    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                     H.R. 3459, ``PROTECTING LOCAL BUSINESS
                               OPPORTUNITY ACT''

    =======================================================================

                                    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 WASHINGTON, DC, September 29, 2015

                                   __________

                               Serial No. 114-28

                                   __________

      Printed for the use of the Committee on Education and the Workforce

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                       Available via the World Wide Web:
                           www.gpo.gov/fdsys/browse/
               committee.action?chamber=house&committee=education
                                       or
                Committee address: http://edworkforce.house.gov
                                        ______

                             U.S. GOVERNMENT PUBLISHING OFFICE

    96-249 PDF                     WASHINGTON : 2016
    -----------------------------------------------------------------------
      For sale by the Superintendent of Documents, U.S. Government Publishing
      Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
             DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
                              Washington, DC 20402-0001

                    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 September 29, 2015...............................     1

    Statement of Members:
        Roe, Hon. David P., Chairman, Subcommittee on Health,
          Employment, Labor, and Pensions............................     1
            Prepared statement of....................................     3
        Polis, Hon. Jared, Ranking Member, Subcommittee on Health,
          Employment, Labor, and Pensions............................     4
            Prepared statement of....................................    18

    Statement of Witnesses:
        Fortin, Ms. Mara, President & CEO, Nothing Bundt Cakes, San
          Diego, CA..................................................    20
            Prepared statement of....................................    23
        Braddy, Mr. Ed, President, Winlee Foods, LLC, Timonium, MD...    33
            Prepared statement of....................................    36
        Harper, Mr. Michael, Professor, Boston University School of
          Law, Boston, MA............................................    40
            Prepared statement of....................................    42
        Cole, Mr. Kevin, Ennis Electric Company, Inc., Manassas, VA..    51
            Prepared statement of....................................    53
        Lofaso, Dr. Anne, Professor, West Virginia University College
          of Law, Morgantown, WV.....................................    56
            Prepared statement of....................................    58
        Cohen, Mr. Charles, Senior Counsel, Morgan, Lewis & Bockius,
          LLP, Washington, DC........................................    65
            Prepared statement of....................................    67

    Additional Submissions:
        Mr. Polis:
            Advice Memorandum dated April 28, 2015, from Mr. Barry J.
              Kearney, Associate General Counsel Division of Advice..     7
        Chairman Roe:
            Letter dated September 9, 2015, from National Restaurant
              Association............................................    97
            Letter dated September 10, 2015, from National Federation
              of Independent Business................................    98
            Letter dated September 14, 2015, from National
              Association of Home Builders...........................    99
            Letter dated September 14, 2015, from National Council of
              Chain Restaurants......................................   100
            Letter dated September 15, 2015, from Associated Builders
              and Contractors, Inc...................................   101
            Letter dated October 13, 2015, from Chamber of Commerce
              of the United States of America........................   102
            Letter dated October 1, 2015, from Coalition For A
              Democratic Workplace...................................   111
        Scott, Hon. Robert C. ``Bobby'', a Representative in Congress
          from the State of Virginia
            Questions submitted for the record.......................   116
        Mr. Harper's response to questions submitted for the record..   118

                         H.R. 3459, ``PROTECTING LOCAL
                           BUSINESS OPPORTUNITY ACT''

                                  ----------

                          Tuesday, September 29, 2015

                         U.S. 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 10:02 a.m., in
    room 2261, Rayburn House Office Building, Hon. David P. Roe
    [chairman of the subcommittee] presiding.
        Present: Representatives Roe, Foxx, Salmon, Guthrie, Heck,
    Messer, Carter, Grothman, Allen, Polis, Courtney, Pocan, Wilson
    of Florida, Bonamici, Takano, and Jeffries.
        Also present: Representatives Kline and Scott.
        Staff present: Andrew Banducci, Workforce Policy Counsel;
    Janelle Belland, Coalitions and Members Services Coordinator;
    Ed Gilroy, Director of Workforce Policy; Jessica Goodman,
    Legislative Assistant; Callie Harman, Legislative Assistant;
    Tyler Hernandez, Press Secretary; Nancy Locke, Chief Clerk;
    John Martin, Professional Staff Member; Dominique McKay, Deputy
    Press Secretary; Brian Newell, Communications Director; Krisann
    Pearce, General Counsel; Alissa Strawcutter, Deputy Clerk;
    Juliane Sullivan, Staff Director; Olivia Voslow, Staff
    Assistant; Joseph Wheeler, Professional Staff Member; Tylease
    Alli, Minority Clerk/Intern and Fellow Coordinator; Denise
    Forte, Minority Staff Director; Christine Godinez, Minority
    Staff Assistant; Brian Kennedy, Minority General Counsel; John
    Mantz, Minority Labor Detailee; Richard Miller, Minority Senior
    Labor Policy Advisor; and Elizabeth Watson, Minority Director
    of Labor Policy.
        Chairman Roe. A quorum being present, the Subcommittee on
    Health, Employment, Labor, and Pensions will come to order.
    Good morning, everyone, and welcome to today's hearing on H.R.
    3459, the Protecting Local Business Opportunity Act.
        I would like to thank all of you for being with us today as
    we review this important piece of legislation.
        I am disappointed that yet another misguided move by the
    partisan National Labor Relations Board has brought us here,
    but I am not surprised. As chairman of this subcommittee, I
    have presided over numerous hearings focused on the NLRB's
    threats to American workers and job creators. From ambush
    elections and micro-unions to restricting access to secret
    ballots and intruding on tribal sovereignty, the unelected
    bureaucrats at the NLRB have persistently pushed an activist
    agenda that benefits union bosses at the expense of hardworking
    men and women, and they are doing it again.
        Last month, I traveled to communities in Alabama and
    Georgia--Mobile and Savannah respectively--to hear about the
    NLRB's biggest big labor scheme, an effort to change what it
    means to be an employer by expanding the joint employer
    standard.
        For more than 30 years two or more businesses were
    considered joint employers, or equally responsible for
    decisions affecting employees and the daily operation of a
    business, if they shared, ``actual, direct, and immediate''
    control over those decisions.
        That standard had been in place for many decades and it had
    worked well for consumers, workers, and employers. However, it
    became apparent that an effort was underway at the NLRB to
    change the joint employer standard and upend countless small
    businesses in the process.
        So we got out of Washington to get a better idea of what
    would happen if the board--what happened--what the board did
    and what many people feared that it might do. At two separate
    field hearings we heard serious concerns that expanding the
    joint employer standard would have far-reaching consequences.
        We heard words like ``disruptive,'' ``devastating,'' and
    ``detrimental.'' We heard fears that the board would make a
    decision that would lead to higher costs, fewer jobs, and less
    opportunity for individuals, including veterans, women, and
    first-generation Americans.
        Let me just briefly tell you two stories we heard there.
    There was a man who immigrated to this country at age two from
    Cuba to escape Castro. They hid out for two years until they
    could finally get here. He started working at a Burger King and
    he worked there, just cleaned the floors and basically working
    an entry-level job.
        I will cut through, make a long story short. He now owns 10
    Burger King restaurants, 10 Burger Kings, and hires a number of
    people.
        Another young man who was there from India came here at age
    one and began in his teenage years cleaning up hotel rooms. He
    now owns 10 Marriotts and Hiltons. No other place in the world
    could you do that but in America right here, and I think this
    rule puts a real--puts that at risk.
        And they were able to pursue the American dream, and guess
    what the board did? They did exactly that. They put a roadblock
    up.
        Before we even returned to Washington the NLRB issued a
    ruling in a case known as Browning-Ferris Industries that
    significantly expanded the joint employer standard. The
    decision discarded years of established labor policy to include
    employers who have indirect or even potential control over
    virtually any employment decision.
        To put it plainly, the board blurred the lines of
    responsibility for decisions affecting the daily operations of
    countless small businesses, including the nation's 780,000
    franchise businesses and countless contractors, subcontractors,
    independent subsidiaries, and more.
        Having heard the stories of so many small-business owners
    across the country and understanding the impact of this
    decision on countless lives and industries, Chairman Kline and
    Senator Alexander introduced the Protecting Local Business
    Opportunity Act. This commonsense legislation would simply roll
    back the NLRB's harmful decisions by reaffirming that two or
    more employers must have actual, direct, and immediate control
    over employees to be considered joint employers.
        It would prevent the disruption of countless small
    businesses. It would ensure future entrepreneurs have the
    opportunity to pursue the American dream. And that is the
    reason we are here today.
        We have spoken many times and heard many stories about the
    problem related to the board's radical rewrite of the joint
    employer standard. Now it is time to talk about the solution.
        I am eager to hear from our witnesses not only about how
    the board's decision will affect them, their businesses, and
    their families, but how this legislation can protect those
    things that they have worked so hard for and those that they
    hold so dear.
        With that, now I will recognize the ranking member of our
    subcommittee, Mr. Polis, for his opening remarks.
        You are recognized.
        [The statement of Chairman Roe follows:]

      Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on
                    Health, Employment, Labor, and Pensions

        Good morning, everyone, and welcome to today's hearing on H.R.
    3459, the Protecting Local Business Opportunity Act. I'd like to thank
    you all for being with us as we review this important piece of
    legislation.
        I'm disappointed yet another misguided move by the partisan
    National Labor Relations Board has brought us here, but I'm not
    surprised. As chairman of this subcommittee, I have presided over
    numerous hearings focused on the NLRB's threats to American workers and
    job creators. From ambush elections and micro-unions to restricting
    access to secret ballots and intruding on tribal sovereignty, the
    unelected bureaucrats at the NLRB have persistently pushed an activist
    agenda that benefits union bosses at the expense of hardworking men and
    women. And they're doing it again.
        Last month, I traveled to communities in Alabama and Georgia to
    hear more about the NLRB's latest Big Labor scheme, an effort to change
    what it means to be an employer by expanding the joint employer
    standard. For more than 30 years, two or more businesses were
    considered ``joint employers'' - or equally responsible for decisions
    affecting employees and the daily operations of a business - if they
    shared ``actual,'' ``direct,'' and ``immediate'' control over those
    decisions. That standard had been in place for decades, and it had
    worked well for consumers, workers, and employers. However, it became
    apparent that an effort was underway at the NLRB to change the joint
    employer standard and upend countless small businesses in the process.
        So we got out of Washington to get a better idea of what would
    happen if the board did what many people feared they might do. At two
    separate field hearings, we heard serious concerns that expanding the
    joint employer standard would have far-reaching consequences. We heard
    words like ``disruptive,'' ``devastating,'' and ``detrimental.'' We
    heard fears that the board would make a decision that would lead to
    higher costs, fewer jobs, and less opportunity for individuals -
    including veterans, women, and first generation Americans - to pursue
    the American Dream. And then, the board did exactly that.
        Before we even returned to Washington, the NLRB issued a ruling in
    a case known as Browning-Ferris Industries that significantly expanded
    the joint employer standard. The decision discarded years of
    established labor policy to include employers who have ``indirect'' or
    even ``potential'' control over virtually any employment decision. To
    put it plainly, the board blurred the lines of responsibility for
    decisions affecting the daily operations of countless small businesses,
    including the nation's 780,000 franchise businesses and countless
    contractors, subcontractors, independent subsidiaries, and more.
        Having heard the stories of so many small business owners across
    the country and understanding the impact of this decision on countless
    lives and industries, Chairman Kline and Senator Lamar Alexander
    introduced the Protecting Local Business Opportunity Act. This
    commonsense legislation would roll back the NLRB's harmful decision by
    reaffirming that two or more employers must have ``actual, direct, and
    immediate'' control over employees to be considered joint employers. It
    would prevent the disruption of countless small businesses; it would
    ensure future entrepreneurs have the opportunity to pursue the American
    Dream; and it is the reason that we're here today.
        We've spoken many times and heard many stories about the problems
    related to board's radical rewrite of the joint employer standard. Now
    it's time to talk about the solution. I'm eager to hear from our
    witnesses - not only about how the board's decision will affect them,
    their businesses, and their families, but how this legislation can help
    protect those things that they've worked so hard for and those that
    they hold so dear.
        With that, I will now recognize the Ranking Member of the
    subcommittee, Congressman Polis, for his opening remarks.
                                     ______

