[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
REDEFINING EMPLOYER AND THE
IMPACT ON GEORGIA'S WORKERS
AND SMALL BUSINESS OWNERS
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR, AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN SAVANNAH, GEORGIA, AUGUST 27, 2015
__________
Serial No. 114-26
__________
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina Jared Polis, Colorado,
Virginia Foxx, North Carolina Ranking Member
Tim Walberg, Michigan Joe Courtney, Connecticut
Matt Salmon, Arizona Mark Pocan, Wisconsin
Brett Guthrie, Kentucky Ruben Hinojosa, Texas
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
Buddy Carter, Georgia Mark Takano, California
Glenn Grothman, Wisconsin Hakeem S. Jeffries, New York
Rick Allen, Georgia
C O N T E N T S
----------
Page
Hearing held on August 27, 2015.................................. 1
Statement of Members:
Allen, Hon. Rick, a Representative in Congress from the state
of Georgia................................................. 5
Carter, Hon. Buddy, a Representative in Congress from the
state of Georgia........................................... 4
Prepared statement of.................................... 5
Roe, Hon. David P., Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 3
Statement of Witnesses:
Mintz, Mr. Jeffrey, Shareholder, Littler Mendelson P.C.,
Atlanta, GA................................................ 7
Prepared statement of.................................... 11
Patel, Mr. Kalpesh ``Kal'', President and CEO, Image Hotels,
Inc., Savannah, GA......................................... 21
Prepared statement of.................................... 23
Salgueiro, Mr. Alex, President and CEO, Savannah Restaurants
Corporation, Savannah, GA.................................. 29
Prepared statement of.................................... 32
Weir, Mr. Fred, President, Meadowbrook Restaurant Co., Inc.,
Cumming, GA................................................ 35
Prepared statement of.................................... 38
REDEFINING `EMPLOYER' AND THE
IMPACT ON GEORGIA'S WORKERS
AND SMALL BUSINESS OWNERS
----------
Thursday, August 27, 2015
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 10:03 a.m., in
Live Oak Room and Cypress Room, Coastal Georgia Center, 305
Fahm Street, Savannah, Georgia, Hon. David P. Roe [Chairman of
the Subcommittee] presiding.
Present: Representatives Roe, Carter, and Allen.
Staff Present: Janelle Belland, Coalitions and Members
Services Coordinator; Christie Herman, Professional Staff
Member; Tyler Hernandez, Press Secretary; John Martin,
Professional Staff Member; and Eunice Ikene, Minority Labor
Policy Associate.
Chairman Roe. A quorum being present, the Subcommittee on
Health, Employment, Labor, and Pensions will come to order.
I will first recognize myself for opening remarks.
Good morning, everyone and welcome to today's hearing. I
would like to thank our witnesses for joining us, and I would
like to thank the staff here at the Coastal Georgia Center for
their hospitality.
It is nice to have an opportunity to get out of Washington
for a hearing like this, which allows us to hear directly from
you about the issues that will have a significant impact on
workers and employees in your community and across the country.
And I would also like to thank the people here in Savannah for
the incredible hospitality you have shown us.
Yesterday, I had a chance to visit the St. Mary's Health
Center, a collaboration between Methodists and Catholics--I am
a Methodist--it shows that if Methodists and Catholics can make
something that nice work, imagine what Methodists and Baptists
could do.
[Laughter.]
Chairman Roe. I also visited the Memorial Medical Center,
very similar to our medical center at home. And I do not think
I am going to have to eat for another week, I ate at the Wilkes
Boarding House restaurant yesterday, and I am totally stuffed,
and I had a great dinner last evening. The hospitality has been
as expected: Southern and very warm. And thank you for that.
The issue we are discussing today is an effort by a group
of unelected bureaucrats in Washington that could fundamentally
change the way franchise businesses operate. It is an important
issue because there is a lot at stake. Hundreds of thousands of
franchise businesses currently operate in the United States.
More than 780,000 of them, actually. And they employ nearly 9
million workers. These are small businesses that are
independently owned and operated and that help create jobs and
provide opportunities for many individuals to pursue the
American Dream. Franchise businesses are vitally important to
communities like Savannah and the families that live and work
in them.
A federal agency known as the National Labor Relations
Board is trying to upend the franchise model that has worked
well for decades. This is the same federal agency that tried to
tell Boeing that they could not open a plant in Charleston,
South Carolina, threatening thousands of good paying jobs for
South Carolinians.
Now the NLRB is again doing the bidding for big labor by
making it easier to organize franchise workers, no matter the
cost to working families and to job creators. To that end, the
NLRB's General Counsel, Richard Griffin, is pushing the agency
to rewrite the rules that determine who is responsible for the
decisions affecting the day-to-day operations of a franchise
business. Is it the franchisee, the individual that owns and
operates the business locally, or is it the franchisor, the
entity that enables the small business owner to use an
established brand to sell certain goods or services in a
particular area?
If Griffin has his way, both will be joint employers and
will have equal responsibility for those decisions, which will
include hiring, training, wages, and work schedules. And if
that happens, there will be serious consequences for workers
and employers.
First, let us talk about what it would mean to the
franchisees, the small business owners. A change like the one
Griffin is pushing will mean less freedom to actually run their
businesses. If a franchisor is suddenly responsible for the
day-to-day decisions at each franchise, they will assert more
control over the business--obviously they will.
That means the franchisees, the small business owners like
Mr. Patel, Mr. Weir, and Mr. Salgueiro will have less say over
these important decisions and will no longer decide how to run
their own businesses. That is just the beginning.
Expanding the joint employer standard will also lead to
higher consumer costs for small businesses, lost jobs, more
litigation, and fewer opportunities for individuals to pursue
the American Dream.
On top of that, the NLRB could extend this radical approach
to other businesses like contractors and subcontractors. A
change like that would threaten countless businesses in
Savannah, throughout Georgia, and across the country.
It is never easy running a successful small business,
especially in an economy plagued by the persistent challenges
we face today. We do not need an unelected, unaccountable board
of bureaucrats, with an activist agenda, changing the rules to
favor big labor. That is exactly what the NLRB is trying to do.
As we have seen time and time again with this
administration, the Board is bending to the will of the union
bosses who want to grow the ranks of dues-paying members. And
they are doing it at the expense of hard-working Americans.
I want to thank our witnesses again for being with us today
and sharing their personal experiences with the Committee. With
your stories and personal experiences, you are helping us
determine what will need to be done to address this misguided
scheme and put in place policies that encourage--not stifle--
economic growth and job creation. I look forward to hearing
from each one of you.
And I will state for the record today that we did invite
Democratic members of the House to participate and we also
invited them to have a Democratic witness, which they did not
do.
I now will recognize our host today, Congressman Carter,
for his opening remarks. Mr. Carter, you are recognized.
Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on
Health, Employment, Labor, and Pensions
Good morning, everyone, and welcome to today's hearing. I'd like
thank our witnesses for joining us, and I'd like to thank the staff
here at the Coastal Georgia Center for their hospitality.
It's nice to have the opportunity to get out of Washington for a
hearing like this, which allows us to hear directly from you about
issues that will have a significant impact on workers and employers in
your community and across the country. The issue we're discussing today
is an effort by a group of unelected bureaucrats in Washington that
could fundamentally change the way franchise businesses operate. It's
an important issue because there is a lot at stake.
Hundreds of thousands of franchise businesses currently operate in
the United States - more than 780,000 of them actually - and they
employ nearly nine million workers. These are small businesses, they
are independently owned and managed, and they have helped create jobs
and provided opportunities for many individuals to pursue the American
Dream. Franchise businesses are vitally important to communities like
Savannah and the families that live and work in them.
A federal agency, the National Labor Relations Board, is trying to
upend a franchise model that has worked well for decades. This is the
same federal agency that tried to tell Boeing they couldn't open a
plant in Charleston, South Carolina, threatening thousands of good
paying jobs. Now, the NLRB is again doing the bidding of Big Labor by
making it easier to organize franchise workers - no matter the cost to
working families and job creators.
To that end, the NLRB's general counsel, Richard Griffin, is
pushing the agency to rewrite the rules that determine who is
responsible for decisions affecting the day-to-day operations of a
franchise business. Is it the franchisee - the individual who owns and
operates the business locally? Or is it the franchisor - the entity
that enables the small business owner to use an established brand to
sell certain goods or services in a particular area? If Griffin has his
way, both will be ``joint employers'' and will have equal
responsibility for those decisions, which include hiring, training,
wages, and work schedules. And if that happens, there will be serious
consequences for workers and employers.
First, let's talk about what it would mean for the franchisees, the
small business owners. A change like the one Griffin is pushing will
mean less freedom to actually run their businesses. If a franchisor is
suddenly responsible for the day-to-day decisions at each franchise,
they will assert more control over the business. That means the
franchisees - small businesses owners like Mr. Patel and Mr. Weir -
will have less say over these important decisions and no longer decide
how to run their business.
