[Senate Hearing 114-547]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-547
 
 WHO'S THE BOSS? THE ``JOINT EMPLOYER'' STANDARD AND BUSINESS OWNERSHIP

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

    EXAMINING THE ``JOINT EMPLOYER'' STANDARD AND BUSINESS OWNERSHIP

                               __________

                            FEBRUARY 5, 2015

                               __________

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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                  LAMAR ALEXANDER, Tennessee, Chairman

MICHAEL B. ENZI, Wyoming                    PATTY MURRAY, Washington
RICHARD BURR, North Carolina                BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia                     BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky                         ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine                        AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska                      MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois                         SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina                   TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah                        CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas                         ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana

                                     
                              

               David P. Cleary, Republican Staff Director

                  Evan Schatz, Minority Staff Director

              John Righter, Minority Deputy Staff Director

                                  (ii)

  




                            C O N T E N T S

                               __________

                               STATEMENTS

                       THURSDAY, FEBRUARY 5, 2015

                                                                   Page

                           Committee Members

Alexander, Hon. Lamar, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Murray, Hon. Patty, a U.S. Senator from the State of Washington, 
  opening statement..............................................     3
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin..     4
Burr, Hon. Richard, a U.S. Senator from the State of North 
  Carolina.......................................................    25
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    27
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisiana...    29
Warren, Hon. Elizabeth, a U.S. Senator from the State of 
  Massachusetts..................................................    31
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia...    33
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina.    35

                               Witnesses

Babson, Marshall B., Counsel, Seyfarth Shaw LLP, New York, NY....     5
    Prepared statement...........................................     6
Moore, Gerald F., Franchise Owner, The Little Gym, Knoxville, TN.    11
    Prepared statement...........................................    13
Sims IV, John, Franchise Owner, Rainbow Station, Richmond, VA....    14
    Prepared statement...........................................    16
Secunda, Paul M., J.D., Professor of Law and Director, Labor and 
  Employment Law Program, Marquette University Law School, 
  Milwaukee, WI..................................................    18
    Prepared statement...........................................    19

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    American Hotel & Lodging Association (AH&LA).................    39
    Letters:
        Asian American Hotel Owners Association (AAHOA)..........    40
        Associated Builders and Contractors, Inc. (ABC)..........    42
        Chamber of Commerce......................................    42
        National Association of Manufacturers....................    50

                                 (iii)

  


 WHO'S THE BOSS? THE ``JOINT EMPLOYER'' STANDARD AND BUSINESS OWNERSHIP

                              ----------                              


                       THURSDAY, FEBRUARY 5, 2015

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:01 a.m., in 
room 430, Dirksen Senate Office Building, Hon. Lamar Alexander, 
chairman of the committee, presiding.
    Present: Senators Alexander, Burr, Isakson, Scott, Cassidy, 
Murray, Franken, Baldwin, Murphy, and Warren.

                 Opening Statement of Senator Alexander

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will come to order.
    This morning we're having a hearing about who qualifies as 
a joint employer in the National Labor Relations Board's view. 
Senator Murray and I will each have an opening statement, and 
then we will introduce our panel of witnesses.
    We welcome you and thank you for coming.
    After our witness testimony, Senators will have up to 5 
minutes each for questions. We will finish by about 11:30 
because we have votes at that time.
    The hearing this morning is about a pending National Labor 
Relations Board decision that could destroy a small business 
opportunity for more than 700,000 Americans. These men and 
women are franchisees. They operate health clubs, barber shops, 
auto parts shops, child care centers, neighborhood restaurants, 
music stores, cleaning services, and much more. They use the 
brand name of companies like Planet Fitness, Merry Maids, and 
Panera Bread. They may work 12 hours a day serving customers, 
meeting a payroll, dealing with government regulators, paying 
taxes, and trying to make a profit.
    We live in a time when Democrats and Republicans bemoan the 
fact that it's getting harder to climb the economic ladder of 
success in our country. Today, successfully operating a 
franchise business is one of the most important ways to do 
that.
    Why would the pending decision by the National Labor 
Relations Board threaten this very American way of life, 
knocking the ladder out from under hundreds of thousands of 
Americans?
    The Board and its General Counsel are pursuing a change to 
what is called the joint employer standard. This standard, or 
test, has since 1984 required that for a business to be 
considered a joint employer, it must hold direct control over 
the terms and conditions of a worker's employment. To decide 
that, the NLRB looks at who hires and fires, sets work hours, 
picks uniforms, issues directions to employees, determines 
compensation, handles day-to-day supervision, and conducts 
recordkeeping.
    Under the changes the NLRB is now considering, it would 
take just indirect control over the employees' terms and 
conditions of employment, or even unexercised potential to 
control working conditions, or where industrial realities 
otherwise make it essential to meaningful collective 
bargaining.
    What could this mean for more than 700,000 franchisees and 
employers? These franchise companies will find it much more 
practical to own all their stores and their restaurants and 
their day care centers themselves. There will be many more 
company-owned outposts rather than franchisee-owned small 
businesses. There will be more big guys, and there will be 
fewer little guys.
    Franchisees tell me they expect franchisors would be 
compelled to try to establish control over staffing decisions 
and daily operations. Franchisees would lose their independence 
and become de facto employees of the franchisor. This case 
doesn't just affect franchisees. It will affect every business 
that uses a subcontractor or contracts out for any service. 
That includes most of the 5.7 million businesses under NLRB 
jurisdiction, because most businesses contract for some 
service.
    Consider a local bicycle shop that contracts out its 
cleaning service under a cost-plus provision in which the 
cleaner is paid for all of its expenses to a certain limit, 
plus a profit. If this arrangement is interpreted to create 
indirect control or have unexercised potential over working 
conditions, they could trigger joint employer obligations. Same 
thing for a local restaurant that outsources all of its baked 
goods.
    What does it mean to be a joint employer? First you're 
required to engage in collective bargaining. You're on the hook 
for all the agreements made in collective bargaining such as 
salaries, health care coverage, and pension obligations. Being 
considered a joint employer also eliminates protection from 
what are called secondary boycotts. Imagine being an employer 
and having these legal, financial, and time burdens placed on 
you by unions representing employees you have no real control 
over.
    Let me give you another example. We have several large auto 
plants in Tennessee. Let's say one of these has a few thousand 
employees but thousands of other workers come in and out of the 
plant's gate every day to provide goods and services. These 
workers are employed and directly controlled by subcontractors 
that provide security, supply auto parts, and staff the company 
lunch room. If the NLRB goes down this road, the plant owner 
could be forced to sit at dozens of different bargaining 
tables, be responsible for another employer's obligations.
    What would the manufacturer do? It would probably take in 
as much in-house as it can. If that move comes at the cost of 
efficiency and innovation, the plant could be relocated 
elsewhere.
    This example is especially concerning to me because more 
than 100,000 Tennesseans are employed in the auto manufacturing 
industry.
    As for the subcontractors, they would be losing huge 
clients, which would in turn jeopardize more jobs and threaten 
these businesses' futures.
    Most business owners are people who wanted to run their own 
business, be their own boss, and live their dream of providing 
a much-needed service in their community. This pending decision 
may ruin that dream for many.
    Senator Murray.