        Mr. Polis. Thank you, Mr. Chairman.
        And I also want to recognize that an ex officio member of
    this subcommittee and the chairman of the full committee is in
    attendance, Mr. Kline, to whom I want to express appreciation
    for his service.
        And of course there is a lot of work to do in the next
    year, and we are very grateful for your service as the chair of
    the full committee.
        Our economy is at a crossroads. Part of the frustration
    that is building is that the link between productivity and wage
    growth seems to be broken. And this problem will continue to
    get worse until we get serious about addressing it.
        And there are a lot of ideas that people have to do that,
    including paid sick leave, preventing misclassification of
    employees, to punishing wage theft.
        Study after study shows that workers' diminished bargaining
    power is one of the key reasons that we have seen a decade of
    wage stagnation. And that is connected to the background with
    which we come to this discussion.
        Now, this discussion will be about several cases that the
    NLRB either recently has decided or will decide. We will talk
    about the Browning-Ferris case, which they recently decided; we
    will talk about the McDonald's case, which is currently
    pending; we will talk about the Freshii case, which they also
    recently decided.
        What is at issue here is an attempt to create a shell game
    loophole to prevent employees from having a negotiating unit to
    talk to. Rather than use the same definition of employee that
    served us well in common law that we have for tax and workplace
    protection reasons, there is a bill to run an end-run around
    that and essentially create a shell game that threatens to
    destroy the very entrepreneurial spirit that gives franchisees
    the opportunity to run their own businesses.
        The danger in creating this enormous shell game loophole
    safe harbor is that franchisors will try to direct even more
    control over their franchisees, as will employers over their
    contractors, really diminishing the ability of independent
    entrepreneurs to run free businesses. That is why this shell
    game loophole would hurt the free enterprise system,
    entrepreneurship, and competition in our economy.
        Now, the NLRB's Browning-Ferris Industry decision was
    important because what we see more and more in the workplace is
    leasing arrangements, temporary employment, and what we might
    call ``perma-temp'' agencies--permanent-temporary agencies--to
    supply labor.
        Now, that is all fine and good. The issue is the degree of
    control under which an employer places their contractors and
    ensuring that there is some negotiating unit with which to hold
    a negotiation.
        Again, if you are an employee of the contractor it can
    simply be a shell game, where you go to your boss, the
    contractor, and you say, ``We haven't had a raise in three
    years. Can we have one?''
        And they say, ``Sorry. We are forced in our agreement under
    contract to pay you a certain wage and we don't have that
    discretion, but you can talk to the contractor.''
        Then you go to the contractor and they say, ``Sorry. You
    are not our employee. We don't control--you know, we don't set
    your wages.''
        So effectively, there is no one to negotiate with. So that
    is the problem that we are trying to solve.
        Now, of course, something important about the Browning-
    Ferris Industry decision is it explicitly states it doesn't
    even touch the franchisor-franchisee relationship, which seems
    to be the basis for this legislation. So it seems like this
    legislation might be based on a potential outcome of a
    different case, the McDonald's case that is pending. But again,
    we haven't seen the outcome of that case yet, so it would seem
    like any legislative response would be premature.
        The BFI case is around contracting, subcontracting,
    temporary work relationships. Now, BFI set up what we might
    call a shell game, so workers who sorted recyclables couldn't
    talk to or negotiate with those who were actually calling the
    shots regarding their employment--the terms and conditions of
    employment.
        So BFI, in their contract, set a ceiling pay for workers,
    but the workers could only negotiate with a subcontractor
    called Leadpoint, which had no ability to raise wages.
        So that is the dilemma that the Browning case I think
    correctly decided.
        Now, BFI is only part of the picture. You will also, I am
    sure, hear from our witnesses about the pending McDonald's
    case. Now, we should be cautious about jumping to any
    conclusions because we are still in the discovery phase of that
    case, and we look forward to the NLRB's work in that area.
        With respect to franchising, however, there is a case that
    has been decided recently: a company called Freshii, a fast-
    food company that provides us a window into how the NLRB will
    examine joint employers where there is a franchisor-franchisee
    relationship.
        And a general counsel's advice memo regarding Freshii found
    that Freshii was not liable as a joint employer because, as is
    customary with most franchisee-franchisor relationships, while
    Freshii controls brand quality, they don't have direct or
    indirect control over employee matters like pay, punishment, or
    collective bargaining.
        Without objection, I would like to submit for the record
    the advice memorandum regarding Freshii.
        [The information follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Without objection, so ordered.
        Mr. Polis. Thank you.
        And what this makes clear is that the NLRB is looking at
    everything on a case-by-case basis. I personally applaud both
    the Freshii decision as well as the BFI decision. We will look
    forward to their thoughtful deliberations in the McDonald's
    decision.
        And I think that we should avoid a kneejerk reaction that
    legislatively would create a shell game loophole with all sorts
    of unintended consequences. Instead of calling this bill the
    Protecting Local Business Opportunity Act, we really should
    call it the Shell Game Loophole if we want to reflect the
    bill's content.
        Mr. Chairman, I hope we can begin addressing the needs of
    American workers of ensuring that the productivity and wage gap
    narrows and that the rising tide can truly lift all boats,
    because millions of workers are struggling with stagnant wages.
        And especially in an economy where more and more people are
    employed by leasing companies or perm-temps or subcontractors,
    these issues are very important for Congress to play a
    deliberative role in to ensure that there is a meaningful
    negotiating entity with which workers can have discussions
    around the terms and conditions of their employment.
        The National Labor Relations Board should be allowed to
    follow their process, including in the McDonald's case, without
    Congress prejudicing its motives and undermining its authority
    before a decision is made, and we should avoid creating
    additional loopholes that change decades and centuries of
    common law with regard to the definition of employment solely
    for the purpose of creating a different definition of
    employment for labor organizing purposes.
        Thank you again, for everyone, and I look forward to
    hearing your thoughtful opinions.
        And I yield back.
        [The statement of Mr. Polis follows:]

    Prepared Statement of Hon. Jared Polis, Ranking Member, Subcommittee on
                    Health, Employment, Labor, and Pensions

        Our economy is at a crossroads. The link between productivity and
    wage growth has been broken for 4 decades. The problem will only
    continue to get worse until Congress finally gets serious about fixing
    the income disparity in this country. There are countless ways that we
    could be addressing this, from paid sick leave to preventing
    misclassification of employees to preventing and punishing wage theft.
        Study after study also shows that workers' diminished bargaining
    power is one of the key reasons that we've seen a decade of wage
    stagnation. And this is directly connected to the background case that
    prompted this bill.
        The NLRB's recent Browning-Ferris Industries decision was important
    because more and more workplaces are using employee leasing
    arrangements, temporary employment and perma temp agencies to supply
    labor.
        This decision was narrowly crafted, however, and returned the law
    to longstanding common law principles used throughout most of the 20th
    century, but were abandoned in 1984. As data shows, the 1970s and early
    80s were not a bad time to be opening or running a franchise. Between
    1971 and 1973 alone there was a 129% increase in franchise sales.
        Moreover, the BFI decision explicitly states that it doesn't even
    touch the franchisor-franchisee relationship, which seems to be the
    basis for this legislation and the slew of partisan attacks we've seen
    targeting the NLRB (which, of course, are nothing new).
        The BFI case is focused on contracting, subcontracting, temporary
    worker relationships, and whether BFI had the right to control terms of
    employment. Essentially BFI set up a shell game, so that the workers
    who sorted recyclables couldn't talk to and negotiate with those who
    are actually calling the shots regarding essential terms and conditions
    of employment. BFI set a ceiling for pay for workers, but the workers
    could only negotiate with a subcontractor called Lead Point, whose
    hands were tied when it came to raising wages. I think, if we set
    politics aside and consider the facts objectively, we can all agree
    that BFI should be considered a joint employer under these
    circumstances.
        Now, this BFI case is only part of the picture. You will also hear
    about the pending McDonald's case from our witnesses today. But we must
    be cautious about jumping to conclusions based on this pending case,
    which is still in the discovery phase.
        McDonalds has yet to be litigated, much less decided. With respect
    to franchising, however, there is another case involving a company
    called Freshii, a fast-food company, that provides us a window into how
    the NLRB will examine joint employers where there is a franchisor-
    franchisee relationship. A General Counsel's advice memo regarding
    Freshii, found that Freshii was not liable as a joint employer, because
    while Freshii controls brand quality, they do not have direct or
    indirect control over employee matters such as pay, punishment or
    collective bargaining.
        As the NLRB notes, Freshii provides franchisees with an optional
    operations manual. Their system standards do not include any personnel
    and do not dictate or control labor or employment matters for
        franchisees such as hiring, pay and scheduling.
        I quote from the NLRB Advice Memorandum: ``There is no evidence
    that Freshii or its development agents are involved in the
    [franchisees'] labor relations or provided guidance about how to deal
    with a possible union organizing campaign.'' Without objection I would
    like to submit for the record the Advice Memorandum regarding Freshii.
        What this makes clear is that the NLRB is looking at everything on
    a case-by-case basis. Some people are jumping to conclusions because of
    the open McDonald's case, but no one knows how the NLRB will rule. NLRB
    has not even concluded the discovery phase of the case.
        The reaction to these cases is the bill we have before us, which I
    believe is a kneejerk reaction.
        Don't get me wrong, I understand some of the questions and concerns
    from the business community. We should not be discouraging small
    businesses from opening, or imposing unwarranted liability on
    franchisors where they do not exercise control over franchisee's
    employment practices.
        However, this legislation goes far beyond the BFI model, which most
    businesses don't fall under, and exempts joint employer relationships
    from common law, which applies to businesses in essentially every other
    type of law.
        Most importantly, this bill runs completely counter to an explicit
    goal in the National Labor Relations Act, which is to ensure the
    equality of bargaining power between employers and employees. This bill
    would prevent employees from bringing all of the employers to the
    bargaining table who have a say over their terms and conditions of
    employment.
        Instead of calling this bill the Protecting Local Business
    Opportunity Act, we should probably call it the Futility in Collective
    Bargaining Act, or even better, The Shell Game Act, if we want the
    title to actually reflect the bill's context.
        There is a middle ground on this issue that provides companies and
    small businesses the assurances they need to not be liable, if they are
    not setting up a shell game. But instead of finding that middle ground,
    this bill takes a radical step by jettisoning the longstanding common
    law principles--namely, that an ``employer'' is a person who ``controls
    or has the right to control'' the terms and conditions of employment,
    in an effort to allow joint employers to remain hidden and
    unaccountable.
        Instead of focusing on improving the economy and decreasing income
    inequality or improving workers' rights, this Committee is taking up
    yet another bill that chips away at the ability of workers to
    collectively bargain for a fair share of the fruits of their labor.
        Since my colleagues assumed the majority in 2011, there have been
    22 hearings and markups attacking the National Labor Relations Board.
        Instead of focusing on an agenda to weaken the middle class, we
    should be discussing the items I hear about from my constituents
    through the mail and on the phone every day, and at town hall meetings
    when I am back in my district in Colorado.
        We need legislation to raise the minimum wage; we need paid sick
    leave legislation; we need legislation to ensure that women receive
    equal pay for equal work; we need legislation to ensure that workers do
    not face employment discrimination based on whom they love; we need
    legislation to prevent employees from being misclassified as
    independent contractors. And the National Labor Relations Act needs to
    be updated so that it is more effective in protecting the rights of
    workers, and not simply a cost of doing business.
        Mr. Chairman, I would hope we can begin addressing the needs of
    American workers, instead of taking up another ideological attack on
    unions and the NLRB.
        I look forward to hearing the testimony from the witnesses, and I
    appreciate that some of you have traveled a good distance to be here.
                                     ______

        Chairman Roe. I thank the gentleman for yielding.
        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, Ms. Mara Fortin is CEO of Nothing Bundt Cakes, in
    San Diego, California. In 2007, Ms. Fortin opened the first
    franchise location, what was then a three-unit bakery concept
    in Las Vegas, Nevada, called Nothing Bundt Cakes.
        She worked with the cofounders to grow their brand and
    develop a franchise model. Ms. Fortin now owns and operates six
    bakeries in San Diego.
        Welcome.
        Mr. Ed Braddy is the owner-operator of a Burger King
    franchise restaurant in Baltimore, Maryland. Mr. Braddy also
    serves as a Minority Franchise Association designee to the
    National Franchisee Association Government Relations Committee.
    Prior to purchasing the restaurant, Mr. Braddy served in
    managerial roles for other Burger King franchises.
        Welcome, Mr. Braddy.
        Michael Harper is the--and I may mispronounce it--
        Mr. Harper. Barreca.
        Chairman Roe.--Barreca Labor Relations Scholar--sorry--and
    professor of law at Boston University School of Law in Boston,
    Massachusetts. Professor Harper is a leading authority in the
    areas of labor law, employment law, and employment
    discrimination, law, has co-authored several major case books
    both in employment discrimination, employment law, and labor
    law.
        Welcome, Mr. Harper.
        Mr. Kevin Cole is the CEO and Secretary of the Board of
    Directors for Ennis Electrical Company in Manassas, Virginia.
    Mr. Cole has worked for Ennis Electrical for 23 years. He began
    with Ennis Electrical as an electrical apprentice and has also
    served as a project estimator, project manager, chief
    estimator, vice president, and executive vice president.
        Welcome, Mr. Cole.
        Dr. Anne Lofaso is a professor of law at West Virginia
    University College of Law in Morgantown, West Virginia. Dr.
    Lofaso teaches labor and employment law, jurisprudence, and
    comparative labor law. Additionally, Dr. Lofaso spent 10 years
    as an attorney with the National Labor Relations Board
    appellate and Supreme Court branches.
        Welcome.
        Mr. Charles Cohen is a senior counsel with Morgan, Lewis,
    and Bockius here in Washington, DC. A former member of the
    National Labor Relations Board, Mr. Cohen focuses his practice
    on representing private sector senior management and complex
    labor and employment law matters, including collective
    bargaining issues and litigation covering all aspects of labor
    and employee relations, union representation matters, and
    corporate campaign activities.
        And welcome.
        And I will ask our witnesses to stand and raise your right
    hand.
        [Witnesses sworn.]
        Let the record reflect the witnesses answered in the
    affirmative.
        You may take your seats. And before I recognize you for
    your testimony, let me briefly explain the lighting system.
        You will each have five minutes to present your testimony,
    and when you begin the light in front of you will turn green;
    one minute left, it 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. After all witnesses have testified, members
    will each have five minutes.
        Ms. Fortin, you are recognized for five minutes.

     TESTIMONY OF MS. MARA FORTIN, PRESIDENT & CEO, NOTHING BUNDT
                      CAKES, SAN DIEGO, CALIFORNIA

        Ms. Fortin. Thank you and good morning, Chairman Roe,
    Ranking Member Polis, and members of the Subcommittee. My name
    is Mara Fortin and, as you said, I am the owner and operator of
    six Nothing Bundt Cakes locations in San Diego, California.
        Thank you very much for the invitation to appear before
    this subcommittee to tell my small-business story and to
    discuss the National Labor Relations Board's attempt to
    redefine what it means for me and countless others to be an
    employer.
        Mr. Chairman, my stores employ 120 wonderful people. I am
    very pleased that one of my invaluable colleagues is here with
    us today, my HR director Jennifer, and my mom, who are behind
    me, who have traveled from San Diego to be here.
        I am here today on behalf of the many members of the
    Coalition to Save Local Businesses, of which I am a co-chair. I
    joined the Coalition because I believe saving local businesses
    is what is truly at stake here.
        Due to the actions of a handful of unelected bureaucrats at
    the NLRB, I am now terribly worried about my business, my
    employees, my family, and our future.
        And, Mr. Chairman, I am not asking for much today. I am
    simply asking this subcommittee and the Congress to reinstate
    the very successful joint employer legal standard that the NLRB
    chose to reinvent in its decision in Browning-Ferris.
        The simple, one-sentence legislation contained in H.R. 3459
    is a solution that can protect small businesses like Ed's and
    Kevin's and mine, and give us certainty that out-of-touch
    regulators are not going to threaten our businesses again. I
    urge every member here to co-sponsor H.R. 3459.
        For over a year, small businesses have had the threat of an
    NLRB decision looming over them. Many of us have wondered: What
    will this case mean, and why would a government agency in
    Washington decide that another employer may be liable for my
    employees, or, alternatively, that I am liable for another
    company's employees?
        On August 27, the NLRB's decision was worse than many even
    expected. They expanded the definition of ``joint employer''
    and it has the potential to dismantle the contractual
    relationship between franchisors and franchisees and strip me
    of my independence as a small-business owner.
        This is not an academic issue. Mine is an all-American,
    successful business story.
        I started my career as a lawyer and enjoyed a successful
    eight-year litigation practice. But I had two daughters and was
    compelled to spend endless hours in the office, so I
    reconsidered my life's direction. I kept coming back to the
    idea of using my undergraduate business degree to run my own
    company in my hometown of San Diego.
        I contacted a then small three-store bakery in Las Vegas
    that I loved and I proposed to them the idea of franchising.
    Fortunately, the timing was right for the bakery, called
    Nothing Bundt Cakes, to grow.
        And as you heard, in March 2007, I became the first
    franchisee in a San Diego suburb. I left my legal career behind
    cold turkey and transitioned to try to live out my American
    dream of being a small-business owner.
        Thousands of entrepreneurs and small-business owners can
    relate to what happened next. With pressure mounting to make my
    first bakery a success, I faced ongoing health problems: panic
    attacks during the day; I didn't sleep at night. It took a
    grueling year to even get my business up and running.
        Fortunately, we started to grow. Within two years I opened
    a second bakery, even during the recession, but emerged on the
    other side with now six successful stores.
        And until recently, I could see no reason why I wouldn't
    continue to expand. But now I do.
        The new joint employer standard is harmful to the future of
    locally owned businesses like mine. To consider my franchisor a
    joint employer is to completely misunderstand how franchising
    works.
        When I entered into a franchise agreement with Nothing
    Bundt Cakes I signed up to run my own business and that is what
    I have done successfully for more than eight years. My
    franchisor provides the brands and the trademarks, a set of
    business practices to ensure consistency and quality across all
    locations.
        But everything else--everything else--is left to me.
        I hire my own workers, set their wages, benefit packages,
    et cetera. I manage my inventory and I purchase equipment. I
    pay taxes as my own small business with my own employer
    identification numbers. And I help my employees when they are
    in need of assistance.
        My franchisor plays no part in any of these key functions
    that only a true and sole employer performs. The suggestion
    that my franchisor is in any way an employer of my workers is,
    quite frankly, insulting to me, and takes away from all the
    effort I have put in over the years to build a successful small
    business.
        And remember, my franchisor wasn't even a franchise until I
    approached them with the idea.
        My small-business story is another example of the economic
    dynamism of the franchising business model that employs 9
    million people across America today. Despite the immeasurable
    time and energy I have poured into my small business, under the
    new joint employer regulation I may no longer be in charge of
    the business that I built and invested everything that I had.
        In the end, we may be forced out of business altogether.
    And that would harm not only our business but our community,
    those that we employ and take care of, and the economy of our
    nation.
        The real-world consequence of the NLRB's decision is that
    it will lead to consolidation among franchisors and a loss of
    autonomy for local franchise business owners.
        Chairman Roe. Ms. Fortin, could you wrap up?
        Ms. Fortin. Yes.
        Mr. Chairman and members of the Subcommittee, when you are
    faced with the question of whether to support small-business
    owners or out-of-touch regulators, it should be an easy
    decision. Please support H.R. 3459.
        Thank you.
        [The testimony of Ms. Fortin follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Mr. Braddy, you are recognized for five
    minutes.