But that's just the beginning. Expanding the joint employer
standard will also lead to higher consumer costs, fewer small
businesses, lost jobs, more litigation, and fewer opportunities for
individuals to pursue the American Dream. And on top of that, the NLRB
could extend this radical approach to other businesses, like
contractors and subcontractors. A change like that would threaten
countless businesses in Savannah, throughout Georgia, and across the
country.
It's never easy running a successful small business, especially in
an economy plagued by the persistent challenges we face today. We don't
need an unelected and unaccountable board of bureaucrats with an
activist agenda changing the rules to favor Big Labor. But that's
exactly what the National Labor Relations Board is trying to do. As
we've seen time and again under this administration, the board is
bending to the will of union bosses who want to grow the ranks of dues-
paying members, and they're doing it at the expense of hardworking
Americans.
I want to thank our witnesses again for being with us today and
sharing their personal experiences with the committee. With your
stories and personal experiences, you are helping us determine what
needs to be done to address this misguided scheme and put in place
policies that encourage - not stifle - economic growth and job
creation. I look forward to hearing from each of you, so I'm going to
yield to my distinguished colleague and our host today, Congressman
Buddy Carter, for his opening remarks.
______
Mr. Carter. Thank you, Mr. Chairman, and good morning. And
thank all of you all for being here today. This is a very
important hearing and the way I like to put this is instead of
you coming to Congress, Congress is coming to you. And this is
good; we need to do more of this. And I want to thank Chairman
Roe, and especially thank my colleague, Congressman Rick Allen,
from the Twelfth District here in Georgia for being here as
well and making that effort to come down, not too far, but a
little bit. But we appreciate it and appreciate you spending
some time down here, both of you I think had an opportunity to
see what we are so very proud of here in the First
Congressional District. I believe that Congressman Allen was
able to tour the ports yesterday, and that is certainly an
economic engine, not only of Southeast Georgia but really of
the Southeastern United States and we are very proud of that
and want to do everything we can to help them.
Chairman Roe, thank you for your leadership in this
important issue and everything that you do, we appreciate your
service very much.
Earlier this year, the National Labor Relations Board
announced they were proposing a change to the existing joint
employer standard. The new joint employer standard by the NLRB
has major implications for every small business community
across the country.
Let me interject right now, full disclosure, I am a small
business owner. I have a small business that I own, three
different stores, three locations. I should say my wife owns
them now. One of the things that you have to do when you become
a member of Congress is divest yourself of business interests.
So let me say that I am married to someone who owns three
pharmacies right now, 19 employees. So mine is the
quintessential small business. So I just want to make sure that
everyone knows, full disclosure, that I am a small business
owner.
But again, the new joint employer standard by the NLRB has
major implications for every small business community across
the country. Essentially the new rule would turn franchisees
from small business owners into managers. Now there is a big
difference between a small business owner and a manager. I am
sure that what we are going to hear today, that these business
owners are going to tell us how much they appreciate their
managers. I can tell you that I would not be able to be here if
it were not for having good managers and good people. However,
there is a big, big difference between a manager and a small
business owner--I will tell you that as well.
So essentially, the new rule would turn franchisees from
small business owners into managers and would result in
franchisors limiting their expansion because of undue legal
liabilities. From retail stores to financial service providers,
almost every business in every community in the country would
be affected.
In Savannah, there are countless businesses that run under
the franchisee-franchisor model, whether it is a Hilton or a
McDonald's, we have got them here in Savannah. With this new
rule, Savannah's small businesses would be subjected to legal
liabilities that they have never been subject to before,
causing many businesses to shut their doors. That is why we are
here today. We cannot continue to allow the government to enact
rules and regulations that squeeze small businesses until they
close their doors.
I look forward to a lively discussion on this issue here
today and I yield back the remainder of my time.
Prepared Statement of Hon. Buddy Carter, a Representative in Congress
from the state of Georgia
Good morning! I would first like to thank everyone for coming out
this morning to learning more about this very important issue to the
small business community. Second, I would like to thank Chairman Roe
and the other Congressional members for holding this hearing in
Savannah, Georgia, and for allowing me to show you around Savannah the
last few days. It has been an honor and a privilege.
Earlier this year, the National Labor Relations Board announced
that they were proposing to change the existing joint-employer
standard. The new joint-employer standard by the NLRB has major
implications for every small business community across the country.
Essentially, the new rule would turn franchisees from small business
owners into managers and would result in franchisors limiting their
expansion because of undue legal liabilities. From retail stores to
financial service providers, almost every business in every community
in the country would be affected.
In Savannah, there are countless businesses that run under the
franchisee-franchisor model. Whether it is the Hilton or McDonalds.
With this new rule, Savannah small
businesses would be subjected to legal liabilities that they have
never been subjected to before, causing many businesses to shut their
doors.
That is why we are here today. We can't continue to allow the
government to enact rules and regulations that squeeze small businesses
until they close their doors.
______
Chairman Roe. Thank you, Mr. Carter.
I will now recognize Mr. Allen for his opening remarks.
Mr. Allen. Good. Thank you, Mr. Chairman. And again, I want
to thank you for taking your time and our staff on the
Education and the Workforce Committee for putting this hearing
together. This is important business, and I want to thank my
colleague, Congressman Carter.
I will tell you, we also toured Gulfstream yesterday and I
will tell you what, of course a lot of those folks live in the
Twelfth District of Georgia. So, I just wanted you to know
that. But, boy, everyone has been wonderful. And of course, we
were there at the port and I will tell you, you know, I told
those businesses and I tell my colleagues, you know, our
colleagues in Congress are pretty envious of us down here in
the Twelfth District and the First District of Georgia because
I am going to tell you what, we are doing some business.
And it is so refreshing to get out and get with these
companies and talk about their challenges, as we are going to
be talking about the challenges of our small business community
here today. That is the way you learn and that is what we take
back to Washington, unlike those who are heading those
agencies. You know, apparently they are not listening to the
American people, and that is the message we need to take back
and, of course, that is the reason for this hearing today.
To tell you real quickly, our districts--obviously we
border, I am in Springfield, Georgia. About 20 minutes up the
road is the edge of the district and then, of course, to the
west is Claxton in Evans County and further south is Appling
County.
We also have a number of our staff members. If you would
stand, our staff, Congressman Allen's staff, of course, thank
you. We have got a great group traveling with us there. And
boy, they are keeping me on a tight schedule.
This is an important hearing and, you know, small business
creates over 70 percent of the jobs in this country. It is
small business that has been under attack, particularly the
last six years. And, you know, I tell my friends in the small
business community everywhere I go, I say hang in there, hang
in there. We are doing the best we can do, and as we listen to
this testimony today and we hear about the challenges of our
small business community, let us remember their resiliency.
Because it is not easy folks--and I have to disclose my wife
owns a holding company now that owns a variety of businesses
and, you know, I will tell you one group that took on the
challenge, I really almost apologized to them about a year ago
because I said, you know, I am not sure I did you folks a favor
by allowing you to buy this business. It has been tough. You
know, we are seeing a little light at the end of the tunnel
now, but again, as we continue to see this regulatory assault
on our small business community continue, it just gets more and
more difficult to say is it worth it? It is worth it, folks. We
must get people back to work in this country; it is the small
business community that is going to do it.
And again, I thank you, Mr. Chairman, and I yield back the
remainder of my time.
Chairman Roe. Thank the gentleman for yielding. And just
for the record, this is an official hearing of the U.S.
Congress.
Pursuant to Committee Rule 7(c) all subcommittee 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
statements, questions for the record, and other extraneous
material referenced during the hearing to be submitted in the
official hearing record.
It is now my pleasure to introduce our distinguished panel.
First, Mr. Jeffrey Mintz is a shareholder of Littler Mendelson,
P.C. in Atlanta, Georgia. Mr. Mintz is an experienced
practitioner before the NLRB and has defended employer
positions before the Equal Employment Opportunity Commission,
the EEOC, and other state and federal administrative agencies
and courts. He is considered a subject-matter expert with
respect to representation elections and related NLRB
proceedings, and preventative labor relations. He also has
extensive experience advising employers facing non-traditional
organizing including corporate campaign tactics designed to
enhance union leverage so as to achieve labor's objective.
I will now yield to my friend, Mr. Carter, for
introductions.
Mr. Carter. Thank you, Mr. Chairman.
We are very fortunate to have two very influential business
leaders in Savannah with us today. First, Kal Patel, who is
President of Image Hotels in Savannah. Image Hotels owns and
operates eight hotels as licensees of Starwood, Hilton, IHG,
and Marriott brands. Mr. Patel has served on the boards of the
Asian American Hotel Owners of America and on the Savannah
Convention and Visitors Bureau. He was born in India in 1978,
and moved to the United States in 1979, and he is a second
generation hotel owner. Mr. Patel is a graduate of Savannah
State University. Kal, thank you for being with us today.
