[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:]

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    [Whereupon, at 11:42 a.m., the subcommittee was adjourned.]