       TESTIMONY OF MR. ED BRADDY, PRESIDENT, WINLEE FOODS, LLC,
                           TIMONIUM, MARYLAND

        Mr. Braddy. Good morning, Chairman Roe, Ranking Member
    Polis, and members of the Subcommittee. And thank you for the
    opportunity to present my testimony to you today.
        My name is Ed Braddy. I am a Burger King franchisee, owning
    one restaurant in Baltimore, Maryland. I would like to note I
    am a small-business owner speaking on behalf of myself and my
    association, the National Franchisee Association, and the
    Minority Franchisee Association within the National Franchisee
    Association, which represents Burger King restaurants
    throughout the nation.
        NFA is a member of the Council to Save Local Businesses,
    which works to protect small-business owners from harmful
    regulations. My statements may not reflect those of Burger King
    Corporation or other franchisees within the Burger King system.
        Growing up in inner-city Baltimore, my life was similar to
    that of many of my current employees. I was the youngest of
    three children and struggled to stay off the streets. I dropped
    out of high school in 11th grade and returned the next year
    when I saw that my life was heading in the wrong direction.
        After graduation I joined the Baltimore City Police
    Department and worked there for four years before beginning my
    career in the food service industry.
        In 1978, I began working at a local Burger King restaurant.
    I worked there as a crew leader, an assistant manager, a
    restaurant manager, a district manager, and eventually I was
    the director of operations for 15 Burger King locations in the
    Baltimore City area.
        In 1988, I purchased my first Burger King restaurant, but
    had to close it five years later due to low sales volumes.
    After managing several Pizza Hut restaurants and starting my
    own payphone business, I decided to join the Burger King system
    in 2001 by becoming part-owner of 11 Burger King restaurants
    throughout the city.
        In 2009, we decided to disband that partnership and I used
    my equity to purchase the most challenging restaurant of the
    group, yet the one which I thought provided me an ideal
    opportunity to impact the community. Today I run that Burger
    King with the help of my 27 employees.
        All the men whom I employ have had contact with the
    criminal justice system--every single one; I intentionally
    hired them to give them an opportunity to a better life. There
    are 10 single mothers who work for me; all work part-time and
    are on some form of government subsidy. I also have four high
    school students who work at the restaurant after school and on
    weekends in order to help their families earn money for
    themselves and receive valuable training and experience.
        I am proud to say every one of my five-member management
    staff started as a regular crew member. As an employer in a
    lower-income neighborhood, I often lend money to my employees
    and my customers before payday so they can afford food at home
    and transportation to get back and forth to work.
        As a one-store operator, I receive 25 applications for
    employment a day. I employ applicants provided by America
    Works; the Jobs, Housing, and Recovery Program of Baltimore;
    Women in Transition; and other recovery and development
    programs to provide jobs for those in need. I also started a
    program with three local churches wherein I donate 15 percent
    of all food purchased at my restaurant by their members to help
    fund food programs for the needy.
        My Burger King restaurant has become a staple in the
    community. It is located two blocks from the epicenter of the
    Baltimore unrest that occurred several months ago.
        During that terrible time, many local neighbors stood
    outside of my restaurant throughout the night to protect it
    from being destroyed. With their help and because of my ties to
    people in the community, my Burger King was one of the only
    restaurants open the next day for business in that community.
        I am here today to talk to you about how the joint employer
    standard, as proposed by the NLRB, would harm my restaurant and
    thousands of communities held together by small-business owners
    like me. I urge you to support H.R. 3459, the Protecting Local
    Business Opportunity Act, which restores the joint employer
    standard to its original definition.
        Those with experience in the industry or with knowledge of
    the franchise model understand that most franchisees and
    franchisors are not joint employers. As a franchisee, I am
    required to carry certain standards and other identifiers
    consistent with the Burger King brand. This means I must make
    my Whopper sandwiches the same as my fellow franchisees, and I
    must design my restaurant according to certain requirements.
        However, I signed my franchise agreement specifically
    identifying myself as an independent owner and operator of my
    Burger King restaurant. That means I am my own boss. I am in
    complete control of hiring, firing, scheduling, and duty
    assignments of my employees, among many, many other
    responsibilities.
        As I understand it, the NLRB would use a broader,
    subjective standard in determining whether franchisors and
    franchisees should be considered joint employers for labor
    claims. In fact, the recent NLRB ruling in Browning-Ferris
    Industries of California would allow those who indirectly
    affect my business, such as landscapers and waste disposal
    companies, to become my joint employer.
        In addition to overturning over 30 years of legal
    precedence, this decision would have disastrous consequences on
    not only the franchise model but on all businesses across the
    country. H.R. 3459, the Protecting Local Business Opportunity
    Act, restores the original definition of a joint employer to
    require actual, direct, and immediate control over the
    essential terms and conditions of employment.
        Among other devastating consequences, the new joint
    employer standard will destroy smaller restaurant operators
    like me. By expanding liability, I believe franchisors will be
    forced to protect themselves in one of three ways. Whichever
    the result, the NLRB ruling will destroy this franchise model
    and franchise small-business owners along the way.
        The first option franchisors may take is to repurchase the
    franchise upon--
        Chairman Roe. Mr. Braddy, could you wrap up? We are about a
    minute over.
        Mr. Braddy. All right.
        For these reasons, I ask that you support H.R. 3459, the
    Protecting Small Business Opportunity Act. I am concerned that
    those who created this new standard believe it will help the
    little guy and put more mandates on large corporations. As a
    one-store operator in an inner-city neighborhood, I can tell
    you that is nothing further from the truth.
        Thank you for the opportunity.
        [The testimony of Mr. Braddy follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Thank you for your testimony.
        Mr. Harper, you are recognized.

     TESTIMONY OF MR. MICHAEL HARPER, PROFESSOR, BOSTON UNIVERSITY
                  SCHOOL OF LAW, BOSTON, MASSACHUSETTS

        Mr. Harper. Thank you, Chairman Roe.
        Chairman Roe, Ranking Member Polis, and members of the
    subcommittee, I thank you for inviting me to testify at this
    hearing today. As a professor and scholar of labor law at
    Boston University since 1978, I care deeply about the integrity
    of the processes of the National Labor Relations Act and the
    fulfillment of its purposes.
        In addition, as a reporter for the recently completed
    restatement of employment law, I am particularly concerned that
    the common law of employment not be misrepresented.
        I testify as an individual and not as a representative of
    any institution with which I am now or have been affiliated.
        My testimony makes three major points.
        First, the significance of this Browning-Ferris decision
    has been greatly exaggerated. In fact, BFI is nothing more than
    a narrowly crafted opinion that reinstates a prior definition
    of the joint employment relationship for purposes of collective
    bargaining under the regulatory umbrella of the NLRA.
        BFI returns to prior law by overturning a few narrowing
    limitations placed on the definition of joint employment
    starting in 1984. These limitations, while providing some
    employers a loophole to escape potential collective bargaining,
    did not eliminate joint employment relationships and associated
    collective bargaining.
        Second, despite the BFI dissenters' misreading of case law,
    the majority's decision in BFI drew logically and appropriately
    from the common law of agency. I say this as someone who played
    a central role in the most recent effort of the American Law
    Institute to formulate a meaningful expression of the common
    law of employment.
        I served as a reporter for the ALI's newly published
    restatement of employment law and was primarily responsible for
    the chapter of this restatement that defines the employment
    relation, including a section on joint employment.
        One reason the BFI decision is very narrow is that it makes
    the common law definition of employer a necessary--not
    sufficient, but a necessary--precondition of joint employer
    status. So common law going back to the 19th century defining
    ``employer'' limits this decision. It can't be broader than the
    common law definition going back to the 19th century.
        Third, the proposed legislation currently before your
    committee is unnecessary to ensure the continuation of the kind
    of franchising and other efficient contractual business models
    that are represented by our--the admirable witnesses and great
    stories that I just heard and you just heard. In fact, I think
    the legislation could be harmful to their business.
        The legislation would primarily frustrate the board's
    renewed effort to ensure that businesses like BFI--where is
    BFI? Where is BFI in this hearing? It is their case we are
    talking about.
        Where is BFI, that used this loophole and this shell game,
    as Member Polis stated, to evade its statutory obligations to
    bargain over the wages, hours, and conditions of employment?
    The decision was about BFI. It wasn't about franchising, and it
    doesn't expressly cover franchising.
        The legislation is not necessary to protect franchises and
    other small business that provide more efficient supplementary
    services.
        The dissenters in BFI, in order to claim there are no new
    developments in the American economy to warrant the board's re-
    adoption of the pre-1980s law, actually point out that
    franchising was--has been around--and other subcontracting--has
    been around for a long time predating those 1980s decisions
    that were overruled. This undermines the claim that the BFI
    decision somehow threatens franchising or other efficient forms
    of business cooperation.
        What they described happened. I have been eating McDonald's
    fries since the 1960s, way before--served up by franchisees way
    before these opinions changed the joint employer standard and
    during a period that the board is going back to.
        I don't want to go beyond my time, but I just want to say I
    was, frankly, shocked and saddened to read the
    mischaracterizations of the BFI decision that I hear today,
    that I read about in the press. The decision does not mean that
    any contractual relationship between businesses may trigger a
    joint employer status.
        There is no way that landscapers or others with a
    controlling interest--a contractual relationship can be
    responsible for Mr. Braddy's employees. There is no way that
    what Ms. Fortin describes as her control over the employment
    conditions is going to be subject to her franchisors after this
    decision. The decision is limited by the common law of
    employment.
        My fear is that if this legislation is passed more and more
    large businesses are going to say, ``We have a loophole. We can
    get the best of both worlds. We can control the employee
    conditions indirectly through intermediators by telling them
    what to do, the way BFI did. We can control them and we can
    insulate ourselves from any collective bargaining at the same
    time.
        And then if one of our subordinates--like Leadpoint or
    maybe a franchisee, has employees that unionize, we can cut
    them off,'' because a labor law allows them to do that without
    committing an unlawful labor practice.
        I fear, ironically and perversely--
        Chairman Roe.--wrap up.
        Mr. Harper. Yes. I will end right here.
        I fear that, ironically and perversely, this legislation
    can hurt small business and hurt franchisees because of new
    technology available to companies like McDonald's.
        [The testimony of Mr. Harper follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Okay. Thank the gentleman.
        Mr. Cole, you are recognized for five minutes.