Also, we are very fortunate to have Alex Salgueiro, who is
the President and CEO of the Savannah Restaurants Corporation.
Mr. Salgueiro is the President of the Burger Kings, he actually
owns and operates numerous Burger Kings throughout the Savannah
area. Before starting Savannah Restaurants Corporation, Mr.
Salgueiro was a project manager and the area manager with
Burger King Corporation from 1971 to 1986. He was born in
Havana, Cuba, a place that I had an opportunity to visit
earlier this year. And he is a graduate of Florida
International University. And by the way, I want to mention
that we are glad you are here and that your health is better.
We appreciate that, and glad you are doing better. And
congratulations, I believe you are opening your store today,
reopening on Derene Avenue.
Mr. Salgueiro. Open now.
Mr. Carter. Open now, open this morning. That is great. So
thank both of you for being here. And I yield back.
Chairman Roe. I thank the gentleman for yielding.
Mr. Fred Weir is the President and CEO of Meadowbrook
Restaurant Corporation in Cumming, Georgia. Currently owns and
operates 10 franchise Zaxby restaurants in Georgia and
Arkansas. You will be glad to know, full disclosure, had one of
your salads before I came down here to Alabama the other day.
He is a third generation restaurant operator. Mr. Weir
currently serves on the Board of Trustees for Reinhardt
University and the Board of Directors of Cherokee County
Chamber of Commerce, and CASA, the Court Appointed Special
Advocate. And thank you, Mr. Weir, very much for doing that.
Many times that is the only advocate these young people have.
So that is an incredible thing that you are doing, public
service.
I will ask our witnesses to stand and raise your right
hand.
[Witnesses sworn.]
Chairman Roe. Let the record reflect the witnesses answered
in the affirmative. You may take your seats. Thank you,
gentlemen.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. You will have five minutes
to give your testimony. When you begin, the light in front of
you will turn green. With one minute left, it will turn amber.
And then at five minutes, it will turn red. At that point, I
will ask you to wrap up your comments. I am not going to cut
you off in mid-sentence, but try to keep it around five
minutes. And I will also ask the members to do the same thing.
Mr. Mintz, you are recognized for five minutes.
TESTIMONY OF JEFFREY MINTZ, SHAREHOLDER, LITTLER MENDELSON
P.C., ATLANTA, GEORGIA
Mr. Mintz. Thank you. Good morning, Chairman Roe,
Representative Carter, Representative Allen. I appreciate the
opportunity to provide testimony today. I am going to focus on
providing a legal context for subsequent testimony from the
franchisees in the room.
Under the current doctrine used by the National Labor
Relations Board to determine joint employer status, they use
and have used for many years the common law of agency. And the
question before the Board has been do two or more businesses
share or co-determine the essential terms and conditions of
employment of the employees that are the subject of the
inquiry. The key is whether or not the second employer, the
putative joint employer, meaningfully affects matters regarding
the employment. And this is a broad range of things ranging
from recruitment to hiring, disciplinary standards,
supervision, the wages and benefits that are offered.
Effectively, anything and everything that arises out of the
employment relationship.
The standard has required direct and immediate control, not
just theoretical or hypothetical. And what the Board has done
is review the totality of circumstances. No single factor is
determinative.
With respect to supervision, limited and routine
responsibilities have not been enough. They require, have
required, some degree of control over how work is done, not
necessarily what or where or when, but how the work itself is
to be performed.
The Labor Board had, about a little over a year ago,
invited interested parties to file amicus briefs; that is,
summaries of rationale and argument, legal argument, as to why
the standard should be changed, and if so, how it should be
changed. And most commentators in the legal community view that
as an invitation signaling a desire to change a well-
established standard.
However, they also agree that the ``solution'' sought--and
I use that term ``solution'' in quotes--the ``solution'' sought
by the Labor Board seems to be coming where there is no
apparent problem in the current administration of this
component and interpretation of the National Labor Relations
Act, and I question why they would be using administrative
power to change a rule. If a change is warranted at some point
in time, which I don't think anybody concedes is necessary,
then it should be done via the legislative process as opposed
to the administrative process of the Labor Board.
Before the current standard, the Board's approach had been
subject to some degree of controversy. And they used
conflicting standards which made it difficult for businesses to
develop the scope of their business relationships in a manner
compliant with the legal precedent. With the current standard,
however, businesses have been able to act and strategize and
change in accord with this precedent that has been around for
in excess of 30 years. And the result I think is clear, it has
led to an expansion of franchised businesses and specialized
subcontractor employers and jobs that they provide.
So essentially, the business community's perspective is
that there is no compelling reason to change the legal standard
when the long-standing standard has offered predictability,
stability, and a framework for their contractual relationships.
Which takes us to the problem that is going to be answered
I think very, very shortly. And that is the case that has
prompted much of this debate currently before the Labor Board.
It's called BFI and BFI is involving facts that are not unusual
or controversial, it's an organizing drive in which a group, a
Teamster Local, tried to organize the employees of a
subcontractor of BFI's called Leadpoint. Leadpoint has the sole
responsibility in this case for recruitment, hiring,
discipline, evaluation, and termination. They have their own
separate supervision on site. They have separate HR
departments. So in effect, there's no role whatsoever that BFI
plays in setting wages, administering benefits, scheduling
employees, or maintaining their employment efforts.
The ``support''--and I use that in quotes--for the joint
employer contention is that BFI's contract with Leadpoint was
cost-plus, and it had a cap. And I'm sure they capped it at
whatever it would have cost BFI to pay for those employees and
their wages and benefits had they employed them directly, and
there was a financial incentive and benefit for them to
subcontract the work to Leadpoint. But the cap doesn't
determine what the employees are paid, and despite that,
Counsel for the General Counsel has taken the position that BFI
and Leadpoint are joint employers.
Why would the Board do this now with this case? Well, his
amicus--the General Counsel for the Labor Board's amicus brief
says that the current standard has particularly inhibited
meaningful bargaining regarding the contingent workforce and
non-traditional employment relationships.
General Counsel proposes that the Board move from day-to-
day control to operational control at the system-wide level and
they want to broaden it to consider the totality of
circumstances, which would include indirect or potential
control, even if it's unexercised.
With the caveat that the decision that we're talking about
here is likely to be issued today or possibly early next week,
but many expect it to be today in conjunction with the ending
of the term of one of the Republican members of the Labor
Board, we are concerned that it's going to lead to a lack of
clarity, uncertainty regarding employment status, unwanted
second-employer influence over the putative joint employer, and
have direct impact upon the franchisor and franchisee
relationships, which I will certainly let others in the room
testify to.
But in quick summary, the likely consequences of the
anticipated change, none of them are welcomed by the employer
community, and one commentator has said that it's an attempt to
turn hundreds of individually-owned small businesses into one
giant union hall. The employer, who does not directly control
the terms or conditions, is going to face bargaining
obligations under the National Labor Relations Act. They are
going to be enmeshed in potential industrial disputes on a
broader scale. They are going to lose the protections that the
National Labor Relations Act provides as a secondary or neutral
employer, meaning they are subject to picketing and other
pressure points applied by the union in play. They are going to
be exposed to financial and administrative liability for
violations committed by the other employer, again who they do
not control. They are going to be subject to corporate campaign
tactics, which is where a union uses efforts to embarrass or
squeeze an employer to develop a different, more receptive
attitude towards their labor objectives. And there's going to
be confusion and uncertainty during the expected requests for
review while this is certainly undergoing some form of appeal
process.
So there's certainly going to be a negative impact on
franchise development, and corporate small business ownership
is going to be jeopardized if the new model is used, and the
bottom line is there is great legitimate and growing concern
among franchisors, franchisees, and small business owners at
both the large and the small level. I've been contacted by many
clients who you would consider larger employers and they want
to know what they should do in anticipation of this dramatic
change. I don't know what they're going to do, it's going to
depend on a case-by-case assessment, but I do know that they
are going to do something and something is not going to bode
well for the impacted employers.
Chairman Roe. Thank you, Mr. Mintz. And for the record, BFI
is Browning-Ferris Industries, for the record.
Mr. Patel, you're recognized for five minutes.
[The statement of Mr. Mintz follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
TESTIMONY OF KALPESH PATEL, PRESIDENT AND CEO, IMAGE HOTELS,
INC., SAVANNAH, GEORGIA
Mr. Patel. Chairman Roe, Congressman Carter, and
Congressman Allen, I would like to thank you and the members of
the Subcommittee for the opportunity to testify at this hearing
today. I look forward to sharing my story of entrepreneurship
and the American Dream.
My name is Kal Patel and I am a small business owner from
Pooler, Georgia, and the president and CEO of Image Hotels. I
am also a past Board of Director at the Asian American Hotel
Owners Association and second generation hotelier, and I am
proud to continue the family business.
My family emigrated from India to the United States in 1979
in order to pursue opportunities for entrepreneurship and to
improve our station in life.
