to where he could
bring his son in to work and work for me. I grew up in a--my
dad owns a roofing company, started in 1960, independent. I
have been working since I was probably eight years old,
slinging shingles and whatever else. I have been--
Chairman Roe. Be careful. The Department of Labor might
be--
Mr. Ehlers. Yes, absolutely.
[Laughter.]
So I have--I know the value of hard work. I have made
minimum wage. And it was an entry-level job for me. But it
fueled me to do more. We talk about the American Dream. The
American Dream is to do more, to take opportunities as they
come along, entry-level positions, entry-level pay, and do more
with that and learn and move on.
It was not something--the American Dream is not something
for the government to control. The government should not set
the American Dream for employees and give--they don't create
jobs.
So I have another quick example. I have an employee--I
bought the Lancaster store. It was a struggling store. I bought
it because it was struggling and I could turn it around. Fairly
overstaffed. I had to make some very hard decisions. I had an
employee who was married, young, both of them making not a lot
of money. She needed a job, but her job was not necessary in my
company anymore.
I worked with her. I gave her six--I am sorry, 60 days to
go find another job. Right? She knew she was going to be--her
position was eliminated, but I gave her 60 days to go find
another job, because I did not want her and her husband to be
without a paycheck.
If they controlled that, that would not have happened, and
she would have been out on unemployment. Now, she found a job--
and I even gave her a financial incentive to do it in 45 days.
She found it in 50 days, and she found a job making more money
than what I was paying her, and it is actually in a career that
she actually went to school for.
So that is a typical situation in a responsible business
owner that I would not have been able to make, had I been
jointly controlled by FASTSIGNS Corporate.
Chairman Roe. Well, I am going to have to gavel myself
down, but there is one other question that, Mr. Duffield, I
would like to have you answer otherwise, about--afterwards, is
indirect control and potential control. That is a slippery
slope that I can't imagine how you would ever get by potential
control. And that is what these folks are talking about.
Once again, I would like to thank our witnesses for taking
time to testify. It has been great testimony, been a lively
discussion. I know you have spent a lot of time preparing. We
appreciate you doing that. And I will now yield to Mr. Pocan,
our ranking member, for any closing comments.
Mr. Pocan. Sure. And, again, thank you, Mr. Chairman.
You know, in listening to the hearing, I think what we said
in the beginning really hasn't changed much as far as the
focus. You know, I think one of the things that is very clear--
and I know a little bit about, again, this model--Ms. Monson,
you don't have any direct relationship on the employees at the
FASTSIGNS in Mr. Ehlers' community. And you are not going to be
in the same case as the employers we are talking about.
The problem is, as we have talked about the American
Dream--and I agree. Both my parents are small-business owners.
I am a small-business owner. I really know nothing other than
being in small business. That is in my entire life.
But I do know that a lot of people are not getting access
to the American Dream. Millions of people who are negatively
affected by the unscrupulous players that we are trying to go
after, and that means the folks who use the temp industry. I
have got a constituent, four years she is a temp as an
electrician. They lay her off when there is no business. She
gets no benefits whatsoever. And she is making less than she
would if she was in the field at another area.
There is wage theft. There is the chronically low-wage
workers that we are dealing with throughout the problems that
NLRB is trying to address. So we do want access to the American
Dream for each and every American. And I want it just as much
for the small-business owner, which I am as well, but I want it
for that worker. And for those businesses that aren't
participating, like you all are, we need to make sure that
those folks are protected and that the NLRB is looking at
direct violations by what is happening either through this
contingent or temp worker, people who aren't getting the same
access to the benefits and the pay, or through some of the
bigger franchisers, especially in the fast food industry, who
are abusing that relationship. That is what has to happen.
Everyone deserves that American Dream, and I appreciate you
sharing your stories and, like I said, your stories in many
ways are my stories.
As a kid, I was working at my parents' business, go in
there and--you know, in fact, one of the early, early sign
franchises was Budget One Hour Sign. How is that for knowing
way, way back, the old inking the wooden type? That is what my
dad first had.
So I appreciate everything that you are doing and saying,
but I think what we are trying to do is go after the folks who
are doing unscrupulous practices. That is what it is going to
be directed towards. And we need to make sure that every single
person, including those who are working as temps and contingent
workers, have access to have that opportunity for their
families, as well.
Chairman Roe. I thank the gentleman for yielding, first of
all.
Secondly, thank you all for being here today. And I want to
close by saying that the way I had understood the NLRB to work
was it was to be a fair arbiter. It is like a referee in a
ballgame. When you go on the road and play basketball, which I
did, you expected to get a fair call. And that is exactly what
we expect NLRB to do, not to tilt it one way or the other.
You have a right to organize in this country. And I think
that labor laws also apply to temporary agencies and OSHA
requirements apply to those same things. I don't think they can
avoid those. So all those things, I think, that you bring up,
they are already laws out there to protect workers from those
things.
I think the franchisee model, we have seen across the
country, and two unbelievable examples today that you all
brought here about how you have been successes, but you
started--and, Mrs. Panwala, I wanted to ask you, just--you
sound like an intern at a hospital. I wanted to ask you what
you did in your spare time. You worked. You were the plumber.
You were the electrician. You cleaned. You were at the front
desk. I am sure you felt like you were never going to be
successful.
It is an amazing, amazing story. And it is repeated across
this country hundreds and thousands of times each day. And you
take a--I mean, there are stories in this very room--and I have
one sitting right here to my right--that has been successful as
a small-business owner. And we need to encourage that and make
it easier for small-business owners.
We have 43 jobs bills we have passed in the House, 43, that
are sitting in the U.S. Senate right now with no action, 43,
that would help increase wages, would help increase employment
in this country, and we are under-employed right now. There are
jobs out there that people don't have the skills to meet.
I, as many others, went to 20 or had 20 manufacturing
plants I visited this summer during the recess and met with
them. And there are jobs open that we have--we just passed a
Workforce Investment Opportunity Act that will help hopefully
fill those jobs.
So I think this would be a terrible, terrible decision by
the NLRB that would stop one of the very successful parts of
our economy. I want to thank you all for being here. We will
continue our very close observation of the NLRB. And with no
further comments, this meeting is adjourned.
[Additional submissions for the record by Chairman Roe
follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]