    TESTIMONY OF MR. KEVIN COLE, CEO, ENNIS ELECTRIC COMPANY, INC.,
                           MANASSAS, VIRGINIA

        Mr. Cole. Chairman Roe, Ranking Member Polis, and members
    of the subcommittee, I am honored for the opportunity to
    testify before you today on H.R. 3459, the Protecting Local
    Business Opportunity Act.
        My name is Kevin Cole. I am the chief executive officer for
    Ennis Electric Company, based in Manassas, Virginia.
        I am here today on behalf of the Independent Electrical
    Contractors and their local chapter, IEC Chesapeake. IEC is
    also a member of the Coalition to Save Local Businesses, a
    diverse coalition that is challenging the National Labor
    Relations Board's new interpretation of the joint employer
    standard and is supporting H.R. 3459, which would codify the
    previous standard that has stood for over 30 years.
        The Independent Electrical Contractors is an association of
    over 50 affiliates and training centers, representing over
    2,100 electrical contractors nationwide. While IEC membership
    includes many of the top 20 largest firms in the country, most
    of our members are considered small businesses.
        Our purpose is to establish a competitive environment for
    the merit shop, a philosophy that promotes free enterprise,
    open competition, and economic opportunity for all. IEC and its
    training centers conduct apprenticeship training programs under
    standards approved by the U.S. Department of Labor's Office of
    Apprenticeship. Collectively, in the 2015 school year IEC will
    train more than 8,000 electrical apprentices.
        Before telling you how this new standard may negatively
    impact the electrical contracting industry, I first want to
    tell you about my story and that of Ennis Electric.
        I left college before completing my degree and became an
    apprentice electrician with Ennis Electric. After 24 years of
    service with the company, I am proud to stand here before you
    as an example of just how an apprenticeship can lead to not
    just a well-paying job, but to the American dream.
        Founded in 1974, Ennis Electric is an electrical contractor
    specializing in heavy commercial, institutional, and industrial
    projects. The majority of our projects are within the public
    sector, much of which is for the Federal Government.
        Ennis Electric currently employs over 160 individuals, with
    our average non-trainee employee having spent over 10 years
    with our company. The average compensation package for our
    electricians is over $40 an hour, which includes paid leave,
    insurance, and retirement.
        Ennis Electric is a fervent believer in the apprenticeship
    model of its electricians. Ennis fully supports the ``earn
    while you learn'' model, whereby our apprentices graduate in
    four years from the IEC program with no debt.
        Both Ennis and IEC are committed to increasing registered
    apprenticeships, and both are LEADERs--Leaders of Excellence in
    Apprenticeship Development, Education, and Research, an
    acronym--in the DOL's ApprenticeshipUSA program, which was
    initiated to help fulfill President Obama's goal for doubling
    the number of apprentices by 2020.
        Ennis Electric also works hard to be a good corporate
    citizen within the local community. Over the past two years
    Ennis Electric has donated over $300,000 to local charities in
    the form of monetary donations and electrical work.
        Some of these charities included those that help at-risk
    youth and disabled vets, as well as those doing research for
    cancer. Ennis Electric has helped to build an orphanage in
    Haiti, a home for unwed mothers in Arkansas, and soon we will
    build a home for a Marine that lost his legs in Kandahar.
        My reason for speaking to you today is our industry is
    deeply concerned about the NLRB's new joint employer standard
    and the impact it could have on the electrical contracting
    industry. The new standard represents a litany of potential
    problems and complications for doing business by making us
    potentially liable for individuals we do not even employ.
        Moving forward, almost any contractual relationship we
    enter into may trigger a finding of a joint employer status
    that would make us liable for the employment and labor actions
    of our subcontractors, vendors, suppliers, and staffing firms.
    In addition, as we understand it, the new standard would also
    expose my company to another company's collective bargaining
    obligations and economic protest activity, to include strikes,
    boycotts, and picketing.
        It is clear to see just how this broad and ambiguous new
    standard increases the cost of doing business. It makes it more
    difficult for companies like mine to continue to do all the
    great work we do in the community and provide well-paying jobs
    to more electricians.
        It is unclear if we could even put language into any
    contracts that would insulate us from being considered a joint
    employer, nor do we know just how much our insurance costs will
    go up in an attempt to shield ourselves from this increased
    liability.
        This new standard also prevents us from working with
    certain startups or new businesses that may have a limited
    track record. For example, my company will take on certain
    small businesses as subcontractors, which will oftentimes be
    owned by minorities or women, and will help them mentor--we
    will mentor them on certain projects. With this new standard, I
    am now less likely to take on that risk.
        I am also less likely to bid on federal contracts over $1.5
    million, under which the FAR mandates that I must subcontract
    with small businesses.
        In conclusion, IEC urges Congress to consider the negative
    consequences this new standard has on businesses and the
    communities they serve and pass the Protecting Local Business
    Opportunity Act so that companies like mine can continue to
    provide the kind of quality services and well-paying jobs it
    has done so for over 40 years.
        Thank you, and I look forward to answering any questions
    the members of the subcommittee may have.
        [The testimony of Mr. Cole follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Thank you, Mr. Cole.
        Dr. Lofaso, you are recognized for five minutes.

        TESTIMONY OF DR. ANNE LOFASO, PROFESSOR, WEST VIRGINIA
          UNIVERSITY COLLEGE OF LAW, MORGANTOWN, WEST VIRGINIA

        Dr. Lofaso. Good morning, Chairman Roe, Ranking Member
    Polis, and distinguished members of the subcommittee.
        My name is Anne Marie Lofaso. I am a former senior attorney
    of the National Labor Relations Board, where I served for 10
    years. I am currently a labor law professor at West Virginia
    University College of Law.
        I appear before you today as an expert in labor law and not
    on behalf of my university or any institution with which I have
    been affiliated.
        Thank you for inviting me to testify regarding H.R. 3459,
    which would amend the National Labor Relations Act to permit
    joint employer status only when both employers exercise actual,
    direct, and immediate control over essential terms and
    conditions of employment. This amendment, prompted by the
    board's decision in Browning-Ferris, would substantially narrow
    the definition of ``employer.'' My testimony makes three
    points.
        First, the board's ``joint employer'' definition after
    Browning-Ferris is consistent with the plain language of the
    act and the common law. In Browning-Ferris, the board concluded
    that it may find that two or more statutory employers are joint
    employers if: there is a common-law employment relationship
    between the putative joint employer and the employees, and the
    putative joint employer possesses sufficient control over
    employees' essential terms and conditions of employment to
    permit meaningful collective bargaining. In other words,
    control is central to both inquiries.
        Contrary to the belief of some, this definition is not a
    radical departure from traditional joint employer principles.
    It is instead grounded in the act's broad definition of
    employer, which defines employer to include both direct and
    indirect agents; the common law, which also defines the
    employment relationship in terms of the right to control rather
    than actual control; and Supreme Court precedent.
        It is misleading to view the board's 1984 joint employer
    definition, what I call the Laerco standard, as the traditional
    definition of joint employer. Laerco and its progeny, like the
    proposed amendment, limits the circumstances under which a
    putative joint employer would have a duty to bargain with
    employees by simply reading out of the act traditional joint
    law--sorry--traditional common law joint employers, unless
    their control is actual, direct, and immediate.
        The difference between the two standards is the same as the
    difference between possessing and exercising control. Whereas
    the common law will hold the person to the duties of a joint
    employer if it possesses control even if that person does not
    exercise control, the Laerco definition only permits a finding
    of joint employer status where the putative joint employer
    actually exercises control. The Laerco definition thereby runs
    counter to both the plain language of the act and the common
    law, which expressly permit indirect control as an indicia of
    joint employer status.
        Second, Browning-Ferris says little about how franchisors
    will be treated for several reasons, two of which I highlight
    here. First, Browning-Ferris is not a franchise case. Employees
    of Leadpoint, the undisputed employer, and BFI, the putative
    joint employer, worked shoulder-to-shoulder at the same
    recycling plants.
        Second, both standards are highly fact-specific. This means
    that the nature of the relationship between the franchisor and
    franchisee is what determines liability.
        Accordingly, if Ms. Fortin has accurately described her
    franchisor as having no control over her labor relations, then
    that franchisor would be--would not be a joint employer under
    the Browning-Ferris standard; nor would landscapers, who have
    no control over Burger King's labor relations, be a joint
    employer.
        Having said that, understanding the difference between the
    two standards as the difference between possessing and
    exercising control allows us to make a few projections about
    how this might affect the franchise business model.
        Between 1984 and 2014 a franchisor might, without thinking,
    retain control over terms or conditions of employment because
    such right of control, under the then new Laerco standard,
    would not have given rise to labor liability. That same
    franchisor today is more likely to refuse to retain the right
    of control, thereby augmenting the franchisee's autonomy.
        Accordingly, one unintended and perverse effect of the
    proposed legislation is that it can embolden franchisors to
    take more control over the franchisee's labor relations because
    it, the franchisor, would have less liability concerns.
        Third, the proposed amendment is unnecessary to retain the
    franchise business model but does harm to employees by
    rendering bargaining futile. Most of the arguments against
    Browning-Ferris can be characterized as some form of the
    following: Small franchisees will lose their businesses if this
    decision remains unchecked, thereby robbing good citizens of
    the American dream. Yet, as I just explained, nothing in
    Browning-Ferris interferes with the franchise business model.
        By contrast, the proposed bill renders bargaining futile
    for those workers who have two masters--the immediate master,
    and the one who retains control but doesn't exercise it
    directly.
        In closing, the proposed bill is a lose-lose for
    franchisees and employees but a big win for large franchisors
    who wish to dominate their smaller franchisees and avoid their
    labor obligations.
        Thank you.
        [The testimony of Dr. Lofaso follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Thank you for your testimony.
        Mr. Cohen, you are recognized for five minutes.

    TESTIMONY OF MR. CHARLES COHEN, SENIOR COUNSEL, MORGAN, LEWIS &
                     BOCKIUS, LLP, WASHINGTON, D.C.