In 1985, my parents bought the Red Carpet Inn, a 50-room
hotel and our first experience with franchising. Franchising
provided the consistency of customers, security of a national
brand, a larger market share, and tools and resources to help
us succeed in growing our business.
While I was growing up, the hotel was not only our family
business; it was our way of life. I learned important life
lessons about the value of hard work and community service
while I was making beds, cleaning rooms, taking out trash, and
maintaining the upkeep of the property. Soon, as a teenager, I
was learning the financial and managerial aspects of the
business, and I became a more active participant in running the
operations of our hotel and seeking opportunities for the
development of additional properties.
At 17 years old, I started Image Hotels to consolidate our
operations and secured an SBA loan to develop my first
property, a 50-room Ramada Limited in Port Wentworth, Georgia.
I am proud to be a lifelong entrepreneur and job creator and I
am grateful for the opportunities my family and I have had to
be small business owners.
Today, we own eight properties throughout the Southeast,
including Marriott, Hilton, and Choice branded properties,
where we employ 275 hardworking Georgians.
Franchising is the preferred model in the lodging industry
because it allows hoteliers to control our own businesses. It
is for that reason I am here today to discuss the
overwhelmingly negative impact a change in the joint employer
legal standard for franchise business relationships will have
on small businesses and our employees.
The franchise business model has been essential in creating
entrepreneurship opportunities for hoteliers, thousands of whom
are first and second generation Americans. I fear the prospects
for business ownership would be significantly limited if
franchising were no longer available to us.
Hotelier franchisees are responsible for undertaking all of
the financial risk and directly operating the business.
Further, it is the hotel owner and operator who controls
staffing decisions.
For their part, my franchisors provide a support system for
my business and ensure I maintain a minimum brand standard.
However, aside from some general conversations with my
management teams, brand representatives do not interact with my
staff and both the franchisee and franchisor prefer it that
way.
Franchisees also pay the franchisor a one-time license fee
for the use of the flag or brand name and pay royalties based
on gross revenue. These specific responsibilities are clearly
defined in the franchise agreements I signed with each brand
for each hotel but in no way does the agreement create an
agency expectation or diminish my independence as a business
owner.
As a hotelier, I have come to depend on the franchise-model
as the most advantageous means to small business ownership. An
expanded joint employer legal standard indicated by the NLRB
would compel franchisors to take an active role in staffing
decisions due to the newly manufactured potential for
liability. Franchisees would lose independence in decision-
making and would effectively become employees of the franchisor
because they would be forced to follow someone else's
directives.
Similarly, as franchisors spend more time and additional
resources at my properties, they will likely insist on charging
higher royalties and license fees to account for their
increased cost and, thus, add financial burdens on my
businesses. As brands are coerced into micromanaging my
businesses, our contractual agreements outlining our
responsibilities will undoubtedly be upset and potentially
invalidated.
What I struggle with most is trying to understand the
rationale of the NLRB and its General Counsel in seeking to
upend a business model that has been exponentially successful
for decades. The NLRB's General Counsel has referred to
franchising as an outsourcing arrangement where the franchisor
inserts an intermediary and merely designates the title of
employer onto the franchisee in an effort to evade bargaining
with organized labor. This is an absurd and offensive
characterization of the life and business my family and I have
built over the past 36 years.
Chairman Roe and members of the Committee, I urge you to
investigate this issue thoroughly and keep my employees and my
story in mind as you review administrative decisions affecting
small business owners.
I encourage you and your colleagues to tour hotels in your
districts and get to know the proprietors and employees who are
eager to serve the guests who come to stay with them. I
sincerely appreciate Congressman Carter taking time to visit
our Double Tree, last week, at the airport recently and
experiencing firsthand the impact of the lodging industry and
the franchise model on the lives of our team, our families, and
our community here in Southeast Georgia.
I am grateful for the opportunity to speak with you today
and I urge you to stand up for us and protect us from
oppressive government overreach from bureaucrats in Washington,
D.C., who do not understand our businesses, our communities, or
our ways of life.
Thank you.
[The statement of Mr. Patel follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you, Mr. Patel.
Mr. Salgueiro, you are recognized for five minutes.
TESTIMONY OF ALEX SALGUEIRO, PRESIDENT AND CEO, SAVANNAH
RESTAURANTS CORPORATION, SAVANNAH, GEORGIA
Mr. Salgueiro. Thank you, Chairman Roe, Representative
Allen, and Representative Carter for the opportunity to submit
my testimony today. My name is Alex Salgueiro and I am Chief
Executive Officer of Savannah Restaurants Corporation, owning
10 Burger King restaurants in and around the Savannah, Georgia
area. I would like to note that I am a small business owner; my
views are my own and may not reflect those of Burger King
Corporation or other franchisees within the Burger King brand.
I was born in Havana, Cuba, in 1954. I am the son of a
former Cuban governor who fled to the United States after the
Cuban revolution. After two years in hiding, my family and I
were able to join my father and seek refuge in the United
States. As a boy growing up in Miami, Florida, I first became a
crew member at a local Burger King, which is the world
headquarters city, when I was 14 years old. After years of hard
work and dedication, I became a district manager for Burger
King Corporation and was tasked with opening the first Burger
King restaurants in countries including England, Denmark,
Sweden, Panama, Ecuador, Venezuela, and Colombia. After that
stint, I then settled in Atlanta, Georgia, where I became the
area manager for Burger King Corporation in that area for five
years.
My experiences with the Burger King brand helped me to
recognize the opportunities available for lower- and middle-
class Americans. Through franchising, people can live the
American Dream of owning a business, creating jobs and giving
back to their community. After 16 years working for the Burger
King brand, I decided to leave the corporation and purchase my
own Burger King franchise in Savannah, Georgia.
I now own ten Burger King restaurants, employing over 350
individuals in and around the Savannah, Georgia, area. Several
years ago, I owned as many as 15 restaurants and employed over
480 individuals, but due to government mandates contained in
laws such as the Patient Protection and Affordable Care Act, I
have been forced to sell or close some of my restaurants, a
third of my business, and put some of my employees out of work.
I am here today to talk to you about the impact of yet
another likely mandate on my business--the joint employer
standard as proposed by the National Labor Relations Board
(NLRB). As I understand it, the NLRB would like to expand the
standard from requiring direct control to looking at the
totality of the circumstances in determining whether
franchisors or franchisees should be considered joint employers
for labor claims. For the reasons below, and on behalf of a
business that is solely owned and run by me, application of the
proposed new standard would be devastating to my business, my
employees and the franchise model in the United States in
general.
The Franchise Model: appreciating the franchise model is
essential to understanding that a new joint employer standard
would be devastating to all parties involved. As a franchisee,
I am required to carry certain trademarks and other identifiers
consistent with the Burger King brand. This model provides my
business with brand recognition, quality control measures
designed to ensure that customers receive a high quality
experience no matter what franchise they visit.
That being said, I've signed agreements specifically
identifying myself as an independent owner and operator of my
Burger King restaurants. I became a franchisee because of the
opportunity to be my own boss and hire people from my
community. I own my business and I'm in complete control of the
hiring, firing, scheduling, and duty assignments of all my
employees among many, many, many other responsibilities that I
have. In fact, in my 45 years working for both the Corporation
and on the franchisee side of the business, I have never been
part of any discussion with Burger King Corporation and a
franchisee over personnel matters. Franchisor-franchisee
discussions have always been limited to non-labor business
issues such as advertising, marketing, restaurant operations,
and vendor sourcing, just to name a few. The franchise
agreement specifically establishes franchisee independence, the
cornerstone of the entrepreneurial spirit. By changing the
definition of control from indirect to direct, the proposed
joint employer language destroys an essential element of the
franchise model.
As a franchisee, I also agree to a provision in my
franchise agreement that indemnifies Burger King Corporation
against claims, demands, losses, obligations, costs, expenses,
liabilities, debts, and damages. There's a whole lot of stuff
that they're indemnified against, I could go on.
As a result, if Burger King Corporation is treated as a
joint employer, labor claims will skyrocket and all legal and
financial obligations related to those claims will fall on my
shoulders. As a small business owner, the time and cost
required to defend those claims against both the corporation
and myself will take time away from running my business, drain
my resources, and will very likely cause me to go out of
business.
To put it plainly, a more broad joint employer standard
would destroy the franchise model as we know it. Threatened
with increased liability, franchisors will be forced to
implement extreme oversight policies in local franchises across
the country. And I have worked on that side of the business, so
I know what I'm talking about. As a result, franchisors will
increase not only corporate oversight efforts, but implement
extreme, detailed franchisee and employee policies which will
shift franchisees' focus from running their business and
providing superior customer service.
As a franchisee, I will be no more than a glorified manager
in my own business and in my own restaurant. As the best
resource to determine the needs of my local community and
workforce, I will have no flexibility in determining the daily
operations of my business. Further, increased franchisor
oversight will undermine my relationship with my employees and
leave me in a constant fear of labor claims. The years of labor
and hundreds of thousands of dollars I have invested in my
business will result in nothing more than an income and an
employer manual. I will be a glorified manager.