                  Opening Statement of Senator Murray

    Senator Murray. Thank you very much, Chairman Alexander. I 
want to thank all of our colleagues who are joining us today, 
and all of our witnesses who are taking time out to be with us 
as well.
    We are a few weeks into this new Congress, and I truly do 
hope that this committee can find some ways to work together on 
policies that do create jobs and expand economic security and 
generate broad-based economic growth for workers and families, 
not just the wealthiest few but for those who are working hard 
every day. I do find it really troubling that, once again, my 
Republican colleagues are putting big corporations and their 
profits ahead of our hard-working families. That really is what 
is at the heart of today's hearing.
    Across the country today, so many workers clock in 40 hours 
a week, and they work really hard, and yet they are unable to 
provide for their families. Last fall, NBC News interviewed a 
woman from Kansas City named Latoya who worked in a fast-food 
restaurant, and she was protesting as part of a fast-food 
workers strike. She said that she is raising four children 
alone on $7.25 an hour. It should go without saying, it's 
pretty hard to make ends meet.
    For part of last year, she said she was living in a 
homeless shelter. As she told the reporter last year, ``Nobody 
should work 40 hours a week and find themselves homeless.'' On 
top of those rock-bottom wages, Latoya said she and her 
colleagues experienced unpaid wages, unpredictable scheduling, 
and have to make do with broken equipment on the job.
    Today, we have too many Americans who are in those same 
shoes, and they are not looking for a handout. They just want 
to be treated fairly and get basic protections and economic 
security that previous generations of American workers took for 
granted at a time when the middle class flourished. But, the 
labor market has changed dramatically over the past 30 years. 
Many businesses have begun relying on subcontracting labor to 
temp agencies, franchises, and other third-party sources to 
lower their labor costs.
    The parent company of a franchise can dictate pricing and 
store hours. It can prohibit collective bargaining, and it can 
monitor, in real time, worker hours and staffing levels. Yet, 
the parent company can put all the liability for poor working 
conditions and low wages squarely on the shoulders of its 
franchise owners. Without collective bargaining rights, workers 
have no recourse, no recourse, for improving those workplace 
conditions.
    By the way, this arrangement can hurt our franchise owners. 
These small business owners face pressure in bidding for 
franchise licenses, and they struggle to manage under corporate 
rules. That's not good for workers. It's not good for franchise 
owners. It lets some major corporations have it both ways. They 
can squeeze both workers and small business owners while they 
make record profits. They, by the way, get to escape all the 
liability for low wages and poor working conditions.
    When workers make poverty wages, it's Federal taxpayers who 
end up paying the price. More than half of our fast-food 
workers in our country today are enrolled in at least one 
public assistance program. Taxpayers pay nearly $7 billion a 
year for public assistance that helps fast-food restaurant 
workers make ends meet.
    Too many big corporations are rigging the system and 
leaving taxpayers holding the bag. These employment 
arrangements, including temp agencies and franchises, are the 
new reality of today's labor market, but they shouldn't be the 
end of basic worker protections or earning a living wage.
    Last year, the National Labor Review Board decided to 
reexamine its joint employer standard to make sure it responds 
to the realities of today's workplace. The NLRB is currently 
deliberating the Browning-Ferris case, and the complaint 
involving McDonald's is in the very early stages of the 
process.
    Our hearing today isn't the place to debate ongoing 
litigation. Let's remember, by law, the NLRB is entrusted to 
examine and adapt the National Labor Relations Act to changing 
patterns in the labor market so workers can collectively 
bargain.
    While my Republican colleagues claim that revisiting the 
joint employer standard is somehow an overreach, the NLRB is 
actually simply carrying out its duties under the law. By law, 
it is supposed to adapt as the labor market changes.
    Still, many of our Republican colleagues are defending a 
precedent that allows too many major corporations to turn a 
blind eye to poor labor conditions, even as their workers 
scrape by on stagnant wages and watch as their rights are 
routinely denied. Instead of allowing some of the biggest 
corporations to rig the system against small businesses and 
workers, I hope that we can have a discussion about how to best 
expand economic security for more Americans. That's good for 
workers, it's good for businesses, it's good for the economy 
and something we should be striving for in our work here in 
Congress.
    I truly hope that in the future we can work together on 
policies that create jobs and help our workers and families 
benefit from broad-based economic growth. Again, I do want to 
thank all of our witnesses for being here today, and I look 
forward to this discussion.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Murray.
    Senator Baldwin, do you have a witness to introduce?

                      Statement of Senator Baldwin

    Senator Baldwin. I do indeed. Thank you, Mr. Chairman and 
Ranking Member Murray.
    Paul Secunda joins us today from Marquette University in my 
home State of Wisconsin. He is a distinguished law professor 
and the director of the Labor and Employment Law Program at 
Marquette. Mr. Secunda has written extensively on labor and 
employment issues, and his research has focused on collective 
bargaining rights for private-sector employees, among many 
other topics.
    Labor Secretary Perez named him as the chair of the 
Advisory Council on Employee Welfare and Pension Benefit Plans 
for 2015.
    Professor Secunda, we appreciate your making the trip, and 
I look forward to hearing your testimony today. Welcome.
    The Chairman. Thank you, Senator Baldwin.
    I'll introduce the other witnesses.
    Mr. Marshall Babson was appointed by President Reagan to 
serve as one of two Democrats on the National Labor Relations 
Board from 1985 to 1988.
    Mr. Gerald Moore owns and operates five locations of The 
Little Gym, two of which are in Tennessee.
    Mr. John Sims owns a single franchise location of the 
Rainbow Station in Richmond, VA.
    We welcome all of you.
    We have your testimony and we've read it. If you could 
summarize your remarks in about 5 minutes, that would leave 
more time for Senators to have a chance to have a discussion 
with you afterwards.
    Mr. Babson, why don't we start with you and go down the 
line? Then Senator Murray and I will begin the questioning.