        Mr. Cohen. Chairman Roe, Ranking Member Polis, and members
    of the subcommittee, thank you for your invitation to
    participate in this hearing.
        I am a senior counsel in the law firm of Morgan, Lewis, and
    Bockius, LLP, where I represent employers in many industries
    under the National Labor Relations Act. From 1994 to 1996 I had
    the privilege of serving as a member of the National Labor
    Relations Board and was appointed by President Clinton and
    confirmed by the U.S. Senate.
        The bill which is being considered today would restore the
    critical role that Congress should play in formulating our
    national labor and employment policy by simply requiring that
    two or more employers may be considered joint employers only if
    each shares and exercises control over essential terms and
    conditions of employment and such control over these matters is
    actual, direct, and immediate. This legislation is a measured
    response to the NLRB's usurpation of that role of Congress in
    defining employer under the NLRA.
        The Browning-Ferris decision was put out by the NLRB as an
    opportunity or a case where they were going to consider
    overturning precedent that had been in effect for 30 years.
    Seventeen different organizations on both the labor side and
    the management side and others filed amicus briefs.
        This is a groundbreaking decision. It is been much
    anticipated and much feared by many in the employer community,
    and much anticipated in the labor community.
        During the 45 years that I have worked under the NLRA, I
    cannot recall a single board decision so rife for potential
    abuse and mischief, nor one that would intrude the NLRB into
    the contractual relationships for so many industries and
    companies. As anyone well-versed in labor relations would know,
    this decision is all about enhancing union leverage in
    situations where independent companies are not responsible for
    the employees of other companies.
        Now a joint employer relationship may be found based on the
    mere potential to control terms and conditions of employment
    even if that control is indirect and/or unexercised. This new,
    ambiguous standard has the potential to apply to a wide variety
    of business relationships, as you see here today on the panel.
        And essential terms and conditions of employment will not
    be limited under this decision to the core subjects of wages,
    hours, hiring, firing, and discipline. It will also include
    subjects such as the number of workers to be supplied,
    scheduling, overtime, productivity, work assignments, and the
    manner and method of work performance. This is an extremely
    broad test.
        And what is more, as demonstrated by the decision, the NLRB
    will rely on the thinnest of anecdotal evidence of isolated
    involvement or oversight in any of these areas to deem the
    putative joint employer ``in control,'' thereby providing a
    tripwire for business operations and imposing a virtually
    impossible standard for policing and managing contractor
    relationships.
        Perhaps the most disingenuous aspect of Browning-Ferris is
    that over the last several years the board has adopted a
    directly contrary approach to that adopted here where that
    suited its policy objectives to enhance union leverage.
        For instance, with respect to the board's determination of
    independent contractor or supervisory status, both designations
    that remove individuals from the NLRA's coverage, the board has
    expressly held that it considers only actual evidence of
    control, authority, or rights. These two principles cannot be
    reconciled.
        A fundamental issue under the NLRA and other statutes is,
    of course, who is your employer. The three-member majority
    believed that its policy preference justified radically
    increasing the number of employers for thousands if not
    millions of employees.
        Let me turn now to some of the practical difficulties. They
    are myriad, but I will address just the main ones.
        Companies will now be exposed to greater and potentially
    automatic liability for unfair labor practices committed by
    their contractors and suppliers because the general rule is
    that there is joint liability.
        The board is now also, second, putting companies at the
    bargaining table together without providing any guidance as to
    how that is supposed to work in practice. If there are two or
    more putative employers have conflicting financial or
    commercial interests, as they often do--they are in business--
    how are they to bargain a single collective bargaining
    agreement with a union?
        Third, in the ordinary course, commercial parties negotiate
    contracts for a defined length of time. How does that system
    fit into collective bargaining, and if an employer is going to
    rebid its contract?
        Secondary boycotts are a very important issue here, as
    well. Since 1947 we have had those restrictions that protect
    neutral employers--
        Chairman Roe. Mr. Cohen, could you wrap up?
        Mr. Cohen. I will. Thank you very much, Congressman.
        Under the secondary boycott laws, these purported joint
    employers have lost their ability to have protections because
    they are deemed to be a primary employer. So that is very
    important.
        And lastly, there are unintended consequences of
    responsible contractor policies, which will be discouraged very
    greatly as a result.
        Thank you very much.
        [The testimony of Mr. Cohen follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Roe. Thank you for yielding.
        I will now like to yield five minutes to the chairman of
    the full committee and lead author of the legislation, Mr.
    Kline.
        Mr. Kline. Thank you, Mr. Chairman.
        Thank you to the panel. All excellent witnesses. Great deal
    of expertise; great deal of passion today. Wonderful stories
    about bakeries and Burger Kings.
        And well done, to both of you.
        Wow. This is so often the case in a hearing like this. We
    have got this account from Professor Harper and this account
    from Mr. Cohen, a former NLRB member, and they are not exactly
    the same.
        And in fact, when the board ruled in Browning-Ferris it was
    a 3 to 2 decision. So there were members of that board who were
    concerned. In fact, in their dissent--a scathing dissent, I
    might add--they argue--the minority, the dissenters--argue
    that, ``the majority abandons a longstanding test that provided
    certainty and predictability and replaces it with an ambiguous
    standard that will impose unprecedented bargaining obligations
    on multiple entities.''
        Doesn't line up very well with Professor Harper's
    description of how narrow Browning-Ferris was and how it is not
    possible to look at it any other way as being very narrow and
    would not apply to the concerns of first two witnesses.
        So, Mr. Cohen, do you agree with the dissenters in this
    case?
        Mr. Cohen. I believe that the dissenters have done a
    thorough and very good job in pointing out the difficulties
    that the Browning-Ferris decision poses. It was a, as I said, a
    much anticipated case, and obviously from the length and the
    number of arguments it was very, very well-considered by the
    dissenters.
        Mr. Kline. Well, in his testimony Professor Harper states
    that Browning-Ferris was a ``narrowly crafted opinion that
    reinstates a prior definition of the joint employer
    relationship.'' And both professors, Harper and Lofaso, also
    describe the board's decision as a return to the joint employer
    standard as it was prior to the 1980s.
        And yet, I think your words, Mr. Cohen, were ``this is
    groundbreaking.'' Very different. So could you expand on that
    for me a little bit?
        Mr. Cohen. Sure. With all due respect to the professors, I
    do not read the pre-1980s decisions the same way. In almost all
    of the instances there was evidence of actual control before
    there was actually a finding of joint employer status.
        We have had the 1980s standard for the past 30-plus years.
    What has changed in this period of time is that we are in a
    period of specialization.
        Companies have tended to move to providing their core
    competencies. This has dramatically changed the workplace, and
    it makes it more difficult, I understand, for some unions to
    try to organize some employees when there are many specialized
    providers. There is no license given to these NLRB members to
    address that perceived issue by virtue of changing these
    doctrines.
        Mr. Kline. Yes. Thank you.
        When we crafted this short piece of legislation, I have got
    to say, we were very, very concerned about losing the certainty
    and predictability that the dissenters talked about and moving
    into unprecedented bargaining obligations and ambiguous
    standard. And clearly we have heard from the testimony here--
    and I have heard from people all over the country, and
    certainly my constituents in Minnesota--there is a great deal
    of uncertainty right now and a great deal of fear.
        And I think it is incumbent upon us and this body to return
    some of that certainty so that entrepreneurs young or old can
    step out there and start bakeries and Burger Kings and contract
    for electrical work and all of those things with some certainty
    and without the fear that is clearly reigning out there right
    now.
        I yield back.
        Chairman Roe. Thank the gentleman for yielding.
        Mr. Scott, our ranking member, is recognized for five
    minutes.
        Mr. Scott. Thank you, Mr. Chairman.
        Professor Harper, you raised a book before you. Could you
    explain what that is and what its--just very briefly for the
    record, what its standing is in the legal community?
        Mr. Harper. Well, this is a book put out by the American
    Law Institute, and the American Law Institute is a group of
    highly distinguished judges, lawyers around the country in
    every state, and law professors. It is a selected group that
    has done these restatements for a century.
        This is the first restatement of employment law. It builds
    on the restatement of agency. It went through a decade-long
    process and debate and heavily researched in all its aspects,
    including the definition of the employment relationship, for
    which I was the primary reporter.
        And I can tell you that we based this on--
        Mr. Scott. Just briefly, the restatement of the law is a
    fairly well-accepted statement of the--of what the status of
    the law is--
        Mr. Harper. Right. Right. What--
        Mr. Scott.--generally recognized in the legal community.
        Mr. Harper.--what is the definition in the first chapter,
    what is the definition of in--the employment relationship? And
    we have a section on the joint employment relationship.
        Mr. Scott. Thank you. And could you explain how the new
    interpretation differs from the traditional interpretation that
    was found?
        Mr. Harper. Do you mean the--what the board does in BFI?
        Mr. Scott. Right, how that differs from the traditional
    interpretation of the law starting in 1947.
        Mr. Harper. It doesn't differ. It is tied to that; it is
    tethered by that.
        In other words--
        Mr. Scott. But how--
        Mr. Harper.--one reason I think this decision is narrow is
    that it says, in order for someone to be a joint employer that
    as a necessary condition they have to be an employer under the
    common law--a common law which goes back to the 19th century.
    In order to be a joint employer you first have to be an
    employer under the common law.
        They don't try to change that. They say, ``We are going to
    borrow from that because that is what Congress wanted us to
    do.''
        Mr. Scott. So when we talk about the original intent, the
    BFI decision is, in fact, the original intent of the law. Is
    that true?
        Mr. Harper. Well, Congress, in the Taft-Hartley Act, told
    the board basically that you are not supposed to be departing
    from the common law; you are supposed to be using the common
    law when you define such terms as ``employer'' or ``employee.''
        And so, I mean, that is the reason legislative history
    shows for the exclusion of independent contractors from the
    definition of employee that the Taft-Hartley Congress placed in
    1947.
        Mr. Scott. Who changed that in 1984?
        Mr. Harper. Well, the board, by adopting the direct and
    immediate and limited routines standards, which I see Chairman
    Kline has passed, but those are pretty ambiguous standards. You
    talk about uncertainty, but--
        Mr. Scott. Well--
        Mr. Harper.--those are placed there by the board, and the
    current board in BFI says we need to go back to the common law.
        Mr. Scott. Okay. Well, I would just make the point that the
    change of the traditional law was made by the board, which I
    think were described as out-of-touch unelected bureaucrats.
    That is who made the change?
        Mr. Harper. In 1984, right.
        Mr. Scott. Okay. Now, the new--the words at issue are
    ``actual, direct, and immediate.'' What happens if you have the
    control but don't actually exercise it? Under the bill, does
    that mean you are not an employer?
        Mr. Harper. I think the--under the proposed legislation?
        Mr. Scott. Right.
        Mr. Harper. Yes. That is my understanding.
        Mr. Scott. Now, is it possible to have kind of sporadic
    application--you are covered sometimes, covered with some
    franchisees when you decide to exercise control, others you
    don't?
        Mr. Harper. It is possible. I think that this legislation,
    if passed, would send a message that you can--to the
    franchisors or larger businesses--that you can control the
    employees of the franchisees if you use the franchisee owners,
    like Ms. Fortin, as a middle manager. That is what Browning-
    Ferris did with the Leadpoint. They used these--
        Mr. Scott. Well, I am trying to get in one more question
    before my time expires.
        Mr. Harper. Okay.
        Mr. Scott. What happened in the Freshii case?
        Mr. Harper. Well, in the Freshii case we had an assistant
    general counsel issuing an advice memorandum that Freshii was
    not a joint employer of one of its franchisee's employees
    because what Freshii did was protect its brand, what Mr. Braddy
    says that Burger King does--protect its brand by specifying
    what the product must be, that they have to have their
    sandwiches and their salads be this consistent, and maybe have
    the same uniform on the servers--
        Chairman Roe. Gentleman's time is expired.
        Mr. Harper.--but not control the wages, and the advice
    memorandum said the franchisee was the only employer; the
    franchisor was not--
        Chairman Roe. Like to ask you to wrap up. Thank you.
        Mr. Harper. Yes.
        Chairman Roe. I will direct myself five minutes.
        And I want to label this hearing as ``if it ain't broke,
    don't fix it.'' We have had both Republican and Democrat
    administrations since 1984. We have developed millions of
    jobs,--excuse me, almost 8.9 million workers in the franchise
    business, billions of dollars in revenue, a system that you
    heard is working very, very well, and we have now decided to
    throw a wrench into that system.
        And by the way, Ms. Fortin, I am not going to ask you any
    tough questions with your mother being here, okay? Just to let
    that out.
        I haven't heard a--this is the third hearing that I have
    chaired, and I haven't heard one franchisee or one franchisor
    think this is a great idea. And Mr. Braddy up there, with 27
    employees and one business, doesn't have a legal firm, he--at
    $400, $500, $600 an hour has to hire a lawyer to figure all
    this out.
        It is working just fine right now. That would bankrupt him
    if he had to go into the legal system at hundreds of dollars an
    hour to argue this out. He doesn't have that resource.
        And by the way, Mr. Braddy, thank you for what you do for
    your community, and thank you what you do to make Baltimore a
    better place to live and America a better place to live. And
    you hire people that are disadvantaged, that have trouble
    finding work anywhere else, and I want to personally right here
    on TV thank you for doing that.
        I want to ask the two--three business owners here how they
    think this will affect them. Because if it is such a great idea
    and it doesn't affect you at all, why have we had these
    hearings? Why is there such angst out there?
        And I will start, Ms. Fortin, with you.
        Ms. Fortin. Thank you, Chairman Roe.
        And I assure everyone in this room that I am not a middle
    manager. I am a proud business owner.
        And while we can get into the academic debate about whether
    it will impact, whether it won't, I can tell you from the real-
    world, from a small-business perspective that it has already
    made a change. There is fear out there. My franchisor doesn't
    know how to react.
        And what is going to happen is that franchisors are going
    to pull back completely and we will be left to try to figure
    this out on our own, which we are fine to do. Also, insurance
    costs, EPLI, administrative costs, it is already happening, and
    it is happening to all small businesses, including franchises.
        Chairman Roe. I have, look, worked for myself for 30-
    something years in a practice of medicine, and I always thought
    my employer was who wrote my check.
        Does Burger King write your check, Mr. Braddy, or do you
    write the checks to your employees?
        Mr. Braddy. I sign the front of the check.
        Chairman Roe. You sign the front of the check.
        Mr. Braddy. Yes. Yes. And that is one of the things I
    always tell my employees when you are talking about who you
    work for and who you don't work for. The person who signs the
    front of your check is your employer.
        Chairman Roe. And you determine the working conditions, the
    hours, who you hire, and who you fire. That would seem to me
    like you are the employer. Am I correct in that or did I state
    that wrong?
        Mr. Braddy. No, you are absolutely correct. I pride myself
    in being able to hire people who I believe, other than people
    like me, would be unemployable, and I give them an opportunity
    to prove to me, and I say that to them going in: ``If you prove
    to me that you can come here and work and be a part of this
    team, you gain credibility and you can stay here.''
        Chairman Roe. And you can work your way up--
        Mr. Braddy. Yes.
        Chairman Roe.--and perhaps even be a restaurant manager,
    even with a background that may be less than stellar.
        Mr. Braddy. Yes.
        Chairman Roe. I think I want to ask Mr. Cole some
    questions.
        We had some issues and questions down in Savannah when we
    were there about the legal--the liability you might have if
    someone--if you subcontract with someone and then there is a
    work stoppage with the subcontractor somewhere else. How would
    that affect your business?
        Mr. Cole. Negatively, I am sure, but I am not sure how.
    That is very troubling about this whole thing. We regularly
    subcontract and are subcontracted to, so we are in both roles
    all the time. Even when we are a first-year subcontractor, we
    still subcontract to others.
        To Mr. Cohen's point, it is the age of specialization and
    we regularly subcontract certain things out. For example, more
    often than not we hire union contractors to do high-voltage
    terminations and splices.
        I am about to bid a job at Dulles Airport and I have
    already identified a small, woman-owned business to do a
    portion of the work for us in advance of the bid. So that
    small, woman-owned business is a union employer. She signed a
    CBA. I have to completely reevaluate whether I can safely bid
    the job without being drawn into her CBA. We are a merit shop.