In addition to the oversight described above, a broader
joint employer standard will likely cause franchisors to
reconsider their corporate structures. A threat of increased
liability may lead to increased corporate buyouts in an effort
to consolidate franchisor oversight and management. As a
result, the new joint employer proposal will likely lead to
store closures, job losses, reduced economic activity, and
reduced community support. In a brand that is almost 100
percent franchised, thousands of Burger King owners and
operators will be forced to sell their business and leave their
employees in uncertain futures.
In closing, the new joint employer standard--as proposed by
the NLRB--will quickly destroy a successful business model,
which has been in place for decades. The current standard,
which correctly defines the terms in which an entity should be
considered an employer, has been effective for all parties
involved and will continue to work for many, many years to
come. For those reasons stated above, implementation of a new
broader standard will place unprecedented burdens on
franchisees. For me, I will likely be forced to either close my
restaurants or sell them to the Corporation. Either way, this
proposal will likely cause small business owners like me to
close their doors and put hundreds of thousands of employees
out of work.
My BK franchise has allowed me, and many other minorities
like me, to attain the American Dream. Unfortunately, if the
new joint employer standard, as proposed, is enacted, it will
destroy the ability for many middle class Americans like myself
to be able to use franchising to attain the American Dream.
Thank you.
[The statement of Mr. Salgueiro follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you, Mr. Salgueiro.
Mr. Weir, you're recognized.
TESTIMONY OF FRED WEIR, PRESIDENT, MEADOWBROOK RESTAURANT CO.,
INC., CUMMING, GEORGIA
Mr. Weir. Good morning, Chairman Roe, Congressman Allen,
and Congressman Carter. My name is Fred Weir, I own four
Zaxby's restaurants here in Georgia. Thank you for inviting me
to testify on the new joint employer standard that frightens
small business owners like me. This is a proposal that has
almost unlimited destructive capability, and it threatens to
undermine how I run my business, as well as the jobs of many in
our employee family.
I appear before you on behalf of the Coalition to Save
Local Businesses and the International Franchise Association.
The CSLB is a diverse group of locally owned small businesses
like me, as well as associations and organizations that
represent small business. The group is dedicated to protecting
and strengthening sectors of small business, which are now
under attack by the National Labor Relations Board, a
regulatory body of five unelected Washington bureaucrats. The
Coalition's goal is to maintain the current joint employer
legal standard across federal and state statutes.
The IFA is a leading association member of the CSLB, and
works to protect, enhance, and promote franchising. In
franchising today, there are more than 780,000 establishments
across the U.S. that support nearly 8.9 million direct jobs,
$890 billion of economic output for the economy and 3 percent
of the Gross Domestic Product. IFA members include franchise
companies in over 300 different business format categories,
individual franchisees, and companies that support the industry
in marketing, law, and other areas.
The new joint employer standard is aimed directly at the
destruction of small business in my local community outside
Atlanta, of the small business in this state, and in every
state across the country. This statement may sound like a
pretty good example of hyperbole, except that it is not
hyperbole. It is true. It's happening now and only the United
States Congress can stop this economic juggernaut.
Mr. Chairman, the title of this hearing is ``Redefining
Employer.'' Please forgive me, but saying the joint employer
redefines employer like a Category 5 hurricane redefines the
shoreline. No, Mr. Chairman, a Category 5 hurricane eradicates
the shoreline and everything on it. And this new standard for
joint employer proposed by the NLRB is specifically designed to
do the same thing: eradicate franchising and irreparably damage
every small business built on the franchise model.
Franchising is a method of doing business that has allowed
hundreds of thousands of individuals who want to run their own
businesses to realize that dream using their own sweat equity
combined with someone else's concept. Franchising is a method
of doing business that's so successful because it's so
repeatable. Franchising provides a pathway to prosperity for
entrepreneurs, employees, and communities in every corner of
our country. I have seen franchising allow businessmen and
women in my community to create and build businesses that
otherwise they would have never had the opportunity to do.
I have been in the restaurant business all my life. I
decided to become a Zaxby's franchisee because I recognized the
great concept built around unique stores and a very exciting
menu of chicken, salads, and desserts that I knew would be
successful. As I mentioned, I have four Zaxby's restaurants
with 160 employees here in Georgia,and I operate restaurants in
other states as well.
I signed a franchise agreement with Zaxby's precisely
because I knew I would be the boss of this new business,
implementing the Zaxby's concept. I know the restaurant
business, I know my community, and I knew that this Zaxby's
concept would be successful there. In Cherokee County, where I
have my restaurants, I do not distinguish between the success
of my restaurants and the success of my employees. My goal in
opening up my first franchise was to build something unique and
special not only for my own family but for the many teams
members that work for us.
It is no exaggeration that I treat all my employees as if
they were members of my own family, because in my eyes, they
are. Many on our staff have loyally worked for years with the
special relationship and culture that we have worked hard to
create. This culture is the reason many on our staff have
stayed for so long. However, if franchisors and franchisees are
defined as joint employers by the NLRB, I might lose control of
the business and the many decisions that are made on the local-
level by myself and our managers, who know and care for team
members. And that would be lost. Please allow me to give you a
few examples.
Our staff bring their best to work every day. They know I
care about them, and I want them to succeed. When a high school
student starts his or her first job at one of our Zaxby's
restaurants, I make sure her parents are there at the
orientation session. I want the young lady to see the pride in
her parents' eyes as she begins her first job and learns what
it means to be a part of the community with a higher purpose. I
want her to know that her job is not just a place to earn a
paycheck, but it's also a community where she will collect a
larger dividend of meaning in her life.
Sometimes my employees find themselves in very difficult
personal circumstances at home, with a sick parent or child, or
with other life challenges. One relatively young employee
suddenly had a heart attack, and had used up all of his
personal leave time. We made sure he continued to be paid until
he could resume a normal schedule.
Another employee, a single mom, suddenly faced her own
mother's illness and needed to take time off to care for her.
She took the time, and we made sure she continued to take home
a paycheck.
We offer scholarships to our employees, young and old, so
they can enrich their education. We do these things because we
would do them for our own family. We have employees have been
with us for years. They stay, not for the money. We all need to
be paid, but our employees stay because that's where they want
to be. This is where they want to live.
Mr. Chairman, the new joint employer standard from the NLRB
would drain the life out of hundreds of thousands of small
businesses that operate under the franchise model. The new
standard would force operational changes on the franchisor and
the franchisees. Since the NLRB appears determined to change
this measure of who controls the business, the balance of
control between the franchisor and franchisee will have to
change. The franchisor's magnified liability will lead to
substantially diminished control by the franchisee.
Decisions that are mine today will be the corporate
franchisor's tomorrow. Today's culture of family practices and
for caring for community will be replaced tomorrow by the
corporate personnel manual. Maybe there's no room for parents
at their daughter's orientation. Maybe there's no room in a
manual for continuing a paycheck after leave is exhausted.
There might not be room in the manual for helping a single mom
whose mother is ill. Without any doubt, there will be fewer
opportunities for new entrepreneurs who want to start their own
businesses, and who would have used the franchise model to do
so, but find the joint employer standard has shut down the
franchising pathway to prosperity.
The brave new world of a wide-open, nebulous joint employer
standard is a bleak and desolate place. It is bleak because it
rests entirely on wrong assumptions about how businesses--
especially franchise small businesses--operate in towns and
communities across this country. It is desolate because it
deprives people, the entrepreneurs and risk takers who start
businesses and the individuals who find meaningful employment
there, of a future and the opportunity for a better life.
This plea is not based on politics either to the right or
the left. I know beyond a shadow of a doubt our business has
solely been successful because of the amazing people who work
for us and the decisions I have been able to make about our
business culture. A new joint employer standard would
fundamentally alter the way I operate and inhibit our ability
to expand and prevent much of this from happening. That does
not benefit the hard-working people we have now on our team,
and prevents many others from joining our family and growing
with us, creating even more jobs. The NLRB needs to leave the
joint employer standard as it is.
Mr. Chairman, I ask that this Subcommittee and your
colleagues in Congress do everything to stop the NLRB. In
fighting back, you will help save local businesses like mine.
Thank you very much for your time.
[The statement of Mr. Weir follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. I thank the panel for their testimony and I
will now begin the questioning. I recognize myself now for five
minutes.
I think, Mr. Patel, I will start with you. You mentioned,
when reading your testimony last evening, ``What I struggle
with most is trying to understand the rationale of the NLRB and
its General Counsel in seeking to upend a business model that's
been exceptionally successful for decades.'' Why do you think
that is? Because you are correct in that.
Mr. Patel. Why isn't it? I don't see any other pressure
group going to Congress trying to correct it, that it's not
successful. The one thing that this does--and to what Mr. Weir
said--is building culture in a company. When corporate America
or some other agency up North or out West is trying to tell you
how to mandate employees, it changes the culture of a company.