           STATEMENT OF MARSHALL B. BABSON, COUNSEL, 
                SEYFARTH SHAW LLP, NEW YORK, NY

    Mr. Babson. Thank you, Mr. Chairman and Ranking Member 
Murray, members of the committee. I appreciate very much the 
invitation to be with you today.
    My name is Marshall Babson. I'm a management labor lawyer. 
I am counsel at the law firm of Seyfarth Shaw. I am in the New 
York office, although I do spend a good deal of time here in 
Washington.
    I served on the National Labor Relations Board from 1985 to 
1988. I was one of two Democrats appointed by President Reagan. 
During that time I had the opportunity to participate in 
hundreds of NLRB cases involving both unfair labor practices 
and representation cases in which employees sought 
representation by labor unions.
    I'm very proud of my association with the National Labor 
Relations Board. I'm very proud of my work at the National 
Labor Relations Board, and I have been a strong and continue to 
be a strong supporter of the agency and of the purposes of the 
statute.
    The reason that I'm here today is because I do believe that 
this is not a question of policy preferences when we're talking 
about changing the rule for joint employer status. I am 
somebody who has continued to participate in NLRB activities 
since my service at the Board. I have never made it a practice 
or a business to second-guess my colleagues at the NLRB with 
regard to their policy preferences.
    I have, however, spoken up and participated in litigation 
on a regular basis when I believed that the agency has 
exercised authority outside the boundaries of the statute, and 
that is the cause for my concern here today.
    There is no question that this administrative agency has 
the authority to change the rule based on changing 
circumstances, but there are limitations on what those changes 
may be, and those are the limitations that were established by 
Congress. This statute in 1935, again in 1947, and again in 
1957 made clear that the definitions of ``employer,'' 
``employee'' are to be the common-law definitions, and that for 
someone to be held liable or responsible under the National 
Labor Relations Act for a remedy, he first, before he may be 
called a joint employer, must in fact be an employer.
    We have many, many relationships in this country. The 
Chairman has pointed out a few. I've worked with many 
franchisees over the years as a representative. In my 
experience, these are independent businessmen who have invested 
large sums of money that they've saved for a long time to build 
their business. These are local businesses. Of course, they 
have support with regard to the brand and the quality and the 
product from the franchisor. They are individuals, and I worked 
with these individuals when I was in Connecticut and since, 
when I was in Washington and New York, in establishing their 
own terms and conditions of employment.
    When the NLRB operates outside of its bounds--when the 
NLRB, for example, as in the New Process Steel case, when two 
Board members were deciding cases where the statute had 
indicated that three Board members, a minimum of three Board 
members were required--when the Board is operating outside of 
its bounds, it is not in a position to help some of these 
issues that were referred to by the Ranking Member. It is 
operating outside of the boundaries of the statute.
    Efficient, flexible business operations are important to 
the success of this country. It is not in the interests of the 
NLRB, it's not in the interests of employers, employees, or 
unions to affix liability when there is no relationship between 
the company that's being sought to be held liable as a joint 
employer and the employees. There must be some direct 
relationship. The notion that there are economic realities, are 
industrial realities that have changed, that require change at 
the Board, there is no support, I submit, in NLRA jurisprudence 
for such a broad, sweeping change, and it is up to this 
committee and ultimately to the Congress to adjust the statute 
if they believe that there have been sufficient economic 
changes in the business model to warrant such changes.
    Thank you, sir.
    [The prepared statement of Mr. Babson follows:]
                Prepared Statement of Marshall B. Babson
    Chairman Alexander, Ranking Member Murray, and distinguished 
members of the committee, thank you for giving me the opportunity to 
testify before you today.
    My name is Marshall Bruce Babson. I have been practicing labor law 
since 1975. In 1985, President Reagan appointed me to serve as one of 
two Democrats on the National Labor Relations Board (``NLRB'' or 
``Board''). I was confirmed by the U.S. Senate and served on the NLRB 
until August 1988. While on the NLRB, I participated in a number of 
significant decisions, including, e.g., John Deklewa & Sons, which set 
forth new rules for pre-hire agreements in the construction industry, 
Indiana and Michigan Electric Co., which established guidelines 
regarding an employer's duty to arbitrate post-contract expiration 
grievances, and Fairmont Hotel, a union access case which involved 
clarifying the balance between private property rights and section 7 
rights under the National Labor Relations Act. I have devoted the 
majority of my career to traditional labor relations and to issues 
under the National Labor Relations Act (``NLRA'' or the ``Act'').
    Since serving on the Board, I have been engaged in private practice 
with a focus on traditional labor law and specializing in NLRB 
proceedings, negotiating collective bargaining agreements, 
participating in arbitration proceedings and various other personnel 
matters. Throughout my career, I have authored numerous articles and 
commentaries regarding labor law and the NLRA as well as the 1984 book, 
Developments Under the 1974 Health Care Amendments to the National 
Labor Relations Act. I have previously testified before Congress 
regarding proposed labor and employment legislation, testified before 
President Clinton's Dunlop Commission regarding the status of U.S. 
labor laws. I am a member of the Board of Directors of the U.S. Chamber 
Litigation Center, the U.S. Chamber of Commerce's public policy law 
firm, serve on the Litigation Center's Labor Law Advisory Committee. I 
am also on the Board of Advisors of the Institute for Law and Economics 
at the University of Pennsylvania. Currently, I hold the position of 
Counsel at Seyfarth Shaw LLP, a global law firm of over 800 attorneys, 
over 350 of whom specialize in providing labor and employment counsel 
to companies of all sizes. I serve as an Adjunct Professor of Law at 
George Washington University Law School where I teach labor law. I 
appear before you today as an individual practitioner and not on behalf 
of any particular organization or company.
                              introduction
    Issues surrounding who is an ``employee'' and who is an 
``employer'' are fundamental to the administration of the National 
Labor Relations Act (``NLRA'' or ``Act''). The common law of agency 
provides the legal framework that underpins the Act's entire structure, 
both creating bargaining obligations for an ``employer'' and boundary 
conditions that bar secondary activity directed against entities not 
properly deemed a primary ``employer.'' Congress directed in 1935 and 
again in 1947, via the Taft-Hartley Amendments, that ``employee'' and 
``employer'' status under the NLRA must be determined in accordance 
with the common law of agency. Accordingly, before a separate entity 
may be deemed a ``joint-employer,'' there is a clear and unambiguous 
congressional mandate in the statute that requires that the entity 
first be an ``employer'' under common law agency principles.
    The joint-employer concept recognizes that ``two or more business 
entities are in fact separate, but that they share or codetermine those 
matters governing the essential terms and conditions of employment.'' 