        More than anything, what business owners and operators want
    is clarity from a regulatory agency. And this ruling is vague.
        It even uses the language ``case by case.'' They are going
    to examine on a case-by-case basis. How do I run a company on a
    case-by-case basis?
        To me, this puts a wall up between merit shops and union
    shops, where we regularly cross the line between each other all
    the time.
        Chairman Roe. I thank you.
        My time is expired.
        Mr. Pocan, you are recognized for five minutes.
        Mr. Pocan. Thank you, Mr. Chairman.
        And thank you to the witnesses.
        You know, I myself am a small-business owner, last 28
    years. Started at 22 years old. So very much like a franchise
    sort of model. In fact, the business was at one time a failed
    franchise.
        It was called Budget One Hour Signs, and then we took over
    and it was Budget Signs, made it Budget Signs and Specialties.
    My dad had the shop in Kenosha and I started one in Madison
    about 15 months out of college, so understand the area.
        But I also understand, you know, the fear that is out
    there. You know, the chairman mentioned the great deal of fear
    that is out there.
        And, Ms. Fortin, you just mentioned, you know, that people
    are concerned.
        And so I am going to do it in small-business owner plain-
    speak rather than lawyer-speak, but I am going to ask a lawyer
    if they can try to do the same speaking style.
        As I understand it, BFI essentially went through what they
    saw as a loophole by what they were doing, and so therefore,
    they were slapped on the hands because they were trying to get
    around the law. They are one of the 800-pound gorillas involved
    in this.
        The other 800-pound gorilla is really an 800-pound clown.
    It is McDonald's, who, I notice, isn't on the panel, who
    doesn't have Jones Day here at $450 an hour dealing with their
    case because they would rather not talk about this case. But
    that is the other big one that is out there.
        People who want to go around the law are the problem. But
    the chairman just--helped by the two business owners talking
    about their situation--say that someone who has a legitimate
    franchise and you are a legitimate small owner aren't affected
    by this new rule.
        So, Mr. Harper, as a plain-speaking person rather than, if
    we can, a law professor, am I paraphrasing things well, or am
    I--what am I saying wrong?
        Mr. Harper. First I just want to say that I am not going to
    make any comment on the McDonald's case because I don't know
    the facts of that case. I don't know whether McDonald's is
    doing anything to, you know, to use a loophole. I don't know
    how that case should come out.
        But in the BFI case, I read the BFI case, and the facts of
    that case is that Browning-Ferris owns this facility. Their
    essential business is doing this--sorting this recycling. They
    hire Leadpoint to come in to do that as a staffing agency.
        They set the pace of the assembly line or the streaming
    process; they set the hours, the overtime; they set maximum
    pay. They do things that the franchisors of these two folks
    don't do, and I assume Mr. Cole does not do when he
    subcontracts.
        So the fact that BFI is found here to be an employer has
    nothing to do, it seems to me, with the typical franchise case.
    That is why I say that they are using a loophole here.
        There are good reasons for--good business reasons--
        Mr. Pocan. If I can, just want to reclaim my time, just to
    keep going. So the Freshii case is really a much stronger
    parallel to what--
        Mr. Harper. Yes.
        Mr. Pocan.--the two small-business owners have--
        Mr. Harper. Yes.
        Mr. Pocan.--than the BFI case.
        Mr. Harper. Yes, yes. And we have the advice memorandum,
    and that should provide some certainty.
        Mr. Pocan. Okay. So then let me take it a step farther.
        One of the things you briefly mentioned is you are afraid
    this bill would actually make it worse for the two small-
    business owners. Could you just expand on that a little bit?
        Mr. Harper. I understand that certain companies--Domino's
    Pizza, McDonald's--they have the technology now that they can
    track employees, and it is possible they could use that
    technology--I am not saying they do it now; I don't know--but
    they could use that to control working conditions and make--Ms.
    Fortin now is not a middle manager. What she described, she is
    definitely not that. She doesn't want to come that.
        But some franchisors may have technology to make their
    franchisees middle managers, and this bill could send a signal
    to the board and to the courts that they can do that.
        Mr. Pocan. And then if you could, Mr. Cole brought up--
    because I am a big believer in apprenticeship programs. I think
    we should do a whole lot more. In fact, we have got a PACE Act
    I would like to talk to the chairman about, I would like to see
    happen and I think it should be a strong bipartisan bill.
        Could you just address Mr. Cole's concerns with his
    business? And the light is yellow, so you are going to have to
    be very brief.
        Mr. Harper. Well, my understanding is that Mr. Cole, when
    he does the subcontracting, even to a union contractor,
    specifies what product he wants, what results he wants, what
    work he needs, but he does not specify how that work--
    specifically how that work is going to be done.
        He asks for a particular product, but he does not specify
    the processes and the--you know, the hours, the wages of the
    people, and the specific work products, that he is not an
    employer under the common law of those subcontractors'
    employees and therefore he would not be a joint employer under
    this opinion.
        Mr. Pocan. Thank you.
        Chairman Roe. Gentleman's time is expired.
        Mr. Guthrie, you are recognized.
        Mr. Guthrie. Thank you, Mr. Chairman. Thanks for having
    this meeting.
        Thank all of you for being here.
        I was in business, as well, before I arrived. Still have
    the family business. My brothers get the privilege of running
    it every day, so appreciate them for doing that.
        Before I get started--and I have heard it several times
    here--I have 21 counties at home, was home in August, went to a
    lot of businesses. And no matter what industry I went to, the
    words you guys have used--your concern, your angst, you don't
    know, I mean, through financial services, through banks,
    insurance, even lunchroom workers that I will point out, are
    just really concerned about the federal agencies moving all of
    this--these rules down and just the unknowns of how to invest
    and move forward. So it is consistent what I have heard from
    each of you.
        And so I want to start with Ms. Fortin, if--so what
    authority, just to kind of get us some facts, what authority do
    franchisors have over your employees and how much involvement
    do your franchisors have with your employees?
        Ms. Fortin. Thank you. In my system, my franchisor has no
    involvement and no authority.
        And I would say, if I were to poll my employees, they would
    probably have no idea who the franchisor even was. They know me
    and my directors.
        Mr. Guthrie. How do you think they would respond to having
    more involvement from a--having two employers, essentially,
    having more involvement from your franchisor, more--as well as
    you?
        Ms. Fortin. I don't think they would understand it. What
    they would know is that everything just slowed down because now
    we have to figure it all out.
        Mr. Guthrie. Okay. So--
        Ms. Fortin. And they just want to work.
        Mr. Guthrie. Just want to work. And--
        Ms. Fortin. They just want to work, yes.
        Mr. Guthrie.--you want to run your business.
        Ms. Fortin. We want to bake cakes. I don't want to worry
    about legislation and regulations and policies. I want to bake
    cake.
        Mr. Guthrie. Nothing Bundt Cakes, right?
        Ms. Fortin. Exactly.
        Mr. Guthrie. Yes.
        Can you explain some of the benefits that arise from the
    current franchisor relationship, where the franchisor maintains
    the brand while the individual focuses on the business?
        Ms. Fortin. Well, for someone like myself, I have a
    business degree and a law degree. I don't know how to bake
    cakes--or I didn't. I do now.
        I wanted to join forces with someone who did something
    really well, and that is what I did. And then I was able to use
    my business expertise and my knowledge in my local market and
    build a successful business. It is a wonderful model and it has
    been truly successful for many of businesses across the
    country, including mine.
        Mr. Guthrie. How do you think making a franchisor a joint
    employer disrupts this relationship?
        Ms. Fortin. I don't even understand in any capacity how it
    would work. How would they even begin? I am in California. We
    are already regulated, and we have worked very hard to
    understand those regulations. And so for my parent company to
    come from another state and even try to understand it, much
    less help me and guide me--I can do that better than anyone.
        Mr. Guthrie. Well, thank you.
        Mr. Braddy, I appreciate what you do and your story. I
    was--ran into someone I think everybody on Capitol Hill just
    really enjoys being around; everybody would call him his best
    friend, so I will call him a really good friend of mine, Tim
    Scott--Senator Scott. And he has a great story how a
    franchisor--franchisee took him in when he was a young man, and
    now he is a--sitting in the U.S. Senate. So a lot of great
    opportunities that are provided. I love his story.
        So Burger King--does anyone from Burger King Corporation
    monitor the day-to-day operations of your restaurant to ensure
    compliance with the National Labor Relations Act?
        Mr. Braddy. No one physically comes in to monitor my
    restaurant.
        Burger King does have the potential to monitor my
    restaurant remotely because they require all their franchisees
    to use a point-of-sale system that they can monitor, where they
    can understand and know what my prices are, understand whether
    or not my people are making drive-thru times. So they have
    access to my registers. They do have the potential to have
    access to all of my information.
        Mr. Guthrie. Well, do you think it would be a good use of
    their time to come in and monitor you in that way?
        Mr. Braddy. Not at all.
        Mr. Guthrie. Do you need their supervision, I guess is my
    question.
        Mr. Braddy. No. The reason I became a franchisee is I like
    the partnership between having someone who would--who has
    already baked a cake, and now I can go in and finish the mold
    and put icing on.
        Mr. Guthrie. That sounds good.
        Since 1984, to determine whether two separate entities
    should be considered joint employers the NLRB analyzes whether
    alleged joint employers share the ability to control or co-
    determine essential terms and conditions of employment.
    Essential terms and conditions of employment include hiring,
    firing, disciplining, supervision, and direction of employees.
        Do you or do the franchisor hire and fire and determine the
    work of your employees?
        Mr. Braddy. I schedule interviews every other Wednesday. I
    sit down with eight people every other Wednesday. Even though I
    am not hiring, I do the interviews because I always like to
    have a waiting list of people who want to work.
        So I do all the hiring. I don't allow my managers or my
    assistants to terminate anyone because I want to make sure that
    once I let someone go it is for a good reason.
        Mr. Guthrie. But it is you as the business owner, not the--
    what role does the franchisor play in any of your--those
    issues?
        Mr. Braddy. None at all.
        Mr. Guthrie. None at all. Thank you. My time expired.
    Perfect timing. Thank you.
        I yield back, Mr. Chairman.
        Chairman Roe. Thank you.
        Mr. Polis, you are recognized.
        Mr. Polis. Thank you.
        First I want to go to Mr. Braddy and Ms. Fortin.
        Both of your testimonies suggest that you are afraid that
    the BFI decision could make your companies joint employers.
        Mr. Braddy, you indicated that your franchise agreement
    with Burger King provides you with complete control over
    hiring, firing, scheduling, duty assignments for your
    employees. Under the NLRB's ruling and common law, that means
    Burger King would not be considered a joint employer. And I
    want to ask, on what basis do you believe the BFI decision has
    any impact at all on your business?
        Mr. Braddy. I have a fear that we are--the NLRB's ruling--
        Mr. Polis. Is there any basis--factual basis for your fear?
        Mr. Braddy. Sure, because I have people that I subcontract
    out to which I--and I consider myself a customer of theirs. If
    I am considered to be a joint employer--
        Mr. Polis. And what do some of those subcontractors do for
    you?
        Mr. Braddy. I have a landscaper. I have a refuse removal
    company. I have a window washer--
        Mr. Polis. And in those contracts with your subcontractors,
    do you set the wages or the work hours of those subcontractors
    and who they choose to employ?
        Mr. Braddy. No, I do not.
        Mr. Polis. Okay. Then I think a simple reading of the BFI
    case would show that you have nothing to worry about with
    regard to that.
        I also want to go to Ms. Fortin.
        Now, in your case, from your testimony, you said the real-
    world consequences of the NLRB's decision is it would lead to
    consolidation among our franchisors and loss of autonomy for
    local franchise business operations.
        My question is, how do you get that out of the BFI case if
    it has to do with contractors? Or are you just talking about a
    hypothetical outcome for other cases that might be pending?
        Ms. Fortin. I mean, I don't think anyone here can truly
    answer what is going to happen. I look at words like
    ``indirect,'' ``reserved,'' ``potential.'' Any contractual
    relationship at that point is on the table.
        Mr. Polis. But when you are saying the real-world
    consequences of the NLRB's decision is that it will lead to
    consolidation among our franchisors and loss of autonomy, which
    decision are you referring to when you say the real-world
    consequences of the NLRB's decision?
        Ms. Fortin. I am talking about the potential from this
    decision.
        Mr. Polis. Okay. Well, I think it is an important change,
    because here we are talking about a case that is pending. We
    are talking about a case that doesn't even affect the
    franchisee-franchisor relationship. It is a case that affects
    contracting, the BFI case. As Mr. Braddy said, certainly the
    best practices in contracting anyway, and the ones that he
    uses, would not be pulled in under the BFI case.
        And I want to go to Dr. Lofaso, as well, and I wanted to
    ask her what she sees as the impact that the BFI decision has,
    if any, on franchisors and franchisees across the country.
        Ms. Lofaso. The BFI case is not a franchise case, so there
    is no effect at this time.
        Mr. Polis. And so it sounds to me like there is--in some of
    the testimony there is a conflation of cases. You know, and
    there are pending cases that could affect the franchisee-
    franchisor relationship, and I think it would be interesting to
    reassemble and talk about that after they are decided and
    whether they--whether that impacts that at all. At this point,
    the case that has been decided for franchisees and franchisors
    is the ``Freshii'' case, which was found in a favorable way to
    franchisees.
        And, of course, the case that was decided with regard to
    contractee and contractors was the BFI case, which to me seems
    like common sense. We have a common-law definition of
    ``employer.''
        If, in fact, somebody who is doing the contracting is
    setting wage levels and working hours then they are, in fact,
    their employer. There is no meaningful negotiating unit that
    the contractor can provide because if their employees go to
    them they would simply say, ``Sorry. We are required to pay you
    a cap of $10 or $12 an hour,'' or whatever it is.
        I also want to ask about the crux of the BFI case, which is
    the inability of workers to have anybody to negotiate with. And
    I wanted to go to Mr. Harper and say, can you explain how the
    workers at BFI's subcontractor, Leadpoint, how could they
    collectively bargain for higher wages if this case wasn't
    decided the way they were--was?
        In fact, if they were prevented from speaking about pay
    with BFI, who actually determines pay, and they couldn't talk
    to their contractor because they were bound under contract,
    what other mechanism would there possibly be if this case
    wasn't decided the way it was?
        Mr. Harper. Well, from reading this decision, my
    understanding is there was a lot of contention about the pace
    of those lines, and the break time, and the--being able to
    stop. And that was--that pace of work is a very essential thing
    for a worker, how fast they are pressed. And BFI set that pace
    of work; Leadpoint didn't.
        So if they are negotiating--the reason I think, reading
    between the lines here--
        Mr. Polis.--because of our limited time. So if they--if
    this case wasn't decided the way it was--
        Mr. Harper. They wouldn't be able to negotiate about that.
        Mr. Polis. There was no one to talk to. Is that--
        Mr. Harper. Right. On that question, which is an essential
    question.
        I think this case could have been decided under the direct,
    immediate, and limited routine. I think it is an easy case.
        Mr. Polis. Thank you, and I yield back.
        Chairman Roe. Gentleman's time is expired. Thank you for
    yielding.
        Dr. Foxx, you are recognized for five minutes.
        Dr. Foxx. Thank you very much, Mr. Chairman.
        And I want to thank our witnesses for being here today.
        One of the comments that was made makes me think of a
    promise we heard a few years ago, ``If you like your health
    care plan, you can keep your health care plan,'' that nothing
    in this is going to have any impact on anybody else, and that
    is what we were told, you know, in terms of what the health
    care plan was going to do.
        Mr. Cole, Dr. Lofaso said that this BFI ruling would have
    absolutely no effect on franchisees. How do you feel about
    that?
        Mr. Cole. Well, I am not a franchisee, but what is
    troubling for me about the BFI case is that it could have
    been--there could have been a finding of joint employer status
    under the old definition of the rule. The NLRB interjected
    uncertainty for all of us by changing the definition of the
    rule unnecessarily.
        In my case, the perfect example is the Dulles Airport job
    that we are bidding in two weeks. The small, woman-owned
    business is technically qualified to execute the work on the
    site, but too small to bond it, too small to manage a $5
    million project. So I will be the project manager; I will be
    the bonding agent on the job; I will be at risk on the entire
    job.
        And I will direct her forces. I will have to tell them
    where to go. Now, since she has a CBA I am not going to
    obviously tell her how much she pays; she has already decided
    how much she is going to pay those people.
        But I am at risk because she has a CBA. If we finish the
    project early then I am sending her employees home, but her
    contract with the union might not be up. So now I am--in a
    joint employer situation I am in deep trouble.
        Dr. Foxx. Okay.
        Mr. Cohen, what is your response to what Dr. Lofaso said?
        Mr. Cohen. Thank you. I believe that the fear and
