[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]