Laerco Transportation, 269 NLRB 324, 325 (1984) (``Laerco''); TLI, 271 
NLRB 798, 803 (1984) (same); see also, e.g., Boire v. Greyhound Corp., 
376 U.S. 473, 475 (1964) (noting joint-employer status turns on whether 
the entities ``exercised common control over the employees'' at issue). 
Applying the familiar framework derived from the common law, for more 
than 30 years the Board has recognized that joint-employer status turns 
on the extent to which the purported employer determines matters 
governing the essential terms and conditions of employment, including 
right to hire and fire, set work hours, determine start and end times 
of shift, uniforms, directions, compensation, day-to-day supervision, 
record keeping, approve drivers and devise rules under which drivers 
were to operate. NLRB v. Browning-Ferris Indus. of Pa., 691 F.2d 1117, 
1122-25 (3d Cir. 1982). The ``essential element in [each such] analysis 
is whether a putative joint employer's control over employment matters 
is direct and immediate.'' Airborne, 338 NLRB 597, 597 n.1 (2002) (the 
``indirect control'' test was ``abandoned'' two decades earlier) 
(emphasis added).
    No one factor in the analysis is dispositive; consistent with the 
common law, the question is fact specific that must be determined ``on 
the totality of the facts of the particular case.'' Southern Cal. Gas 
Co., 302 NLRB 456, 461 (1991); Laerco, 269 NLRB at 325; Boire, 376 U.S. 
at 475; NLRB v. United Ins. Co. of Am., 390 U.S. 254, 258 (1968) 
(``there is no shorthand formula or magic phrase that can be applied to 
find the answer, [] all of the incidents of the relationship must be 
assessed and weighted with no one factor being decisive. What is 
important is that the total factual context is assessed in light of the 
pertinent common-law agency principles''); Nationwide Mut. Ins. Co. v. 
Darden, 503 U.S. 318, 324 (1992) (same).
    The NLRB's General Counsel now advocates a new joint-employer 
standard that includes employers who are ``essential for meaningful 
collective bargaining,'' a test implicitly, if not explicitly, rejected 
outright by Congress in 1947 and by decades of Board precedent as 
wholly untethered to the common law of agency. Under the General 
Counsel's proposed standard, adapted perhaps from former Member 
Liebman's concurrence in Airborne Freight Co., an entity would be 
deemed an ``employer'' or a ``joint-employer'' if it ``exercised direct 
or indirect control over working conditions, had the unexercised 
potential to control working conditions, or where `industrial 
realities' otherwise made it essential to meaningful bargaining.'' See, 
e.g., Amicus Brief of the General Counsel, Case 32-RC-109684 (June 26, 
2014) at 2, 4-5, 16-17 (emphasis added) (``GC Amicus''); Airborne, 338 
NLRB at 597-99. This is not, and should not be construed as mere 
``policy choice,'' and cannot be squared with an Act that is rooted in, 
and bounded by, the common law definitions of employer and employee.\1\ 
Congress and the U.S. Supreme Court have repeatedly instructed that 
determinations of employee, employer and, by extension, joint-employer 
status under the Act must be bound by the common law of agency. See, 
e.g., Town & Country Elec., Inc., 516 U.S. 85, 94 (1995) (citing United 
Ins. Co., 390 U.S. at 256) (NLRB may not ``depart[] from the common law 
of agency'' in determining employee status). It is through this 
analytical lens that this issue must be viewed.
---------------------------------------------------------------------------
    \1\ The Board itself has repeatedly rejected efforts to deviate 
from the long-standing joint-
employer doctrine rooted in the text of the Act and in the common law 
of agency. For example, in Roadway Package Sys., Inc. & Teamsters Local 
63, 326 NLRB 842 (1998), the Board declined to deviate from its well-
established joint-employer test rooted in the common law of agency, 
finding, the ``common law of agency is the standard to measure employee 
status [and] . . . the Board has] no authority to change it.'' Id. at 
849. A decade later in 2002, the Board again declined to deviate from 
the current legal framework for joint-employers. See, e.g., Airborne 
Freight Co., 338 NLRB at 597 n.1 (noting, ``indirect control'' test was 
``abandoned'' two decades earlier, and refusing to ``disturb settled 
law'' by reverting back to such a test).
---------------------------------------------------------------------------
  i. the nlrb is constrained to adhere to the current standard which 
                 comports with the common law of agency
    Congress and the Supreme Court explicitly have directed the Board 
to rely upon common law agency principles in determining who is an 
employee and who is an employer under the Act. Congressional intention 
is clear both in the plain text of the Act as well as in the 1947 Taft-
Hartley amendments, and accompanying congressional record.
    First, as to the Act itself, where, as here Congress uses the terms 
``employee'' and ``employer'' in a statute but does not explain the 
terms' origins or bases, Congress ``means to incorporate the 
established meaning of th[at] ter[m],'' and as the Supreme Court has 
concluded, `` `Congress intended to describe the conventional master-
servant relationship as understood by common-law agency doctrine.' '' 
Town & Country Elec., Inc., 516 U.S. at 94 (quoting Nationwide Mut. 
Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992), in turn quoting Cmty. 
for Creative Non-Violence v. Reid, 490 U.S. 730, 739-40 (1989)). The 
NLRB may not unreasonably ``depart[] from the common law of agency.'' 
Town & Country Elec., Inc., 516 U.S. at 94 (citing United Ins. Co., 390 
U.S. at 256).
    Second, in 1947 the Congress unambiguously directed in the Taft-
Hartley Amendments to the NLRA that the Board is constrained by common 
law principles of agency when determining who is an employee and, 
consequently, who is an employer.\2\ See, e.g., H.R. Rep. No. 510, at 
36, 80th Cong., 1st Sess. (1947); United Ins. Co. of Am., 390 U.S. at 
256 (the ``obvious purpose of [the 1947] amendment was to have the 
Board and the courts apply general agency principles in distinguishing 
between employees and independent contractors under the Act''). The 
House Committee Report accompanying the 1947 amendments harshly 
criticized the Board's then recent determination that independent 
contractors were ``employees'' within the meaning of the Act, noting 
the term ``employee'':
---------------------------------------------------------------------------
    \2\ Among other changes, the 1947 revisions narrowed the definition 
of ``employee'' to exclude independent contractors. This amendment was 
designed to overrule the Supreme Court's earlier decision in NLRB v. 
Hearst Publications, Inc. (``Hearst''), 322 U.S. 111 (1944), which 
disregarded common law principles of agency in favor of an analysis of 
``economic facts'' to find that ``independent contractors'' could be 
treated as ``employees'' under the Act. See, e.g., 61 Stat. 137-38 
(1947), 29 U.S.C. Sec. 152(3).

        according to all standard dictionaries, according to the law as 
        the courts have stated it, and according to the understanding 
        of almost everyone, with the exception of members of the 
        National Labor Relations Board, means someone who works for 
        another for hire . . . [and who] work for wages or salaries 
        under direct supervision.
                               *   *   *
          It must be presumed that when Congress passed the Labor Act, 
        it intended words it used [such as ``employee''] to have the 
        meanings that they had when Congress passed the act, not new 
        meanings that, 9 years later, the Labor Board might think up. . 
        . . It is inconceivable that Congress, when it passed the act, 
        authorized the board to give to every word in the act whatever 
        meaning it wished.