    uncertainty across the business community, whether it be
    franchise situations, contract situations, up and down the
    line, is real and something that business people are
    justifiably concerned about.
        There has been a lot of emphasis on what the general
    counsel did in the Freshii case--the associate general
    counsel--and that everybody ought to take a deep breath and
    realize that the law is not going to be bad on franchise
    situations.
        I don't know what the law is going to be on franchise
    situations. But the Freshii case was a memorandum issued by the
    associate general counsel and the general counsel, a prosecutor
    for the NLRB. He decided not to prosecute that case through his
    division of advice and finding and alleging joint employer
    status.
        That is in no way binding on the board. It is not board
    precedent at all.
        Dr. Foxx. Well, thank you very much.
        It seems to me that if our colleagues think that this has
    no impact then I don't understand why you would be so opposed
    to this legislation. Because if the legislation simply is there
    to clarify, then I don't quite understand why there is any real
    strong opposition to it.
        Ms. Fortin, I want to--I know you worked for a year with
    the Nothing Bundt Cakes cofounders to develop a franchise model
    for them and to become their first franchise bakery. Now there
    are 150; you own six of them.
        Why has franchising been successful for Nothing Bundt
    Cakes? And if the broad Browning-Ferris joint employer standard
    had been in place eight years ago, do you think you would have
    gone to all the effort to become a franchisee?
        Ms. Fortin. Nothing Bundt Cakes has been successful in part
    because they partnered with business owners like myself who had
    expertise, knowledge in other areas. We wanted to own our own
    businesses; we wanted to live our American dream, but we didn't
    know how to bake, so we needed their brand.
        And that is really--I loved the product. I had it at both
    of my baby showers. That is why I got involved. And I lived in
    Las Vegas at the time, and I moved to San Diego to start the
    company.
        If this had been in place back then and we were in this
    discussion about oversight, I don't know that I would have
    wanted to jump into the arena and do this.
        Dr. Foxx. Mr. Braddy, I just want to say thank you so much
    for the great example that your business is providing for other
    businesses in terms of what you are doing in the community, in
    terms of what you are doing for rehabilitation. I think you are
    a wonderful role model, and I thank you so much for all the
    efforts you put into helping your community.
        Mr. Braddy. Thank you.
        Chairman Roe. The gentlelady's time is expired.
        Ms. Bonamici, you are recognized for five minutes.
        Ms. Bonamici. Thank you very much, Mr. Chairman.
        And thank you, to all the witnesses. It has been an
    interesting discussion.
        And I strongly support the right of workers to collectively
    bargain for fair wages, and reasonable hours, and a safe
    workplace, health care. These are really hallmarks of a fair
    labor market.
        And unfortunately, my concern about the bill that we are
    talking about today could limit the ability of workers to
    engage with all of the employers who control the essential
    terms and conditions of employment at the bargaining table. And
    in fact, that is what the Browning-Ferris case is about: acting
    like an employer without the responsibilities of an employer.
        I hope that this committee considers policies that help
    workers, like paid sick leave, increasing the minimum wage,
    increasing access to retirement security. Those are policies
    that lift up families and help the economy--for example, Mr.
    Scott's WAGE Act, to strengthen protections for workers so they
    can exercise their right.
        But I wanted to follow up on questions that Mr. Pocan and
    Mr. Polis asked. I am a little bit like Ms. Fortin in that I
    used to practice law before I had children, and then I changed
    careers.
        When I practiced law, in fact, a lot of what I did was
    represent franchisees, so I know a lot about what you do and
    appreciate all of that.
        And Ms. Fortin testified she was terribly worried because
    of Browning-Ferris.
        And I think your testimony says, ``My franchisor has
    nothing to do with hiring my employees or setting their wages
    and benefits. My franchisor has nothing to do with the day-to-
    day operations of my small business.''
        And, Mr. Braddy, thank you for all you do, as well. You
    talked about the potential harm and devastating consequences,
    but then you said, ``I am in complete control of the hiring,
    firing, scheduling, and duty assignments of my employees.''
        So it sounds like those are much more like the Freshii
    situation than they are like Browning-Ferris.
        So you may have things to worry about. I would worry about
    earthquakes, I think--I am on the west coast too--fires. I
    mean, there is lots to worry about. But it seems like when you
    look at the situation that you are in your testimony, the
    Browning-Ferris case is definitely not something that should
    cause you concern.
        I wanted to ask the--Professor Harper and Dr. Lofaso, could
    you talk a little bit about the significance of the--and I know
    Mr. Cohen said it is just an opinion, but can you talk about
    the significance of the Freshii case? And I want time to ask
    another question.
        Mr. Harper. You want to start? Go ahead.
        Ms. Lofaso. Sure. Well, Mr. Cohen is right that it doesn't
    have precedential--it doesn't have--it is not mandatory
    authority. That is absolutely correct.
        However, the general counsel did not put it forward to the
    board, and it--and under those facts, is a--you have a
    franchisee situation--franchisor, which is in control of the
    brand but not in the labor relations. So under BFI, applying
    that law, you would have--you would not have a joint employer
    situation.
        I would like to correct the record on something that Mr.
    Cohen did say, however, which is that he stated that
    supervisory status is--the board only does it when you are
    exercising the authority, and that is not correct. The plain
    language of the act actually contemplates mere possession, and
    then it says if exercised with--if it were to be exercised, it
    is exercised with independent judgment.
        So first of all, the language is different, and it is also
    not true.
        Ms. Bonamici. Thank you. And I am going to ask Mr. Harper
    to briefly weigh in on that.
        But I also want to ask you, Mr. Harper--it has been a while
    since I was in law school--so it appears that there were two
    different periods. There was a comment made in the testimony
    that the bill that is being contemplated today would restore
    the original intent of the law. I don't get that impression at
    all.
        So could you go through--
        Mr. Harper. It is hard--
        Ms. Bonamici.--for those non-lawyers, what was the law--
        Mr. Harper. It is hard for me to understand that, that it
    would go back to the original intent, because the BFI decision
    says they are based--they want to go back to those precedents.
        Now, Mr. Cohen said he reads those precedents one way, that
    there has to be actual involvement, and he thinks that the
    board majority is reading another way. That is sort of beside
    the point because they are saying those precedents are binding;
    they are saying the common law tethers us. And that is what
    Congress says.
        So it is not uncertain any more than the common law is
    uncertain because we have all these precedents limiting who can
    be a joint employer.
        I think the Laerco decision in 1984 and the developments
    after that is what is ambiguous and uncertain and what is not
    based on anything in the statute. I don't know where they came
    up with direct, immediate, and limited routine. We don't have
    any explanation from those old boards where they came up with
    those things.
        Ms. Bonamici. And one more quick question before my time
    expires: There was some testimony about how almost any
    contractual relationship could trigger a finding of joint
    employer status--for example, making someone liable for
    subcontractors, vendors, suppliers, and staffing firms. Is that
    correct or is it a misreading of the--
        Mr. Harper. That is a total misreading--
        Chairman Roe. Mr. Harper, hold that thought--
        Mr. Harper. Okay.
        Chairman Roe.--and we will get your answer--
        Ms. Bonamici. My time is expired.
        Thank you, Mr. Chairman. I yield--
        Chairman Roe.--expired.
        Mr. Allen, you are recognized for five minutes.
        Mr. Allen. Thank you, Mr. Chairman.
        And thank you, panel, for this discussion.
        And, of course, I--under full disclosure, I want to confess
    to you that I am a former small-business owner in the
    construction industry, Mr. Cole. And yes, I have subcontracted
    work to both merit and union companies--labor-only contracts
    because, like I said, some of these smaller companies that
    deserve every opportunity in the world to work in our industry
    don't have the capital to bond or fully subcontract a project,
    so we have to enter into these agreements for labor only. And
    that seems to be the debate here today, in listening to all
    sides.
        The thing that is disturbing to me is that the NLRB said
    that they are going to deal with this on a case-by-case basis.
    I think that is the problem out there, meaning that your
    project at Dulles, if, you know, the unions made a complaint
    against the way you were subcontracting that project, could
    come in and file a lawsuit against you.
        I guess the first question: Do you put money in your bid to
    defend yourself, as far as lawsuits are concerned?
        Mr. Cole. Certainly not. I would never get the job if I did
    that.
        Mr. Allen. Okay. So that just comes right off the bottom
    line.
        Mr. Cole. Absolutely.
        Mr. Allen. So you have got this--you have got to defend
    yourself.
        As far as the case-by-case basis, is that a fear we are
    talking about here? I mean, you are trying to bid a job, put
    people to work, and now, okay, how do I confidently bid this
    project, and is it going to also run the cost of the project up
    in contemplating all this that might happen?
        Mr. Cole. Absolutely. I mean, contracting is all about risk
    management. You mitigate everything you can and manage what you
    can't mitigate.
        And I don't know how to handle case-by-case basis. I need
    something firm to--in order to understand how I subcontract
    with other companies, particularly union companies.
        The NLRB had something firm and took it away. It was
    crystal clear before this case with BFI, which, I would repeat,
    didn't need a change in the rule in order to have a finding of
    joint employer status.
        Mr. Allen. Mr. Cohen, I am from Georgia, a right-to-work
    state. And, of course, Mr. Cole and myself, in the construction
    business we work multistate.
        How will this rule apply, for example, across--you know,
    where you go from states that don't have right-to-work laws to
    states that do have right-to-work laws, and how complicate dis
    that going to be?
        Mr. Cohen. Talk about case-by-case. It would be state-by-
    state.
        There are--could be very, very different rules. The dissent
    in the Browning-Ferris case showed the multitude of
    relationships that could flow from the decision which the board
    majority decided to issue. So it is a deep problem.
        Mr. Allen. So, and this rule would then be subject to--
    constantly by the courts. It would increase the cost of doing
    business.
        So are there other examples of federal intrusion on your
    business that you would like to talk about--any of our business
    folks--that you are dealing with right now that--
        Mr. Cole. How much time do I--
        Mr. Allen. Well, you don't--I don't have much time left,
    but, I mean, is it--it is fair to say that there is reasonable
    angst here about what the Federal Government is doing.
        Mr. Cole. Yes. Absolutely. I mean--
        Mr. Allen. You know, you have got to walk in your shoes to
    understand that, as well--
        Mr. Cole. Absolutely.
        Mr. Allen.--and you have got to understand that, you know,
    when it comes to legal issues, particularly with the Federal
    Government, you are going to get out-lawyered every time.
        Mr. Cole. We need to understand the rules to comply with
    them.
        Mr. Allen. Yes.
        Mr. Cole. Okay, so if I am trying to mentor a small
    business--
        Mr. Allen. Yes.
        Mr. Cole.--they are--the young business owner is the first
    one to make a mistake, not to be the evil guy trying to mess
    with somebody.
        Mr. Allen. Yes.
        Mr. Cole. The small business is the one that is going to
    make a mistake and get me in trouble.
        Mr. Allen. Right.
        Mr. Cole. So I--it is not on my best interest to mentor
    small businesses under the new definition of the rule.
        Mr. Allen. Yes.
        Mr. Cole. It is in my best interest to just hog everything
    for myself.
        Mr. Allen. Well, let me make a point here. You know, this
    economy is growing some say at 2 percent. Folks, you know, that
    is not getting the job done out there.
        We need to put people back to work in this country. And
    this is just another example of overreach by this
    administration to cause fear and uncertainty in the economy.
        You know, in the business world they say, ``Just tell us
    what the rules are and we will figure out how to do business.''
        Mr. Cole. Absolutely.
        Mr. Allen. Mr. Braddy, my final comment: Your story is--
        Chairman Roe. Gentleman's time is expired.
        Mr. Allen.--needs to be told. Thank you for what you are
    doing.
        Chairman Roe. Mr. Takano, you are recognized for five
    minutes.
        Mr. Takano. Thank you, Mr. Chairman.
        Ms. Fortin, as you mention in your written testimony, I too
    was inspired by the words of his holiness, the pope, Pope
    Francis, that America is the land of dreams. And it is my hope
    that we can continue to be the land of dreams for small
    businesses and employees alike.
        And it seems to me that the rights and protections granted
    by the National Labor Relations Act are part of that dream for
    millions of workers. Instead of focusing on ways to support
    working families, such as raising the minimum wage,
    strengthening overtime protections, or providing paid sick
    leave, this committee is again attacking the NLRA and the
    promise it offers workers to speak up for better working
    conditions and to better themselves.
        And moreover, I am concerned that H.R. 3459 is possibly
    going to strengthen the hand of franchisors vis-a-vis
    franchisees.
        Now, Mr. Harper, I saw you sort of reacting to this case-
    by-case questioning. Can you respond to some of what my
    colleague, Mr. Allen, was trying to get at?
        Mr. Harper. Well, I don't understand why folks are saying
    it is real--was real certain before BFI. I don't understand
    that because--and Mr. Cole said, well, it didn't need--we
    didn't need any change in the law to plug the loophole for BFI,
    but we had two dissenters here applying the 1984 standard, and
    they are dissenting; they are not concurring under the BFI.
        And what it was happening with the law is that it was just
    a--before the BFI decision, it seems to me, it was just eroding
    further and the loophole was getting larger. And so what is
    limited and routine? What is direct and immediate? Those are
    standards which are not in the statute for which we have no
    common-law basis for limiting.
        It seems to me that the BFI standard is more clear; it is
    potentially broader. But this angst and fear that is out there,
    I wonder who creates that angst and fear. Is it the
    franchisors? Is it the large businesses who are whipping up
    these people and saying, ``You have got a problem''?
        They don't have a problem. But the franchisors or the BFIs
    who want to abuse the system have a problem, and they are
    whipping this up. They are whipping this up. I think they are
    responsible, their lobbyists and, frankly, I have to say it,
    some lawyers who say, ``You know, you have got a problem here
    with this opinion; you better hire us so we can do something
    for you.''
        I think that it is the lobbyists and perhaps the lawyers
    who are whipping up this problem and creating fear in these
    small-business people around the country. And--
        Ms. Lofaso. And may I add--
        Mr. Harper.--that is sad.
        Ms. Lofaso. May I add that the case-by-case basis is no
    matter which standard. It is by law that they have to do case-
    by-case basis of any kind of collective bargaining
    representation case.
        Mr. Takano. So all this talk about case-by-case is really
    part of the hyperbole that is--
        Ms. Lofaso. Yes. I believe the witnesses believe that, but
    they are being misled.
        Mr. Takano. So can you, just with the time I have left,
    explain further how H.R. 3459 actually sends a signal or can
    strengthen the hand of franchisors over franchisees? I am
    interested in making sure that franchisees get a fair break
    vis-a-vis the franchisors, and so to--that there is, in fact,
    control, autonomy, and not a fictional autonomy.
        Mr. Harper. Well, I think when Congress acts it sends a
    signal and courts respond to that, as they should, and the
    board responds. If Congress acts in response to the BFI
    decision, the--it looks--the signal is that the BFI decision
    was wrong.
        Mr. Takano. So, in fact, Ms. Fortin and Mr. Braddy, under
    this law, could be weakened in their position vis-a-vis the
    franchisor.
        Mr. Harper. Well, I--as I said earlier, I--
        Mr. Takano. As far as their autonomy goes.
        Mr. Harper. Yes. It is possible that franchisors--I am not
    saying their franchisors, but it is possible some franchisors
    would step in and say, ``Look, we have--we can get the best of
    both worlds. We have the technology. Now we can control
    employment relationships without being responsible for that.''
        Mr. Takano. So reduced liability, more control, and less
    autonomy for the franchisees could be the result of this law?
        Mr. Harper. Yes. Yes.
        Mr. Takano. All right. Thank you.
        Chairman Roe. Thank the gentleman for yielding.
        Mr. Messer, you are recognized for five minutes.
        Mr. Messer. Thank the chairman.
        You know, it is an important maxim of life that we are not
    only accountable for our intentions, we are accountable for our
    results. And we all want to see workers in America treated
    fairly in the workplace, but if the decisions of the NLRB
    destroy the franchise model, you won't just hurt the people who
    own those franchises; you will hurt all the workers who would
    lose their jobs because those franchises go away.
        We all want to see answers to stagnant wages in this
    country. We understand that over the last 10 years for many
    workers in the middle of this economy their wages have flat-
    lined.
        But if you put regulatory burdens on these franchises in a
    way where they don't have the additional revenue to increase
    wages, you are going to hurt the very people that you are
    trying to help. Not to mention the consumers who go to these
    places and as the cost of this regulatory burden drives up cost
    for the individual business owner, then they are going to have
    to raise the price of their product.
        So we can all agree that we want to make sure that workers
    who work in these franchises are treated fairly. I think we
    have to look today in this hearing not just at the broad
    promises but, like so many of the policies of this