I can give you lots of stories within our organization
where we have taken a housekeeper or a night auditor to a
general manager, the opportunity to go up in a company. The
brand or the franchisor applauds that. They do not prohibit
that. Now take the reverse, it is going to come back and say I
am not motivated to take that night auditor or that housekeeper
to graduate them, if I've got standards coming on to me that
say you need to do X, Y, and Z.
So this has been successful for decades, I don't see any
other group trying to correct that formula, the franchisor and
the franchisee.
Chairman Roe. Mr. Weir stated--and as I read your
testimony--you compared the joint employer--the new definition
to a Category 5 hurricane, that the NLRB wants to destroy the
franchise model. I disagree with you, I think basically what it
is, is the NLRB is tilting the table in favor of unions.
I grew up in a union household. My dad was a member of the
union, and the NLRB is supposed to--I am an old basketball
player and the NLRB is supposed to be a fair referee. It is
supposed to come in and represent the employer and the employee
so they all get a fair shake.
What this particular NLRB is doing is tilting it
dramatically in the favor of the unions. And let me just give
you an example. This is not the first assault on small
businesses that I have seen by the NLRB. One was the ambush
elections. The average time it takes to have an election, so
that everybody gets all the information on the table, has been
38 days, that is how long it is. Now it can be as little as 11
days.
In my business--I am a small business person. We started a
medical practice with four doctors, 12 employees. We now have
100 providers and 450 employees. I could not find Mr. Mintz in
10 days to get representation for my business. I could not find
a good labor lawyer where I live in that length of time.
And I think the secret ballot protection, I mean the most
sacred thing--I put a uniform on and left this country and
served in the Second United States Infantry Division to protect
your right to a secret ballot. And that is trying to be taken
away from us. And I say this as a joke, my wife swears she
voted for me, but I do not know whether she did or did not,
because she had a secret ballot. She claims she did, but I do
not know for a fact that she did.
[Laughter.]
Chairman Roe. So some days I probably wonder whether she
did or did not.
But I could go on and on with this, and I think that is
what this is. And you all have very eloquently said and stated
that you run your business day to day, you decide what the
wages are, what the hours are, all of those things. And the
other thing, I know the person who always employed me was the
person who signed my paycheck. And I think you sign all the
paychecks of your employees, I believe that you do.
Mr. Mintz, I want to get a statement on the record from
you. According to recent media reports--yesterday--officials at
OSHA have asked regional officials to take into account whether
the franchisor controls the workplace safety practices of the
franchisee when considering potential violations at the
franchise business. Could you make a statement about that,
please?
Mr. Mintz. Chairman Roe, I think that is a move that is
consistent with what we are seeing, not just at the National
Labor Relations Board, but throughout the administrative
agencies that are staffed by appointees, political appointees.
And I happen to agree with you with respect to the labor law,
the labor law component. I think it is designed--this is
designed since labor law was not effectively changed itself,
the Employee Free Choice Act failed and they are moving to seek
to ambush elections and now the expansion to try to enhance
unions' ability to organize on a larger scale.
I think the expansion of the joint employer definition by
OSHA as well as by the Department of Labor and the EEOC--the
common thread running through them is that there are going to
be more employers that are subject to potential administrative
and financial liability and more employees that will have
access to and recourse through the administrative agencies for
violations of what they view in the workplace.
Chairman Roe. Let me just state for the record before I
yield my time, is that look, you have a right to unionize. In
America, that is a right we have that is clearly established in
law. But you also have a right to make an informed decision. If
you want to have it, fine, vote for it. That is legal in
America. And if you do not, you ought to be able to not vote
for it. It is also legal to do that. And as I said, it looks to
me like the NLRB, and especially with this, is trying to close
a billion dollar plant in Charleston, South Carolina. That was
astonishing to me, that they tried to do that. And no jobs were
lost in Everett, Washington. As a matter of fact, jobs were
added at Boeing in Everett.
My time is expired. I yield to Mr. Carter.
Mr. Carter. Thank you, Mr. Chairman.
I am going to start with Mr. Patel. Mr. Patel, as you
mentioned, I had the opportunity and was delighted to visit one
of your hotels last week, and I appreciate your hospitality
very much. I could not help but notice the relationship between
you and your employees. I mean you seemed to take a personal
concern and personal interest in your employees.
And I am just wondering, if this rule were to go through,
do you see that--I am sure you are not going to change, but
because of circumstances--if this rule went through, I am not
sure that the franchisees would still have that same
relationship.
Mr. Patel. That bond and that connection. I think, would we
give it a valiant effort and try to keep the culture and the
etiquette the same? Absolutely. Will law or brand regulations
in terms of governing HR allow it to continue? I highly doubt
it will. And again, when you're mandated to do things a certain
way, it's going to create a separation in that. Above and
beyond that, you know, I'll say it for the third time, I'm
going to be a manager for those franchisors and that's not the
American Dream and it's not allowing us to continue, what I'm
going to say, as a true free enterprise system. You're
constricting that.
Mr. Carter. Let me ask you about--you utilize
subcontractors?
Mr. Patel. Yes.
Mr. Carter. How do you think this is going to impact that
portion of it?
Mr. Patel. Well, trickle-down economics, trickle-down labor
market, you know, this is going to create a domino effect in
the labor market. So when I get ready to develop or acquire a
hotel, we look at the market from a performance standpoint,
then you look at the labor market. So if the subcontractor is a
franchisee, say U.S. Lawns, a franchise company that does
landscape work, if they're doing landscape work for me at one
of my hotels, he's going to have the same bureaucratic things
that we have to deal with. Right? So, it's going to trickle
down in that way.
You know, the other issue is if I'm forced to lay off or
let go, then it's going to create a shift in employment. So I
think subcontractors will also feel the same pain and, you
know, just as I'm their customer, will I get the same service?
I doubt it.
Mr. Carter. Right. You mentioned that you're a second
generation hotel owner and you obviously have been successful
and you know what it takes to build a business and to keep it
successful.
What about future expansion? Do you think this is going to
have a negative impact or a positive impact on future
expansion?
Mr. Patel. This would have a definite negative impact. I
would probably change my business model completely to where I
would probably get out of this business particularly and get
out of franchising as a whole. You guys have got to keep one
thing in mind: small businesses in general today have a hard
time maintaining HR. Just hiring one person, the amount of
checks, balances, and assurances we have to go through to stay
within the law is very hefty and now we've just added the ACA,
which pardon me, I haven't figured it out yet, but I don't
think Congress has figured it out. It's horrendous.
And then we add this to that? We are just growing that
stack and I'll ask you guys, why would I want to employ more
people? Why would I want to employ more people, I do not want
to create more jobs, unfortunately, because you're not--
Congress or the law is not motivating me to go out and do that.
Mr. Carter. Thank you, Mr. Patel.
Mr. Salgueiro, you mentioned in your testimony the
interaction between the franchisee and the franchisor on non-
labor issues, and that obviously exists. But now it is going to
be expanded if this rule goes through, and you are essentially,
as you said, and as all of you have said, going to end up being
just a manager for Burger King.
Mr. Salgueiro. Well, if the numbers are correct that there
are some 90 million-plus people out of the workforce right now,
get ready for that number to explode and go up, because
franchisees will want to have much fewer employees than they
have now. Over the last 20 years, the average Burger King
restaurant used to employ 50 employees and now we employ 25, so
it's cut in half. This type of move would actually cut that
further. And I can tell you, robotics and American ingenuity is
hard at work right now trying to replace every one of those
jobs in these kitchens. You know, McDonald's is doing a lot of
research, Burger King, they're all putting a lot of money into
research.
But it would be--like Mr. Patel said, we have a culture
that if you work hard and you do well, there's no limit to how
far you can advance, how much you can get paid. You know, our
GMs have the power to raise people's salaries, to raise their
wages, all they have to do is fill out one form, one page form
and their supervisor signs off and it is done. And I can tell
you, you take that type of control away where supervisors
cannot even pay people what they're worth and the whole thing
just self-destructs.
Mr. Carter. Right, right.
Mr. Salgueiro. This is just a move by our government to
facilitate unions to get into industries that they don't belong
in, that they've tried to be in and they've never been able to
crack because there's just no need for unions in our
industries. But they're bound and determined that they're going
to get there and what they're going to do, they're going to
destroy the industries.
Mr. Carter. Right.
Mr. Weir, every one of you has talked about the
relationships with your employees. I know that Zaxby's is a
Georgia company and is a community supporter. Zaxby's, as all
of you, has been very supportive of the community. Do you see
that changing as a result of the franchise--not necessarily
Zaxby's franchisor, but just the fact that the small business
ownership of it goes away?
Mr. Weir. I do----
Chairman Roe. Please be brief because he has exceeded his
five minutes.
Mr. Weir. Yes, sir.