H.R. Rep. No. 245, at 18, 80th Cong., 1st Sess. (1947) (emphasis 
added); Allied Chem. & Alkali Workers, Local Union No. 1 v. Pittsburgh 
Plate Glass Co., 404 U.S. 157, 167 (1971) (quoting the same report).
    The 1947 amendments also narrowed the definition of ``employer'' to 
encompass only those persons who are ``acting as an agent of an 
employer,'' 29 U.S.C. Sec. 152(2) (emphasis added), rather than any 
individual ``acting in the interest of any employer'' as the statute 
previously read. This change was similarly intended to reinforce the 
applicability of agency law to the determination of who is an employer 
under the Act. See, e.g., H.R. Rep. No. 245, at 11, 80th Congress, 1st 
Sess. (1947) (observing the modified definition ``makes employers 
responsible for what people say or do only when it is within the actual 
or apparent scope of their authority, and thereby makes the ordinary 
rules of the law of agency equally applicable to employers and to 
unions''); H.R. Rep. No. 245, at 68; 93 Cong. Rec. 6654, at 6672 (1947) 
(``[n]ow[,] before the employer can be held responsible for a wrong to 
labor[,] the man who does the wrong must be specifically an agent or 
come within the technical definition of an agent'').
    Consistent with the Taft-Hartley Amendments, the Supreme Court has 
repeatedly instructed that common law principles of agency determine 
who is an employee, and consequently, who is an employer under the Act. 
See, e.g., Town & Country, Elec., Inc., 516 U.S. at 90 (applying common 
law of agency to determine who is an ``employee'' within the meaning of 
Act); Allied Chem., 404 U.S. at 168 (``1947 Taft-Hartley revision made 
clear that general agency principles could not be ignored in 
distinguishing `employees' from independent contractors''); United Ins. 
Co. of Am., 390 U.S. at 256-57 (utilizing common-law agency principles 
to distinguish between employee and independent contractor). See also, 
e.g., Carbon Fuel Co. v. United Mine Workers of Am., 444 U.S. 212, 216-
18 (1979) (applying ``the common law of agency'' to determine ``whether 
any person is acting as an `agent' of another person'' under Labor 
Management Relations Act to determine liability of international union 
for ``wildcat'' strikes).
    Simply put, Congress has unequivocally directed that the NLRB must 
rely upon common law agency principles in determining who is an 
employee and who is an employer, and the NLRB has no authority to 
deviate from this standard. See, e.g., Chevron USA, Inc. v. Natural 
Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984) (an 
``agency[] must give effect to the unambiguously expressed intent of 
Congress''). The proposed departure from the long standing joint-
employer framework would burden companies that are not employers with 
bargaining obligations, enmesh them in ever-widening industrial 
disputes and deprive them of the protections against secondary activity 
afforded under Section 8(b)(4) of the Act. Such an unwarranted change 
would also force non-employer entities to participate in collective 
bargaining where they have no control to set or negotiate terms and 
conditions of employment and would have no authority to remedy unfair 
labor practices, bringing multiple parties with widely disparate 
interests to the bargaining table, frustrating the purposes of the Act.
 ii. the new, expanded ``indirect control'' test urged by the board's 
    general counsel impermissibly deviates from traditional agency 
                 principles and exceeds board authority
    Under the General Counsel's proposed standard, an entity would be 
deemed an ``employer'' or ``joint-employer'' if it ``exercised direct 
or indirect control over the working conditions, had the unexercised 
potential to control working conditions, or where ``industrial 
realities'' otherwise made it essential to meaningful collective 
bargaining.'' See GC Amicus at 2, 4-5, 16-17 (advocating what 
misleadingly is described as a return to the Board's ``traditional'' 
standard, making no distinction ``between direct, indirect, and 
potential control over working conditions'' and finding ``joint 
employee status where `industrial realities' make an entity essential 
for meaningful bargaining''). As a consequence of this broad, unbounded 
standard, a business could be deemed a joint-employer even though it 
freely contracts at arm's length only for the ends to be achieved at a 
given cost, not the means by which the ends are achieved, and 
notwithstanding that the business eschews any role in hiring, firing, 
directing employees, or determining the terms and conditions of their 
employment.
    Such a drastic shift in the current law is manifestly unwarranted, 
ignores common law agency principles prescribed by Congress, and would 
stifle innovation in the marketplace. Without question, cost, 
efficiency, and quality are at the heart of every owner-contractor or 
contractor-subcontractor arrangement. The owner will seek out low-cost, 
highly efficient providers, and the subcontractor will seek to maximize 
economic gains under their contract. Similarly, franchisors will seek 
out efficient high quality franchisees who can grow the business to 
maximize gains. Either party may refuse to enter into an agreement on 
the terms offered by the other. This is true in every owner-
subcontractor agreement and may not be used as a basis to render one 
such entity as an employer absent other indicia of a traditional 
master-servant employment relationship unquestionably required under 
the NLRA. Even the imposition of a limit on costs related to a 
contract, such as the maximum amount of wages which the owner will 
reimburse under a cost-plus agreement, is ``no different from the right 
of any commercial client to continue to accept, or to reject, a 
supplier of goods or services based on the consideration of price,'' 
which is not a sufficient basis to impute an employer relationship. 
See, e.g., Hychem Constructors, Inc., 169 NLRB 274, 276 n.4 (1968) 
(rejecting argument that Texas Eastman's ability to approve any wage 
increase gives it a veto power over any collecting bargaining 
negotiations between contractor and its employees). As the Board held:

        ``[w]hile a determination by the client to continue the 
        business arrangement, because the price is favorable to him, 
        might remotely benefit the supplier's workforce, the exercise 
        of this right by the client would not establish an employment 
        relationship between the client and the supplier's employees.'' 
        Id.

    Board precedent has rejected the contention that any time a 
subcontractor

        ``has the ability to convince the contractor to renegotiate the 
        terms of their contract, particularly if the subcontractor's 
        cost are affected by collective bargaining, this means that the 
        general contractor is the one having the de facto control over 
        the subcontractor's labor relations,''

and has observed that,

        ``if extended to its logical conclusion, [this] would mean that 
        in virtually all contractor-subcontractor relationships, the 
        two companies involved should necessarily be construed as joint 
        employers whenever the employees of the subcontractor are 
        unionized.''

Airborne Freight Co., 338 NLRB at 606 (decision of the ALJ); see also, 
e.g., TLI, 271 NLRB at 799.
    The very nature of free competition means that there is always some 
market force or entity making a demand on the price and terms of 
services. What the General Counsel seeks through adoption of a grossly 
expanded ``joint-employer'' standard is the right to negotiate how an 
owner runs its business, not how the subcontractor pays or manages its 
employees. However, by mandating that bargaining obligations attach 
only where employer status exists under common law agency principles, 
Congress has structured the Act to limit the expansion of industrial 
disputes in ever widening circles.
    The ``industrial realities'' test articulated by Member Liebman\3\ 
and reformulated by the General Counsel, implies an assessment of the 
degree of ``economic dependence'' in the owner-subcontractor 
relationship based on the Board's evaluation of the owner's relative 
economic power to set price and terms in its negotiations with the 
subcontractor, thereby exerting--in varying degrees--an ``indirect'' 
influence on wages, terms and conditions of employment which the 
subcontractor negotiates for its employees. Adoption of such a test 
will require a lengthy, fact-intensive, and often subjective inquiry 
into not only the relationship between the nominal joint-employers and 
the putative employees, but also the market relationship between the 
two purported employers. This would result in Board decisions turning, 
not on the common law of agency, but rather on an investigation of 
industry economics and the market for a subcontractor's services.
---------------------------------------------------------------------------
    \3\ There is an uncomfortable irony in Member Liebman's and the 
Board's new found advocacy for ``meaningful collective bargaining'' in 
Airborne Freight Co., whereas such ``meaningful collective bargaining'' 
apparently was of little or no concern to the NLRB in Management 
Training Corp., 317 NLRB 1355 (1995) which overturned a requirement of 
``meaningful collective bargaining'' in Res-Care, Inc., 280 NLRB 670 
(1986). The only consistency between these polar positions is that in 
each instance the Board compelled collective bargaining without regard 
to who is in fact the employer.
---------------------------------------------------------------------------
    This new analytical framework would quickly devolve into an 
expensive and time-consuming war of economic experts involving a 
scrutiny of market forces, pricing structures, price elasticity, 
barriers to entry and alternatives to the subcontractor's services, all 
under the vague umbrella of ``industrial realities.'' In the end, a 
putative employer's bargaining obligations under the Act would depend 
on an assessment of industry and market forces, rather than on the 
direct, immediate control required to establish an employer-employee 
relationship under the common law. Congress already has rejected such 
an approach both by demanding a common law agency analysis in 
determining employment status and by specifically prohibiting the NLRB 
from employing any individuals for economic analysis or from 
resurrecting the now, long defunct, Division of Economic Research. See, 
e.g., 29 U.S.C. Sec. 154(a); 93 Cong. Rec. 4136, at 4158 (1947). The 
Board's early penchant for regulation based on economic analysis from 
1935 to 1940 by the soon-to-be discredited Division of Economic 
Research resulted in vigorous and outspoken opposition in Congress 
regularly from 1940 to 1947 when Congress once and for all capped its 
opposition to ``regulation by economic analysis'' by specifically 
prohibiting it in the Taft-Hartley Amendments.
    The myriad and complexity of business relationships further 
underscores the impracticality and unwieldy character of such an 
inquiry. Manufacturers contract with a shipping company for 
distribution. Automakers strictly control prices and costs for their 
tier two and three suppliers. Companies utilize vendors to supply non-
core services such as catering, janitorial and maintenance. General 
contractors routinely subcontract with a dozen or more subcontractors 
on a single building site. The opportunity to create multiple, 
unworkable bargaining obligations where the contracting party has no 
direct relationship with the terms and conditions of the 
subcontractor's employees is unbounded and inconsistent with the 
congressional purposes of the NLRA which were to remove the burdens and 
obstructions that were ``impairing the efficiency, safety or operation 
of the instrumentalities of commerce.'' Such an untoward regime should 
be avoided at all costs.
                               conclusion
    Time and again Congress and the Supreme Court have directed that 
the Board must rely upon the common law of agency in making 
determinations with respect to who is an employee and who is an 
employer under the Act. The current joint-employer standard promotes 
stability and predictability in business relationships and collective 
bargaining which allows for corporate efficiency and innovation. Any 
modification to the longstanding principles which are grounded in the 
Act's text are unwarranted and will have deleterious consequences which 
are both extensive and far reaching.