    administration, the outcome of the policies actually ended up
    hurting the very people that they are trying to help.
        Now, I want to talk to both Ms. Fortin and Mr. Braddy about
    a--something to get on the record about the relationship that
    you have with your franchisor.
        At first glance, it might appear that sharing liability
    with your franchisor would be a good thing for small-business
    owners, that you could be a part of this much larger
    conglomerate. But could you talk a little bit about how that
    relationship really works and why that probably wouldn't be
    true for you?
        Ms. Fortin. Well, my franchisor, like I said previously,
    doesn't have any involvement in my day-to-day. They guide and
    they direct on the brand and marketing, and they allow us,
    capable small-business owners, to succeed in our markets and to
    establish our own relationships with our employees. And we take
    care of employees very well.
        Mr. Messer. And if you end up in the middle of a legal
    battle here on this, who is going to pay for that legal battle?
        Ms. Fortin. Everyone. And it is going to be--take my time
    and, of course, attorney's fees at $700 an hour while we battle
    this out.
        We are small-business owners. We just want to run our
    businesses. It takes us away from that, focuses on other things
    that we shouldn't be focusing on.
        Mr. Messer. Mr. Braddy?
        Mr. Braddy. Thank you.
        Specifically in my franchise agreement, my franchisor has
    chosen to indemnify themselves of any claims that may come
    against my business when I have anything--any lawsuits against
    me. So therefore, I would be in those situations alone, and I
    understand that. I understand it would be on my shoulders.
        When I entered into the franchise agreement, I realized
    that I was going into business for myself and by myself, and I
    am a small-business owner. So, I need to understand that I need
    to follow the laws, and I need my franchisor to trust me to do
    that.
        Thank you.
        Mr. Messer. No further questions. I yield back.
        Chairman Roe. Thank the gentleman for yielding.
        Ms. Wilson, you are recognized for five minutes.
        Ms. Wilson of Florida. Thank you, Mr. Chair.
        First of all, I would like to give a shout-out to Mr.
    Braddy for what he does to help African-American men who have
    been involved in the criminal justice system
    disproportionately--we all know that. They comprise too many
    spaces in our criminal justice system, and we have a revolving
    door.
        When they are released from prison there is no work, and
    you are providing that. And I want to commend you, because that
    is my life's work. So I feel a connection to you.
        And as Pope Francis took the opportunity to visit a prison
    to give the inmates hope that then when they are released they
    will be able to come back to society and find a way to help
    their families and become better citizens. So I want to thank
    you for that.
        I have a question for Dr. Lofaso. And as you mentioned in
    your testimony, what we are discussing here today comes down to
    the distinction between possessing power and exercising power
    to control the terms and conditions of employment. Could you
    walk us through why this distinction is so important and why
    the court was correct in finding the possession of power is
    enough to create an employee-employer relationship?
        Ms. Lofaso. Yes. Thank you for that question.
        When you are at the bargaining table and, say you are an
    entity and you are in a dual-employer situation, so there are
    two potential employers, and only one employer is at the
    bargaining table, say the one that you see day to day, but the
    other employer has the power to dictate terms and conditions of
    employment typically doesn't exercise it, bargaining becomes
    futile.
        This is about employees who are exercising what the Supreme
    Court has termed a fundamental right and that is the policy of
    this Congress to encourage the practice and procedures of
    collective bargaining. That is still the law.
        And to uphold the law in an appropriate way, then you must
    have--bargaining must be not futile. And bargaining is futile
    if there aren't the people at the bargaining table who are
    authorized and have the authority to bargain.
        If there is someone who is missing from the bargaining
    table that does--that has authority to stop agreement, that
    renders the act null, and that is not the policy of this
    Congress. The policy of this Congress is still the National
    Labor Relations Act.
        Ms. Wilson of Florida. Okay. Thank you.
        What are the consequences of--if entities are held to be
    joint employers only if they exercise this power?
        Ms. Lofaso. If only if they exercise and they haven't
    actually, but they do possess it, is exactly that, that they
    can thwart bargaining. And remember, this is in the situation
    where you have already a bargaining--you already have a
    bargaining relationship.
        And this is what the real problem is. This is what
    Professor Harper keeps on talking about, the big loophole. And
    this is what the board saw as this larger and larger loophole
    and said, ``Look, enough is enough. We have already an
    increased fractured workforce, and this is getting worse.'' And
    so the board acted--with--by the way, I should add, within its
    authority and actually quite conservatively.
        The definition in the act of ``employer'' is--the common
    law is actually indirect or direct control, and there is a two-
    part test, as Professor Harper has repeatedly said today, which
    is first that it is a common law. There has to be the common
    law.
        But the second law--secondly, not only do you have to have
    the common-law definition, which would tether everything, but
    then you have to actually have sufficient control over the
    terms and conditions of employment. The subcontext being there
    is to make bargaining meaningful.
        Ms. Wilson of Florida. So in other words, are you saying
    that the legislation before us today would provide a loophole
    for employers who have the right to control their
    subcontractors' labor relations--it would help them avoid
    collective bargaining obligations?
        Ms. Lofaso. Yes. And I don't really understand the way it
    is drafted. If everyone here is saying what I think they are
    saying, which is they want the common law, why don't they just
    say--I don't think there is even a need for this, but why don't
    you just say, ``Okay, we want the common-law definition''? It
    seems to me that would resolve everything.
        Ms. Wilson of Florida. Okay. Thank you.
        That is fine. I yield back.
        Chairman Roe. Thank the gentlelady for yielding.
        Mr. Grothman, you are recognized for five minutes.
        Mr. Grothman. Thank you very much.
        I guess there are two things I would like to go over again
    with those of you who are in business, and maybe Mr. Cohen
    could comment as well.
        The first thing, Ms. Fortin mentioned legal fees, and there
    is no question this decision is going to result in uncertainty,
    which will lead to more legal fees.
        I think a lot of times people in the law schools--and we
    have a couple law professors testifying today--they don't
    appreciate how difficult it is and how quickly the legal fees
    go up, up, up, and they just kind of figure that is part of the
    system and blah, blah, blah.
        But there is no question in my mind this uncertainty is
    going to result in, you know, more potential lawsuits and
    somebody on the hook.
        I would like to ask one of the three small businessmen here
    today, and then Mr. Cohen, because I was a lawyer myself so I
    can't--not being critical of you, but, you know, their
    experience with legal fees, and is it, you know, just no big
    deal, and it is everything is going to be fair the more we have
    to go to court. You want to give us any stories about the
    enjoyment of having to go over to the local law firm and deal
    with these decisions?
        Ms. Fortin. I would like to. Thank--
        Mr. Grothman. Oh, thank you.
        Ms. Fortin. We have one right now, and what small-business
    owners don't know is that they need to have EPLI insurance. And
    before it was if you had 35 employees or more you need it. If
    you have one employee you need to have EPLI insurance because
    normal liability policies don't cover that.
        So we are paying, out of pocket, those big attorney fees.
    And trust me--and Jennifer knows this--every time the bill
    comes in she waits until I am in a good mood to give it to me.
    It is brutal and it hurts.
        Mr. Grothman. You want to give me just a number of the one
    time you had to--you know, just a little shock in the story?
        Ms. Fortin. Right now we are at $15,000 for 3 months, and
    it is a nuisance. The plaintiff's attorneys are counting on
    breaking us down.
        Mr. Grothman. Okay.
        Mr. Cohen, I always hated billing out when I was a lawyer,
    so you can tell me.
        Mr. Cohen. Yes. Thank you, Congressman, I think.
        What I have already encountered with clients is rebid
    situations--situations where they employ another entity to
    perform a discrete task. The matter gets rebid from time to
    time.
        Some of their contractors are unionized; some of them are
    not; some of them are in the process of unionizing. So they
    have come to us, as many other companies have, and said, ``How
    do we cope with this new standard that the board is having?''
        And I can tell you, the situation is quite varied. Of
    course, every decision is case-by-case at the NLRB; they have
    to decide every case. But the question is whether there are
    discrete rules which are going to let us analyze those cases.
        There has been so much changing of position that what I
    find myself doing is not answering what the law is today, but
    trying to divine what the law is going to be a year or two from
    now because that is what is of value to the client. And we have
    had to counsel on the basis of expecting a bad Browning-Ferris
    decision. And I can assure you, we got it, and companies are
    paying for it.
        Mr. Grothman. So you are, in other words, going to have to
    bill out more because of that decision, right?
        Mr. Cohen. Absolutely. We have to provide this service.
        Mr. Grothman. This is something we want the law professors
    to pay attention to, what happens in the real world.
        Now, one other question for you guys--and I apologize for
    being part of the government even though I am not in favor of
    that decision that, you know, I know is so frustrating. People
    say, ``How in the world are those people running Washington
    when these stupid decisions come out?''
        But just a general comment from you guys--or maybe Mr.
    Cohen, because you deal with businesses of all sorts of sizes,
    and one of the sad things that happened in my life is again and
    again the small businesses close up and the big multinationals
    come in, and I think it is because we have more and more
    regulation that only a big, massive company with maybe in-house
    counsel or everything can deal with it.
        But could you just one more time give me your impression on
    how this decision, unless we pass this bill, how it affects the
    mix in this country between small businesses, and instead small
    businesses drying up and only the larger businesses running the
    show?
        Mr. Cohen. I think it has a direct impact on small
    business. As I said before, businesses are going to their core
    competencies, so there are--and I think this is the hope for
    small business, is to be particularly good at a particular
    function.
        At the same time as the NLRB has changed a multitude of
    rules in the last several years, they have made it so that
    there almost needs to be a labor and employment lawyer on speed
    dial for them.
        Mr. Grothman. Right. So if you have got a little business
    with five or 10 or 30 employees, much more difficult to handle
    this than if you are a--
        Chairman Roe. The gentleman's time is expired.
        Mr. Grothman. Thanks so much for giving me the time.
        Chairman Roe. Like to thank, again, the witnesses. Each of
    you have taken your time to be here. It was a great panel, was
    a great discussion this morning, a lot of good remarks on both
    sides.
        And I will now ask my ranking member, Mr. Polis, if he has
    any closing comments?
        Mr. Polis. Want to thank our witnesses.
        And I think it--you know, we all understand the
    consequences of the decisions that are being made and will be
    made by the NLRB. Obviously the paramount issue here is that
    millions of Americans are struggling with stagnant wages, and
    in an economy where more workers are employed by leasing
    companies and perm-temp agencies and subcontractors, the
    workplace environment is becoming more complex from a legal
    perspective and on the ground.
        This bill, which would limit the definition of a joint
    employer to only those who have an actual, direct, and
    immediate control over the terms and conditions of employment,
    would effectively set up a broad loophole for companies to hide
    behind in order to avoid negotiating with their workers.
        I understand that some of the questions here are about
    recent NLRB activities, especially from franchisees, and I
    think it has been made clear in the questioning that their
    recent decisions have not affected franchisees or franchisors
    one way or the other.
        The BFI case affected contracting; the ``Freshii'' case was
    found in favor of the position that is advocated by the
    franchisees. So any concerns about that, I think we have
    established clearly, are premature.
        I think none of us up here want to make it more difficult
    for small businesses to succeed. Really one of my priorities in
    Congress is removing barriers for small business success, and I
    think there is a strong middle ground here as long as we
    encourage caution and patience as we analyze NLRB rulings that
    are upcoming.
        I think it is important the National Labor Relations Board
    follow their process, including in the pending McDonald's case,
    without Congress prejudging their motives or undermining their
    authority before a decision is made.
        Once there is a ruling, I look forward to convening again
    and seeing whether there is any legitimacy to the fear that
    some of you have expressed with regard to the practices of your
    franchisees or franchises. If there is, I think you will find
    great sympathy on both sides of the aisle; if not, then those
    fears will--are largely unwarranted and will not have any
    impact at all on your business.
        Thank you again, for everyone, for your time and opinion,
    and I yield back.
        Chairman Roe. Thank the gentleman for yielding.
        And again, I too thank the panel for being here today.
        And having worked in small business, the only employer I
    ever had in my life was me. And so I understand about that, and
    I also understand about three people that I see here today who
    have literally lived the American dream.
        Many different backgrounds, but literally, starting as an
    apprentice, working your way all the way up to the vice
    president of a company. A high school dropout then decided,
    hey, that is not the road I want to be on, graduated, worked
    for the police department, and then began his own business
    through a series of other ventures before that, and now serves
    not only as a business leader but as a model for the community,
    and the franchise business allowed him to do that. And because
    of family circumstances, Ms. Fortin decided to take the risk.
        And I heard your stomach--when you are the one that signs
    the note at the bank, they are coming after you. And when you
    look back and your CFO and ask how much--$15,000 might not
    sound like too much money, but to a small-business person, that
    is money that will either go in your hip pocket or you could
    reinvest back into your business through higher wages, or new
    equipment, or whatever. That is a lot of cakes, I think--
    $15,000.
        And I hear right now Mr. Harper said, ``Oh, there is
    nothing to worry about. It is all a bunch of lobbyists and
    lawyers that have created this situation.'' I might agree with
    that, but there is fear and uncertainty.
        We have got three very expensive labor attorneys sitting up
    here telling us two different things. That is the uncertainty,
    folks.
        You have got experienced people on both sides of this
    saying: yes, there is a problem; no, there is not a problem.
    That is very expensive if you are the small-business owner and
    you are having to pay for those opinions. And that is exactly
    what we have got right now is this uncertainty.
        And Mr. Allen asked before he left about regulations. Let
    me give you just one little number: In medical administration
    now--that is complying with all the regulations--we spend more
    money on that in America than we do cancer treatment and heart
    disease. That is how ridiculous this has gotten.
        At Vanderbilt University right now, Dr. Nick Zeppos is the
    chancellor there, just came out with a report that complying
    with government regulations for his shop at Vanderbilt adds
    $11,000 to the tuition of each student that goes there per
    year. What do they get out of that? Nothing but a check that
    their parents or somebody has got to write or a donor has got
    to give to help those kids get an education.
        So we have the--and we talk about the NLRB. Look, the NLRB
    is supposed to be, the way I understand it, is a fair arbiter
    of--look, you have a right to collectively bargain.
        I was raised in a union household. That is a right in this
    country. If you vote to do it, it is your right to do that in
    America. You can. That is a decision a business makes.
        But the NLRB is not a fair arbiter. This one is not. Others
    have been; this one is not.
        And just look at what I have listed to the last six and
    change years I have been in Congress. Card check: want to take
    away somebody's right to a ballot, secret ballot. Well, my wife
    claims she voted for me in the election, but I don't know that
    for a fact because she has a secret ballot. That is paramount
    in America right now to be able to have that right.
        Ambush elections, persuader rule, the Boeing case, micro-
    unions, specialty health care, joint employer--all this stuff
    costs money when you are out there and adds no value. And that
    cost for the cake or whatever has got to be passed on to me as
    a consumer. I pay for that, whether it is health care or buying
    a product.
        And that is one of the reasons we have had this hearing
    today is that small-business people, the last person to get
    paid is a small-business owner. They are the last one.
        Everybody else gets paid. Taxes get paid, employees get
    paid, the insurance gets paid, the rent gets paid. You are the
    last person to get paid.
        You are the last guy to pick up on the front of that check
    when you write your name on it, Mr. Braddy.
        I want to thank you all. It has been a great hearing. We
    have got a lot of work to do, and I appreciate your spending
    your time coming all the way from California, Baltimore, and so
    forth, to be here with us today. Thank you.
        Thank you again to everyone for their time and opinion.
        With nothing further, the hearing is adjourned.
        [Additional submissions by Dr. Roe follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        [Questions submitted for the record and their responses
    follow:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        [Whereupon, at 12:09 p.m., the Subcommittee was adjourned.]

                                     [all]