I do, in several ways. One, just the sheer economic cost of
having to change the model. Obviously we're in business and we
commit part of what we have left over after operational
expenses to participate in the community and be charitable. I
see that being tremendously impacted just by the additional
onus of all the regulations and potential liability as well as
having a hierarchy of stricter control. Things that we may do
and understand on a local level may not be understood at the
corporate office in Athens, Georgia, and it quickly washes
away. That affects a whole community, it affects organizations
like you mentioned with CASA, affects a lot of people in a lot
of ways that you'd never see in a larger-level, but at the
local-level have a tremendous impact on individual lives.
Mr. Carter. Right. Thank you, Mr. Weir.
Mr. Chairman, I apologize, I yield back my exceeded time.
Thank you.
Chairman Roe. Thank the gentleman for yielding.
Mr. Allen, you are recognized for five minutes.
Mr. Allen. Thank you, Mr. Chairman.
Mr. Patel, when you build a hotel, do you own that ground
and that building?
Mr. Patel. Absolutely.
Mr. Allen. So you go and you get a loan for that. So you
are at risk.
Mr. Patel. Absolutely.
Mr. Allen. Okay. So maybe your hotel brand is maybe
domiciled in a state that is a not--Georgia by the way is a
right-to-work state. Does everybody understand how that works?
But, so maybe your franchise is located in a state that is not
a right-to-work state. And so under this rule, if I understand
it, and, Mr. Mintz, you come in if I am going down the wrong
trail here.
But under this rule, as I understand it, if it is a co-
employment agreement, that if that group in New York or
wherever, in a state that is not a right-to-work state goes on
strike, that in fact, your employees could walk off the job?
Mr. Patel. I'm assuming they could also have picket signs
in front of my hotel. I don't know.
Mr. Allen. Okay, so they could shut your business down.
Mr. Patel. Absolutely.
Mr. Allen. Okay. Mr. Mintz, that is against the law in
Georgia.
Mr. Mintz. Well, the federal law, the National Labor
Relations Act, protects secondary or neutral employers. The
problem here, the web that is going to be created is you're
going to have links between the two employers that are separate
but considered joint employer for purposes of the labor law.
And that would enable someone to--some union--to engage in
pressure tactics, picketing, and handbilling at Mr. Patel's
hotel in Georgia, but it might also allow them to engage in
similar conduct at the Marriott headquarters or any other
Marriott that's located in Georgia or elsewhere.
Mr. Allen. Exactly.
Mr. Mintz. That's the true problem that's created by this.
Mr. Allen. So basically that could put you out of business
and put you at risk of losing your business.
Mr. Patel. Absolutely.
Mr. Allen. Okay. Well, that is the seriousness of what we
are dealing with here.
The other thing is that, you know, my family's business is
the construction industry and of course we use a lot of
subcontractors, who are small independent businesses. Mr.
Mintz, how would--for example, the way I understand this is, if
this applies, that as a general contractor, that basically that
labor would answer to me as a joint employer agreement and I
could go tell that workforce to go do this or this against the
will of the very subcontractor who is contracted to do the job.
Mr. Mintz. If the general and the sub are considered joint
employers, you're going to have influence and attempted control
by the general over the sub's employees. And you're also going
to have potential liability of the general for anything that
the sub did or did not do, consistent or inconsistent with the
labor and employment laws. And I think the impact of that is
going to be that more and more general contractors or other
employers, who use subcontractors--for instance, they are a
manufacturing facility and they use a sub to do their cleaning
work--they are going to re-examine the value of that type of
relationship. And even though that cleaning is not their core
competency, they're going to re-assess whether they'd rather
have control and do the work in-house and thereby cut the
relationship with the subcontractor out there.
Mr. Allen. Mr. Weir, you have restaurants in other states?
Mr. Weir. Yes, sir.
Mr. Allen. Do you have any restaurants in states that are
not right-to-work states?
Mr. Weir. No, sir. We're in all right-to-work states.
Mr. Allen. Okay. So of course, Zaxby's is headquartered in
Georgia I believe, is it not?
Mr. Weir. Yes, sir, in Athens.
Mr. Allen. Okay. So you would not be faced with say the
issue that Mr. Patel would be faced with because of the
situation here in Georgia and the ability for you to run your
business as you see fit.
Mr. Weir. Potentially we could, sir. There are Zaxby's
restaurants that are now going into states that aren't right-
to-work and so if this was an expanded thing and we are all
considered as one, the impact could be felt by all of us, is my
understanding at least initially here.
Mr. Allen. I did not think about that, but that is another
issue. Because if you went into a state, for example, that
organized a restaurant, then the same rules would then apply to
every restaurant.
Mr. Weir. It seems that is what they're wanting to do.
Mr. Allen. Is that correct, Mr. Mintz?
Mr. Mintz. Well, it would depend on how the Labor Board
defines the bargaining unit, which might be different than the
scope of the employer's practices. That depends on how much
interchange there is between one group of employees and another
group of employees.
Mr. Allen. I yield back the time I do not have, Mr.
Chairman.
Chairman Roe. I think we will go ahead with a second round,
if it is okay with everyone, to ask a couple more questions.
One, on subcontractor, I am not in a franchised medical
practice, but if I were, I subcontract out environmental
services. We have a huge office building and we subcontract
that out. With this ruling, I would then be in charge of the
people coming in to clean my office up. I have never done that,
I have had the subcontractors--I have a contract with them what
I expect in the contract to do. So this absolutely changes the
relationship between, as you pointed out, Mr. Allen, clearly.
The other thing that was brought up and I think by Mr.
Patel, was the cost of regulations. I am going to mention right
now, as we know, it costs a lot to send your kids to school and
it pains me to say that I have a friend at Vanderbilt, being a
UT graduate, but I do. And the chancellor there is a friend of
mine. He came to my office the other day and this was not just
Vanderbilt, but he had a study with the University of Maryland,
two-year colleges, small Christian colleges, for-profit
colleges, about 20 of them. He found that Vanderbilt
University, just complying with government regulations, added
$11,000 per student per year to their tuition. Unbelievable.
And that is going on with--I heard Mr. Salgueiro talk about
complying with the ACA regulations, which we still do not--and
I have read that bill in detail--and we still are trying to
figure out what it really means, as you just said. We are not
sure, as Mr. Patel said, what it means.
I think I want to get something on the record here. Mr.
Mintz, you said this as clearly as anybody, in your first two
paragraphs of your summary, ``Under current and well-
established legal precedent, two employers are deemed `joint
employers'''--and this is decades old now--``when two entitles
share the ability to control or co-determine employees'
essential terms and conditions of employment.'' Which would be
hours of work, hiring, firing, what you do.
I just heard three owners say that absolutely is not what
happens. So under current law, the NLRB, along with the General
Counsel, is totally changing a business model that affects
780,000 franchisees and almost 9 million employees. That is
what is about to happen. It is a very big deal.
Mr. Mintz, did I understate that or overstate that, or did
I state it correctly?
Mr. Mintz. You stated it correctly. We're moving, the Labor
Board, or the General Counsel for the Labor Board, would have
the standard moved from direct control, which is the current
requirement, to potential or indirect control. And then they
also consider the industrial realities test, whether it's
necessary to have the larger secondary employer at the table
because of the economic relationship with the other.
Chairman Roe. Well, I think it has become clear to me. We
held this hearing in Mobile, Alabama, two days ago and I have
heard from similar business owners very similar commentary. And
I think we know the end result of this, it is not good for
employees and it is not going to be good for employers and
business development. And you have already heard, because of
what has happened with the ACA, Mr. Salgueiro has had to reduce
the number shops and stores that he has open right now.
I will now yield to Mr. Carter.
Mr. Carter. Thank you, Mr. Chairman.
Mr. Mintz, we understand what impact this is going to have
on these types of businesses, the franchisees, and franchisors.
What about, are there any others that we are not seeing, are
there any other industries that we typically would not think
that this would impact that perhaps it would impact?
Mr. Mintz. I think it's about as broad as you can paint
that picture of potential impact. I just used one example of
the manufacturing facility that has a contractor that does
cleaning work. A facility might have drivers that they use for
your local deliveries or over-the-road deliveries. Depending
upon the contractual relationship and how that is structured,
the General Counsel would use that even unexercised authority
or control to find the two entities joint employers. And I
think what is going to happen is that the one employer is going
to look at the value of maintaining that and the risks of
maintaining that and then reconsider whether or not he needs to
have that relationship and that exposure or whether he wants to
take that work back in.
So I think anybody that functions as a subcontractor to
another employer is at risk. Could be cafeteria service, any
type of secondary but required function at the main employer's
job site or within his business.
Mr. Carter. Right.
Mr. Weir, you made a comment that I thought was
interesting. You said that the franchisor's liability is going
to increase. Therefore, as you would expect and as anyone would
expect, the franchisor's control over the business itself would
have to increase. That is only natural, correct?
Mr. Weir. Yes, very much so.