    The Chairman. Thank you very much, Mr. Babson. You were 
right on time, and I thank you for that.
    Mr. Moore.

        STATEMENT OF GERALD F. MOORE, FRANCHISE OWNER, 
                 THE LITTLE GYM, KNOXVILLE, TN

    Mr. Moore. Chairman Alexander, Ranking Senator Murray, and 
distinguished members of the committee, good morning. My name 
is Gerald Moore. I am the owner and operator of five The Little 
Gym franchise locations. I am appearing before you today on 
behalf of my business and the International Franchise 
Association, and I thank you for the opportunity to share our 
views on the joint employer issue.
    I am a former school teacher and a Vietnam veteran. I 
volunteered for the U.S. Army in 1970 and I received the 
Meritorious Service Medal for my service, for which I'm very 
proud. I later worked for Ryder Systems, Inc. for nearly 30 
years. When my family opened our first The Little Gym franchise 
location in Raleigh, NC in 1996, we took a huge financial risk. 
At the same time, we felt confident that if we executed our 
franchise successfully, we would be better off and create 
something we could pass along to our children. We later opened 
locations in Greensboro, NC; Mount Pleasant, Sc; Knoxville, TN; 
and Farragut, TN, and we are proud of the success we have 
enjoyed for the past 19 years.
    The Little Gym is an experimental learning center focused 
on learning though physical and educational programs for young 
children. My business is truly a family business as I own my 
franchise locations with my wife and our two children. That is 
why franchising appealed to us in the first place; we were 
wanting something to do as a family. Quite honestly, I do not 
believe my family could have successfully opened and operated a 
children's business on our own. The Little Gym International's 
guidance and support has made all the difference. We would not 
be where we are today without their business model.
    That said, the franchisor does not run our business. The 
franchisor provides us with the brand name and the recognition 
that comes with it, as well as product standards to make sure 
that we provide the high-quality services and programs that our 
customers have come to expect from The Little Gym operations. 
We pay for these benefits in the form of a monthly royalty 
payment which is set by the contractual relationship we have 
agreed to in our franchise agreement with The Little Gym 
International, our franchisor.
    The Little Gym International is not involved in the daily 
management of our gyms. For example, we are free to determine 
the staffing levels. We decide who to hire, we decide what to 
pay, and we decide what benefits to offer our employees. The 
examples like this could go on and on. Suffice it to say that 
The Little Gym International does not play any role in these 
types of business decisions.
    The day-to-day operations and management of our business is 
ours and ours alone. I fear that this would change drastically 
if the National Labor Relations Board expands the current 
employer standard. If the NLRB deems franchisors liable for 
franchisee labor practices, franchisors will need to have 
increased control and more day-to-day involvement in small 
businesses like mine. Increased control could mean only one 
thing for me--less freedom and less autonomy to run my business 
as I see fit, a business that I purchased with my savings in 
order to provide an opportunity and security for my family. Our 
family business may no longer be our family's business.
    We currently own the rights to a sixth location where we 
were planning to open another The Little Gym franchise. The 
uncertainty on this very issue has forced us to put our plans 
on hold. We are not at all comfortable with the idea of more 
franchisor involvement in our business, and we are not willing 
to put in the hard work to expand our business if it soon may 
no longer truly be ours.
    This is an example of how the National Labor Relations 
Board's recent actions have already affected my business and 
resulted in fewer jobs in our community, and I think that's a 
shame.
    While the new possibility of a broader definition of a 
joint employer has already impacted my family, I fear that the 
real impact will be felt down the road when other families are 
looking for their first franchising opportunity, as we did in 
the mid-1990s. Simply put, small business owners will be less 
attractive business partners for franchisors, and there can be 
no doubt that this will drastically reduce the opportunities 
for business ownership across the country.
    Mr. Chairman, my family and I have worked incredibly hard 
to build our business for the last 19 years, giving up nights, 
weekends, and holidays. We ask that you take whatever steps 
possible to ensure that the current joint employer standard is 
maintained. Thank you.
    [The prepared statement of Mr. Moore follows:]
                 Prepared Statement of Gerald F. Moore
    Chairman Alexander, Ranking Member Murray, and distinguished 
members of the committee, my name is Gerald Moore. I am the owner and 
operator of five The Little Gym franchise locations. I am appearing 
before you today on behalf of my business and the International 
Franchise Association. Thank you for the opportunity to share our views 
on the joint employer issue.
    I am a former school teacher. I volunteered for the U.S. Army in 
1970 and I received the Meritorious Service Medal for my service. I 
later worked for Ryder Systems, Inc. for nearly 30 years. When my 
family opened our first The Little Gym franchise location in Raleigh, 
NC in 1996, we took a huge financial risk. At the same time, we felt 
confident if we executed our franchise successfully, we would be better 
off, and create something we could pass along to our kids. We later 
opened locations in Greensboro, NC; Mount Pleasant, SC; Knoxville, TN; 
and Farragut, TN, and are proud of the success we have had the past 19 
years.
    The Little Gym is an experimental learning center focused on 
learning though physical and educational programs for young children. 
Our mission is to help develop healthy, smart and socially adept 
children who can explore their own potential through our 3 Dimensional 
Learning Process and better understand and enjoy the world around them. 
We offer parent/child classes for children from 4 months to age 3, as 
well as a variety of sports, dance, music, gymnastics and other 
programs for children up to the age of 12.
    My business is truly a family business. I co-own my franchise 
locations with my wife and our two children. That is why franchising 
appealed to us in the first place--it was something that we could do as 
a family. The Little Gym brand was a perfect fit for my family. I had 
management and operational experience, my son was in sales, and my wife 
and daughter were both educators. We knew that the combination of our 
skills and experiences with the proven The Little Gym brand would allow 
us to be successful. Quite honestly, I do not believe my family could 
have successfully opened and operated a children's business on our own. 
The Little Gym International's guidance and support has made all the 
difference to my family. We would not be where we are today without The 
Little Gym International's business model.
    That said, The Little Gym International does not run our business. 
The Little Gym International as the franchisor provides us with the 
brand name and the recognition that comes with it. The Little Gym 
International provides us with product standards to make sure that we 
provide the high-quality services and programs that customers have come 
to expect from The Little Gym operation. We pay for these benefits in 
the form a monthly royalty payment, which is set by the contractual 
relationship we have agreed to in our franchise agreement with The 
Little Gym International, our franchisor.
    We have an annual audit site visit with The Little Gym 
International to review brand and service standards and to help us grow 
our business. We also have monthly calls with a franchisor 
representative to update us on new programs or marketing strategies. 
The Little Gym International is not involved in the daily management of 
our gyms. For example, we are free to determine staffing levels for our 
gyms. We decide who to hire and what to pay. We decide who to 
discipline and who to discharge, as well as who to develop to take on 
additional responsibility. We decide what benefits to offer our 
employees. The examples could go on and on. The Little Gym 
International does not play any role in these types of business 
decisions.
    The day-to-day operation and management of our business is ours and 
ours alone. I fear that this would drastically change if the National 
Labor Relations Board expands the current joint employer standard. I am 
here today to share my concerns and the concerns of franchisees across 
the country on this issue. In a recent survey of IFA members, 97 
percent of franchise business respondents believe the expanded joint-
employer standard would have a negative impact on their business, with 
82 percent saying the impact would be ``significant.''
    I am an independent business owner. Certainly, I reap the successes 
of my business but I am also responsible for its failures--and the 
liabilities that may come from such failures. As a small business 
owner, I work hard to manage risk and reduce liabilities where I can. 
For example, if (God forbid) one of my employees mistreated a child at 
one of my gyms, I would be responsible. I understood that was my 
responsibility when I purchased my business and, as a result, I make 
sure that my gyms are staffed with high-quality employees and that we 
maintain proper supervision over those employees at all times. I think 
we can all agree that to do otherwise--to turn a blind eye to this 
risk--would be foolish and bad for business.
    An expanded joint employer standard, however, would mean that my 
franchisor would be jointly responsible for all of my employment-
related liabilities. Just as I try to manage risk and reduce 
liabilities for my business, The Little Gym International will need to 
do the same. If The Little Gym International is now also liable in the 
event an employee mistreats a child, won't The Little Gym International 
want to have a say in whom we hire and how we supervise them? If it 
would be foolish for me to turn a blind eye to this risk, it will be 
equally foolish for The Little Gym International to do the same. This 
will mean increased control and more day-to-day involvement by The 
Little Gym International. That can only mean one thing for me: less 
freedom and less autonomy to run my business as I see fit--a business 
that I purchased with my savings in order to provide opportunity and 
security for my family. Our family business will no longer be ours.
    My family currently owns the rights to a sixth location where we 
were planning to open another The Little Gym franchise. The uncertainty 
on this very issue has forced us to put our plans on hold. We are not 
at all comfortable with the idea of more franchisor involvement in our 
business and we are not willing to put in the hard work to expand our 
business if it soon may no longer truly be ours. The National Labor 
Relations Board's recent actions have directly resulted in lost 
opportunity and income for my family and lost development and fewer 
jobs in our community. I think that is a terrible shame.
    What's perhaps most disappointing about the NLRB's actions is the 
General Counsel's assertion in his amicus brief to the pending 
Browning-Ferris case that the Board should return to its pre-1984 
``traditional'' approach. The Board has never treated franchisees and 
franchisors as joint employers. In its 1968 Southland case, the Board 
carefully analyzed whether a 7-Eleven franchisee's use of the trade 
name and operational system made the franchisor a joint employer. In 
declining to find joint employment, the Board noted that the critical 
factor in determining whether joint employment exists is the control 
the franchisor exercises over the labor relations policy of the 
franchisee.
    While the mere possibility of a broader definition of joint 
employer has already impacted my family, I fear that the real impact 
will be felt down the road when other families are looking for their 
first franchising opportunity, just as my family was in the mid-1990s. 
If franchisors are now on the hook for the liabilities of their 
franchisees, upstart entrepreneurs with limited assets will be passed 
over for well-established franchisees that can better protect the 
``deep pockets'' of the franchisors. Simply put, small business owners 
will be less attractive business partners for franchisors and there can 
be no doubt that this will drastically reduce the opportunities for 
business ownership all across the country. Franchise businesses are 
expected to grow and create more jobs at a faster pace than the rest of 
the economy in 2015 for the fifth consecutive year. The expanded joint 
employer standard could put the brakes on what looks like a banner year 
of accelerated growth and job creation in the franchise sector.
    I hope my testimony today has helped the committee understand how 
this issue impacts franchisees and those desiring to become 
franchisees. My family and I have worked incredibly hard to build our 
business over the past 19 years. I had hoped that this would continue 
to be my family's business long after I was gone. Instead, I am now 
contemplating the possibility that it could all disappear. I speak for 
myself and my family when I say please do not allow the National Labor 
Relations Board to take this all away. We urge the committee to take 
whatever steps possible to ensure that the current joint employer 
standard is maintained.

