[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]