Mr. Carter. And this is where the ultimate problem comes
in: if the franchisor, if their responsibility is increased,
they are naturally going to have to have more control over
that.
Mr. Weir. Very much so.
Mr. Carter. Which in this situation means that the small
business owners have less control over it.
Mr. Weir. It does. And my fear with that as well is when
that model changes like that, what is the incentive for the
franchisor to franchise. You suddenly just have a bunch of
corporate stores. You take away a lot of the entrepreneurial
spirit of people who are able to grow things much faster than a
corporate chain would. And so you have a huge economic
stagnation created from that.
Mr. Carter. Mr. Mintz, that being the case, what gives
here? What is the NLRB thinking? I mean what ultimately is
their goal?
Mr. Mintz. I think they're ultimately trying to expand the
scope of people that are covered by it, and I frankly think
that the General Counsel and his political allies are
interested in expanding the collective bargaining relationships
because of the deep trouble that organized labor finds itself
in. It represents such a small percentage of the American
workforce and it's dwindling and they're looking for some
administrative vehicle to try to pump those numbers up.
Mr. Carter. Right.
Again, I want to thank all of you for being here. This is
invaluable, thank you.
Mr. Chairman, I yield back.
Chairman Roe. Mr. Allen, you are recognized.
Mr. Allen. Mr. Patel, you touched little bit on what I am
hearing from all in the small business community: compliance
requirements. Does it, and has it, affected your ability to
reinvest in your business and grow your business?
Mr. Patel. Yes. So to give you an example, on my drive over
here, I mentioned to two of the people I was with, you know, we
are very selective on where we invest. Before, it was more
freelance to where let's just do it. So we've already
constricted ourselves to be more conservative on where we
invest. So today, you know, I have eight properties, it could
have easily been 10, which would have yielded maybe 50 more
jobs. And we want--I want to go to sleep good at night, I don't
want to have to worry. So yeah, we're more conservative today.
You know, Silicon Valley has a new adjective out, it's
called ``disrupt,'' I'm sure guys know what it means and the
story behind it. So Air B&B is a disrupter to the hotel
universe today. If this passes, this will be a disrupt or a
disrupter to the franchisee-franchisor model. And even though I
haven't talked to franchisors about it in detail, I promise you
they equally probably do not want to get involved in telling
Mr. Salgueiro or Mr. Weir or Mr. Patel, this is your schedule
for your upcoming week. They don't want to be involved, they
don't know my labor market the way I know it.
Mr. Allen. Mr. Salgueiro, from the standpoint of compliance
and this continued threat by the federal government on the
small business community, is it, in your opinion, keeping you
from expanding your enterprise?
Mr. Salgueiro. Already the numerous compliances that are on
top of all of us are just earth-shattering. We spend countless
hours and thousands of dollars. Just take the ACA, there are
these new forms that have to be filed here by December that,
you know, you have to get a lawyer to fill them out because if
you don't fill them out, you're going to be fined and you're
going to be fined per employee. And in my case, that could be,
you know, half a million dollars, it could be three quarters of
a million dollars, and I'm out of business.
So we're already spending just an inordinate amount of time
trying to react to all the compliance issues, you know, with E-
Verify, with ADA, and just countless others that I will not
mention right now.
I just opened a restaurant today, I can tell you I would
have been opened probably 10 days ago, but there's a lot of
inspections you've got, there's a lot of hoops you have to go
through, federal, state, and local. And you know, we don't mind
doing it, but it's incredible when they tell you to rip out the
whole wiring because it's low voltage and it should be burial
cable and those types of mundane regulations that no one ever
told you about.
But there's no doubt, this will negatively affect all
franchise businesses in America and franchising has been in
America now for over 50 to 60 years, it has been the most
successful way for people to open their own business and to get
in business and to leave the middle class and to be able to
give back to their communities and their states and their
country.
Mr. Allen. Mr. Weir, how about you? Is the federal
government keeping you from growing your business and hiring
more folks?
Mr. Weir. Very much so, and just a lot of the stuff that we
still don't know certainly scares us and causes us to really
rethink just how big we want to get. And it does, it hampers
us. You know, and the crazy thing with it, when you look at the
franchising model in America, there's no other model that's
created more millionaires and created the American Dream for
more people, regular people. These aren't people that already
had something and expanded on it. They were often regular
people. And I could give you countless stories of people in our
organization or within the Zaxby's brand who started out as
very regular folks, team members, assistant managers, who have
gone on to be able to own their own business and live out the
American Dream.
And to use a politically correct term, it's the ultimate
redistributor of wealth. You take a model where everyone shares
in the profits and even someone who is an employee has the
opportunity, much like Mr. Salgueiro, to see opportunity and to
start out to build something, and that's replicable so that
people that are working for him now, in 10 or 20 years, can do
the same thing. For the life of me, I don't see why you would
want to prevent that.
Mr. Allen. Well, I want to thank all of you for your
courageous testimony this morning. I mean, we love this country
and we want to make this country better. And one of the
problems, Mr. Chairman, we have in this country today is jobs.
We have got to put people back to work. And I want to thank you
for helping us do just that, because this goes on the record,
we will carry it back to Washington, and I promise you we will
do everything we can to help you create jobs.
Thank you.
Chairman Roe. I thank the gentleman for yielding.
I will now ask Mr. Carter if he has any closing remarks.
Mr. Carter. Thank you, Mr. Chairman.
Again, I want to thank you, Mr. Chairman, for your
leadership in Congress and particularly on this issue, and for
coming down here. Again, as I said in the opening, instead of
you going to Congress, Congress is coming to you. We need more
of this, and we want more of this. We want to hear from you.
You know, the best thing the government can do is get out of
the way. And quite often, we are the problem; we are getting in
the way.
So, I thank all of you for your testimony, thank all of you
for attending, and thank you, Congressman Allen, I appreciate
you being here as well.
Again, we are here to help--I know, we are from the
government, and we are here to help. I know the irony in that.
[Laughter.]
Mr. Allen. You did not have to say that.
Mr. Carter. I know. But truthfully, we do want to help you.
You are the backbone of our economy.
Thank you, and I yield, Mr. Chairman.
Chairman Roe. I thank the gentleman for yielding.
Mr. Allen, do you have any closing remarks?
Mr. Allen. I just again would like to say thank you to our
panel for their courageous testimony here today.
You know, all I want to encourage you folks to do is hang
in there. You know, we are fighting a good fight.
Mr. Chairman, thank you. Thank you for coming down here in
God's country. Like I said, our colleagues in the United States
Congress are very envious of us down here in Georgia and that
is because of what you are doing. You are sticking in there,
you are taking risks to create jobs and we deeply appreciate
that. Please keep it up, and we are going to do everything we
can to try to keep the federal government off your back.
Chairman Roe. I thank you.
And I want to thank again our panel. You all did a
tremendous job here today. I too am a small business owner,
went out 30-something years ago, hung a shingle up, started my
medical practice, and we grew it. The biggest asset you have in
your business are your employees, no doubt about it. The worst
day of my life is when my nurse decided to stop and go
somewhere else. As a matter of fact, it got so bad I married
one, my nurse, I did not want to lose her.
Anyway, you know, I see the over-reach of government and
the cost of regulations and so forth. I mentioned at
Vanderbilt. We did a field hearing--I have done these around
the country and it is great to do it in a part of the country
where I understand everybody, that is also good. When I go up
north, it is little harder for me to understand them and them
me.
But there was an agency that went into a surface mine and
gave--a surface mine now--and gave an MSHA violation for a two-
pronged toaster in the office. That is past ridiculous when
that happens. And that is just somebody checking a box to
maintain a job. That does not add anything to benefitsafety, it
does not add anything. Look, we do need some rules and
regulations and safety in places. I toured a number of
factories last week, unbelievable the difference in the
factories in this country today than there were when my dad
worked in a factory from World War II on until he passed. So it
is much safer, a much better work environment because for that
factory, for my office, for your businesses, the single most
important asset you have are the people working for you, no
doubt about it. And we have had employees in our office that
have been with us almost 40 years so we try to create a work
environment because I understand how important those folks are.
I think this is just another assault by the federal
government on small business. And look, our problem--we have a
deficit in Washington, D.C. Let me tell you who can fix the
deficit, I am looking at it right here. Business can fix the
deficit. We raise the GDP from two to three, three and a half
percent, the deficit goes away, jobs get created, people get to
work, and we have more money coming into the federal
government. We will solve the problem in doing that.
And Mr. Salgueiro, you mentioned about filling out that
form--welcome to Medicare. I have been dealing with that for
almost 40 years. If you think you have a problem filling forms
out, you should try to be on the Medicare side.
I want to thank the people here at the Coastal Georgia
Center and certainly the incredible hospitality you all have
shown us in South Georgia. It would be a privilege for me to
come back here again.
With no further comments, the meeting is adjourned.
[Whereupon, at 11:25 a.m., the Subcommittee was adjourned.]
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