    The Chairman. Thank you, Mr. Moore.
    Mr. Sims.

          STATEMENT OF JOHN SIMS IV, FRANCHISE OWNER, 
                 RAINBOW STATION, RICHMOND, VA

    Mr. Sims. Chairman Alexander, Ranking Member Murray, and 
distinguished members of the committee, thank you for inviting 
me to testify before you today.
    My name is John Sims. I am an owner and operator of Rainbow 
Station at the Boulders, an early education center located in 
Richmond, VA. I am a small business owner, an entrepreneur and 
a franchisee. I appear today on behalf of franchise businesses 
to discuss my concerns regarding an expanded definition of 
joint employer and the very real threat to my business that a 
new joint employer standard brings.
    My family and I moved to Richmond from northern Virginia 
nearly 2 years ago. My wife and I quit our secure jobs and 
poured our life savings into this business. We made this move 
so that our three young daughters--Ellie, age 8; Mary, who is 
5; and Kirby, who is 3--could grow up close to their 
grandparents and the rest of our extended family. Prior to this 
move, my wife and I spent a great deal of time thinking about 
what type of job or business opportunity would be the best fit 
for our family in Richmond. We decided to explore the idea of 
purchasing an existing business. We considered both independent 
businesses and franchises.
    We ultimately decided that a franchise opportunity would be 
the best fit for our family because it would allow me to be an 
independent business owner but still be able to work with a 
proven brand and business model.
    In the summer of 2013, I purchased my Rainbow Station 
franchise. Rainbow Station is a child care and early education 
center committed to quality education and recreation programs 
designed to foster social, emotional, physical and cognitive 
development in children. Rainbow Station was the right fit for 
me given my education degree and prior work experience. We 
currently have 35 employees and have almost 200 children 
enrolled in our programs.
    The franchising arrangement with the Rainbow Station 
Corporation is pretty simple. The franchisor provides the brand 
materials, including the trademarks and logos, curriculum, and 
some marketing materials. In all other aspects, I operate as an 
independent, stand-alone business, just like a non-franchise 
small business owner.
    I have the autonomy to run my business as I see fit, 
including on matters such as staffing, labor costs, enrollment 
fees, vendor relationships, and other things. For example, I 
determine the staffing level for my business, I make all hiring 
decisions, and I determine what wage rates to offer. The 
franchisor has no role in this aspect of my business 
whatsoever. I am also solely responsible for determining what 
to charge for the various programs we offer.
    My decisionmaking on all of these issues must take into 
account market forces in the local economy such as availability 
of qualified employees or the typical level of discretionary 
spending by local families with children.
    Mr. Chairman, small businesses like mine play a valuable 
role in our economy. They provide entrepreneurial opportunities 
for people looking to better themselves and their families, 
create jobs, and grow local economies. Many small business 
opportunities exist because these local businesses can provide 
valuable services and other benefits to large corporations.
    However, if large businesses are now liable for the 
employment decisions of their service providers, franchisees or 
other contractors, then the opportunities for small businesses 
are surely going to disappear. The small business community is 
bracing for the NLRB's decision in the forthcoming Browning-
Ferris case. I'm not a lawyer, but it's no mystery where the 
NLRB is likely headed. In his amicus brief in the Browning-
Ferris case, the NLRB General Counsel asserted that, ``The 
Board should abandon its existing joint employer standard.'' If 
the General Counsel's new standard is adopted by the Board, 
franchisors would be joint employers over franchisees whenever 
the franchisor exercises even indirect control. Thus, the NLRB 
would find joint employment even though franchisors such as 
mine play no role in employment practices.
    This issue is not theoretical to me because my Rainbow 
Station location was previously owned by the franchisor and was 
not a franchisee-owned location. I believe that if a broader 
joint employer standard such as the one the NLRB is 
contemplating had been in place 2 years ago, there's a very 
good chance that Rainbow Station would have opted to maintain 
corporate ownership and they would not have franchised this 
location.
    Quite frankly, if the franchisor is going to be responsible 
for the liabilities arising out of the operations of the 
business and oversight of the workforce, why would they hand 
over control to someone else? I think many businesses will feel 
this way, and opportunities for local business ownership will 
decline dramatically.
    I know how fortunate I am to own my own business and be 
able to provide for my family. While the franchisor provides 
advice and support when I need it, I am the decisionmaker when 
it comes to my business. The success or failure of my business 
is essentially all on me, and that's why I love it. It would be 
a real shame to take these types of opportunities away from 
people like me.
    Mr. Chairman, I strongly urge this committee to consider 
the devastating impact on all small business owners if the NLRB 
invents a new definition of joint employer. I ask you to take 
steps to preserve the current joint employer standard long into 
the future. Thank you.
    [The prepared statement of Mr. Sims follows:]
                   Prepared Statement of John Sims IV
    Chairman Alexander, Ranking Member Murray, and distinguished 
members of the committee, thank you for the opportunity to testify 
before you today.
    My name is John Sims. I am an owner and operator of Rainbow Station 
at the Boulders, an early education center located in Richmond, VA. I 
am a small business owner, an entrepreneur and a franchisee. I come 
before you today to discuss my concerns regarding an expanded 
definition of joint employer and the very real threat to my business 
that a new joint employer standard brings.
    I am here today on behalf of my business because I am extremely 
troubled by recent events at the National Labor Relations Board related 
to the joint employer standard. I believe that unelected government 
officials are inventing a new definition of ``joint employer'' that may 
threaten the livelihoods of local business owners like me.
    My family and I moved to Richmond from northern Virginia nearly 2 
years ago. My wife and I made this move so that our three young 
daughters--Ellie (8), Mary (5) and Kirby (3)--could grow up close to 
their grandparents and the rest of our extended family. Prior to the 
move, I worked for a non-profit organization in northern Virginia 
managing parks and recreational facilities. I enjoyed my job and was 
hoping to find an opportunity in Richmond that would allow me to 
capitalize on my experience operating recreational facilities and also 
allow me to continue working with children. My wife and I spent a great 
deal of time thinking about what type of job or business opportunity 
would be the best fit for our family.
    We decided to explore the idea of purchasing an existing business. 
We considered both independent businesses and franchises. We ultimately 
decided that a franchise opportunity would be the best fit for our 
family because it would allow me to be an independent business owner 
but still be able to work with a proven brand and business model.
    In the summer of 2013, I purchased my Rainbow Station franchise. 
Rainbow Station is a child care and early education center committed to 
quality education and recreation programs designed to foster social, 
emotional, physical and cognitive development in children. We offer 
nursery school, pre-school and kindergarten programs as well as a 
before & after-school program for school-age children and a summer 
camp. I knew Rainbow Station was the right fit for me given my 
education degree and prior work experience. We currently have 35 
employees and have almost 200 children enrolled in our programs.
    The franchising arrangement with Rainbow Station is pretty simple. 
They provide the brand materials, including the trademarks and logos, 
curriculum, and some marketing materials. In all other respects, I 
operate as an independent stand-alone business, just like a non-
franchise small business owner. I have the autonomy to run my business 
as I see fit, including on matters such as staffing, labor costs, 
enrollment fees, and vendor relationships, among others. For example, I 
determine the staffing level for my business, I make all the hiring 
decisions, and I determine what wage rates to offer. Rainbow Station 
does not have a role in this aspect of my business whatsoever. 
Similarly, I am solely responsible for determining what to charge for 
the various programs we offer. My decisionmaking on all of these issues 
must take into account market forces in the local economy such as 
availability of qualified employees or the typical level of 
discretionary spending by local families with children.
    Small businesses like mine play a valuable role in our economy. 
They provide entrepreneurial opportunities for people looking to better 
themselves, create jobs and grow local economies. Many small business 
opportunities exist because these local businesses can provide valuable 
services and other benefits to larger corporations. However, if large 
businesses are now liable for the employment decisions of their service 
providers, franchisees, or other contractors, then the opportunities 
for small businesses are surely going to disappear.
    The small business community is bracing for the NLRB's decision in 
the forthcoming Browning-Ferris case. I'm not a lawyer but it's no 
mystery where the NLRB is likely headed; The NLRB General Counsel 
asserts that ``the Board should abandon its existing joint-employer 
standard.'' The General Counsel also asserts that companies may 
effectively control wages by controlling every other variable in the 
business. The General Counsel's new standard shifts the analysis away 
from the day-to-day control over employment conditions to operational 
control at the system-wide level. Under the new standard, franchisors 
would be joint employers whenever the franchisor exercises ``indirect 
control'' over the franchisee. The focus would be on ``industrial 
realities'' that make the franchisor a necessary party to meaningful 
collective bargaining. The NLRB would find joint employment even though 
the franchisor plays no role in hiring, firing, or directing the 
franchisee's employees.
    My Rainbow Station location was previously owned by the franchisor 
and was not a franchisee-owned location. I believe that if a broader 
joint employer standard, such as the one NLRB is contemplating, had 
been in place 2 years ago there is a very good chance that Rainbow 
Station would have opted to maintain corporate ownership and they would 
not have franchised the location. Quite frankly, if Rainbow Station is 
going to be responsible for the liabilities arising out of the 
operation of the business and oversight of the workforce, why would 
they hand over control to someone else? I think many businesses will 
feel this way and opportunities for local business ownership will 
decline dramatically. I know how fortunate I am to own my own business 
and be able to provide for my family. While Rainbow Station provides 
advice and support when I need it, I am the decisionmaker when it comes 
to my business. The success or failure of my business is, essentially, 
all on me--and that is what I love about it. It would be a real shame 
to take these types of opportunities away from people like me.
    Fortunately, 2 years ago the opportunity for small business 
ownership did exist and I am privileged to be a proud Rainbow Station 
owner. However, if the Labor Board radically changes the joint employer 
standard, I fear that my days as an autonomous business owner will be 
numbered. If my liabilities extend back to Rainbow Station as the 
franchisor, I have to assume that they are going to want a role in 
managing risks and protecting against those liabilities. Instead of 
occasionally providing me with guidance and support, Rainbow Station 
will be an active participant in the day-to-day operation of my 
business. They will, presumably, want a say in how many employees we 
use to run our business, who we hire, and what we pay. This level of 
franchisor involvement will be a complete reversal of the way the 
franchise relationship is intended to work. My freedom and autonomy--
the entire reason I wanted to own my own business--will vanish. I am 
very worried about this possibility.
    My wife and I have often talked about opening a second Rainbow 
Station location. However, the uncertainty as to what the future holds 
for franchisees and other small businesses has forced us to put that 
plan on hold. It simply does not make sense to try and grow our 
business at a time when we do not know what the future of our business 
will be. The uncertainty on this issue is hurting my family and many 
other families like mine who own and operate small businesses.
    Mr. Chairman, I strongly urge this committee to consider the 
devastating impact on all small business owners if the NLRB invents a 
new definition of joint employer to the potential detriment of local 
businesses like mine. I ask you to take steps to ensure that the 
National Labor Relations Board cannot take away my livelihood now or in 
the future.

    The Chairman. Thanks, Mr. Sims.
    Mr. Secunda.

     STATEMENT OF PAUL M. SECUNDA, J.D., PROFESSOR OF LAW 
        AND DIRECTOR, LABOR AND EMPLOYMENT LAW PROGRAM, 
         MARQUETTE UNIVERSITY LAW SCHOOL, MILWAUKEE, WI

    Mr. Secunda. I would like to start by thanking the Chairman 
of the committee, Senator Alexander, Ranking Member Senator 
Murray, and distinguished members of the committee for this 
opportunity to testify on this important workplace law issue.
    Employment relationships are dynamic, and the mix of jobs 
and relationships in our economy shifts over time. The Board is 
simply reexamining its joint employer standard to ensure that 
it properly effectuates the purposes of the Act. As the agency 
charged with administering the NLRA, the NLRB must ensure that 
it is fulfilling its statutory mandate by protecting employees' 
rights to engage in concerted activity and to bargain 
collectively with their employers.
    The Board has not yet decided what actions to take, and 
there is nothing extraordinary or unusual about the 
adjudicatory process that the Board is following in reexamining 
its joint employer test.
    The Board has continuously reconsidered and adjusted its 
joint employer standard based on experience, and that's 
consistent with the express purpose of the Act, to ensure 
industrial peace through the process of collective bargaining 
over terms and conditions of employment. Industrial peace can 
only be fostered if employees have an opportunity to 
collectively bargain with all parties that meaningfully control 
workplace terms and conditions. The Board is simply fulfilling 
the responsibility that the U.S. Supreme Court gave it in the 
case of NLRB v. Weingarten in 1975, that it adapt the National 
Labor Relations Act to changing patterns of industrial life.
    These evolving realities include the rapid expansion of 
precarious low-wage work and subcontracting that have fractured 
the 21st century workplace. Between 1990 and 2008, employment 
in temp services doubled, from 1.1 million to 2.3 million. Some 
of the largest staffing agencies and many of the fast-food 
industries are some of the most profitable in the country. The 
10 largest franchisees in 2012 employed over 2.25 million 
workers and earned more than $7.4 billion in profits.
    There are now more than 3.5 million fast-food workers, and 
more than 75 percent of them work in franchised outlets. 
Numerous studies indicate that under-employment and poverty-
inducing earnings are the norm. The social costs of these 
conditions are borne by U.S. taxpayers who shell out about $3.8 
billion a year to cover the costs of public benefits received 
by fast-food workers employed at the top 10 fast-food 
franchisees. These trends are playing out in a number of joint 
employer cases, including the one that was recently covered in 
the media concerning McDonald's. The case is at the beginning 
of the adjudicatory process. It is too early to speculate on 
what the administrative law judges and the Board may decide in 
these cases.
    Importantly, the decision will be specific to the facts of 
that case and will not be binding on all franchisor-franchisee 
relationships. To be clear and so there is no misunderstanding 
here, no party has ever proposed a universal rule that all 
franchisors and temp agencies from now on will be considered 
joint employers. Cases will turn on their particular facts.
    Several parties have also pointed out in their amicus 
briefs in Browning-Ferris that the current Board approach is 
unduly restrictive and is inconsistent with other Federal labor 
and employment laws, and this is true. The Fair Labor Standards 
Act, Title 7 of the Civil Rights Act of 1964, ERISA, the Family 
Medical Leave Act, all these statutes, in determining whether 
more than one employer should be treated as a joint employer of 
the employee, look at the actual relationship between the 
employer and the employees rather than the reasons for the 
relationship, and they all consider the relevant terms and 
conditions of employment and ask whether the two employers 
share meaningful aspects of the employment relationship. The 
fact-specific nature of the joint employer inquiry is well 
illustrated by the Board's Browning-Ferris case, which I hope 
to receive some questions on.
    In conclusion, the Board's decision to take a hard look at 
its joint employer standard is reasonable and practical as a 
means of considering whether the current test is effectuating 
the National Labor Relations Act purpose of enabling workers to 
organize and collectively bargain with their employers to 
improve their lot in the workplace. Thank you very much.
    [The prepared statement of Mr. Secunda follows:]
              Prepared Statement of Paul M. Secunda, J.D.
    I would like to start by thanking the Chairman of the committee, 
Senator Alexander, Ranking Member, Senator Murray, and the other 
members of the committee for this opportunity to testify on this 
important workplace law issue. My testimony will focus on: the process 
by which the joint employer doctrine is currently being re-examined by 
the National Labor Relations Board; the importance of this question 
given the underlying purposes of the National Labor Relations Act; the 
similarity of the joint employer test under the NLRA to how this same 
issue has been treated under related Federal labor and employment law 
statutes; and finally to stress to the committee that nothing has been 
decided yet in the underlying case, Browning-Ferris Industries, Case 
32-RC-109684 (or for that matter in the pending complaint against 
McDonalds). The Board is following its usual and ordinary adjudicatory 
process to ascertain whether employees in certain economic structures 
are able to properly exercise their organizational, collective 
bargaining, and concerted activity rights under the Act. The fact-
intensive, complex nature of the joint employer question in Browning-
Ferris will help me underscore for the committee the need for a case-
by-case approach which considers a number of relevant factors 
concerning who controls important terms and condition of employment.
    Employment relationships are dynamic, and the mix of jobs and 
relationships in our economy shifts over time. The Board is simply re-
examining its joint employer standard to ensure that it properly 
effectuates the purposes of the Act. As the agency charged with 
administering the NLRA, the NLRB must ensure that it is fulfilling its 
statutory mandate by protecting employees' rights to engage in 
concerted activity and to bargain collectively with their employers. To 
be clear, and to re-state what I have already said once: the Board has 
not yet decided what actions to take. In the Browning-Ferris case, the 
Board has done what it has done many times before--it has asked for 
amicus briefs from all interested parties based on the facts of the 
case. The Board has expressed a desire to hear from as many voices as 
possible as it deliberates over this significant workplace issue. There 
is nothing extraordinary or unusual about the adjudicatory process that 
the Board is following in re-examining its joint employer test. The 
Board, unlike other Federal agencies, generally does not engage in 
rulemaking and instead develops the ``common law of the shop'' through 
fact-intensive investigations of complex, individual cases.
    As the Board makes its decision in Browning-Ferris, it will not be 
writing on a blank slate. The joint employer test under the National 
Labor Relations Act was set forth by the U.S. Supreme Court over 50 
years ago in Boire v. Greyhound Corp., 376 U.S. 473, 481 (1964). There, 
the question, broadly stated, was whether one employer ``possesses 
sufficient control over the work of the employees to qualify as a 
``joint employer'' with [the actual employer].'' In other words, joint 
employment occurs when ``one employer, while contracting in good faith 
with an otherwise independent company, has retained for itself 
sufficient control of the terms and conditions of employment of the 
employees who are employed by the other employer.'' NLRB v. Browning-
Ferris of Pa., Inc., 691 F.2d 1117, 1123 (3d Cir. 1982).
    The Board has continuously reconsidered and adjusted its joint 
employer standard based on experience. Starting in 1984, for example, 
the Board provided an additional gloss on this joint employer test in 
the cases of Laerco Transportation, 269 NLRB 324 (1984) and TLI, Inc., 
271 NLRB 798 (1984). In these cases, the Board stated that it would 
find joint employment, ``where two separate entities share or 
codetermine those matters governing the essential terms and conditions 
of employment.'' In particular, an employer must ``meaningfully 
affect[] matters relating to the employment relationship such as 
hiring, firing, discipline, supervision, and direction.'' Laerco, 269 
NLRB at 325. In 2002, the Board restricted the joint employer test by 
stating: ``The essential element in this analysis is whether a putative 
joint employer's control over employment matters is direct and 
immediate.'' Airborne Freight Co., 338 NLRB 597, 597 n.1 (2002). 
Several parties in the Browning-Ferris case have urged the Board to 
reconsider these recent tightening of the joint employer test and 
return to the Board's traditional approach consistent with Supreme 
Court case law.
    The express purpose of the Act is to ensure industrial peace 
through the process of collective bargaining over terms and conditions 
of employment. Industrial peace can only be fostered if employees have 
an opportunity to collective bargain with all parties that have 
meaningful control workplace terms and conditions. Therefore, by re-
examining its joint employer test, the Board is simply fulfilling the 
responsibility that the U.S. Supreme Court has entrusted to it: 
``adapt[ing] the [National Labor Relations Act] to changing patterns of 
industrial life.'' NLRB v. Weingarten, 420 U.S. 251, 266 (1975). 
Browning-Ferris does not represent the Board acting in an unusual or 
activist way in asking whether it should revise its joint employer test 
in any manner in light of evolving economic realities.
    These evolving realities include the rapid expansion of precarious 
low-wage work and subcontracting that have fractured the 21st century 
workplace. Temporary staffing and franchising account for a 
disproportionate share of the economic growth following the recession 
of 2008. Between 1990 and 2008, employment in the temp services 
industry doubled, from 1.1 million to 2.3 million and temporary 
employees now represent a record share of the workforce at 2 percent. 
By 2013, staffing services generated $109 billion in sales and 2.8 
million temp positions. In the first quarter of 2014, True Blue 
(formerly Labor Ready), the largest U.S. staffing agency, had a profit 
of $120 million on gross revenues of $453 million. Franchising is 
equally profitable as evidenced by the fast-food sector of the 
restaurant industry where in 2012 the 10 largest franchises employed 
over 2.25 million workers and earned more than $7.4 billion in profits.
    There are more than 3.5 million fast-food workers and more than 75 
per cent of them work in franchised outlets. Numerous studies indicate 
that under-employment and poverty-inducing earnings are the norms. 
Households that include an employed, fast-food worker are four times as 
likely to live below the Federal poverty level. The social costs of 
these conditions are born by U.S. taxpayers who shell out about $3.8 
billion per year to cover the cost of public benefits received by fast-
food workers employed at the top 10 fast-food franchises.
    These trends are playing out in the other joint employer case 
receiving much recent media coverage, the McDonald's case. There, the 
NLRB's General Counsel, after an investigation, has issued several 
unfair labor practice complaints against McDonald's on grounds that 
McDonald's is a joint employer with its franchisees under the 
particular facts and circumstances presented in the case. Complaints 
have only recently been issued, and the cases are now before 
administrative law judges for hearings on the complaints. The cases are 
at the beginning of the adjudicatory process. It is too early to 
speculate on what the administrative law judges, and what the Board, 
may decide in the cases. Importantly, the decision will be specific to 
the facts of that case, and will not be binding on all franchisor-
franchisee relationships. To be clear, and so there is no 
misunderstanding on this point: no party has even proposed a universal 
rule that all franchisors and temp agencies from now on will be 
considered joint employers. Cases will turn on their particular facts.
    Consistent with the standards set by the U.S. Supreme Court 
initially in 1964 and reiterated by the Board in 1984, joint employer 
doctrine under the NLRA turns on whether two separate employers ``share 
or codetermine'' terms and conditions of employment that ``meaningfully 
affect'' the employment relationship. A less restrictive definition 
might, for example, not define the ``essential'' terms and conditions 
of employment, might not limit such terms to only hiring, firing, and 
discipline,'' and would not require ``direct and immediate control'' 
over the employee, as the Board first adopted in 2002.
    Several parties have also pointed out to the Board that its 
current, unduly restrictive approach definition is inconsistent with 
the joint employer test under other Federal labor and employment law 
statues including: the Fair Labor Standards Act, Title VII of the Civil 
Rights Act of 1964, the Employee Retirement Income Security Act/
Internal Revenue Code, and the Family and Medical Leave Act. All these 
statutes, in determining whether more than one employer should be 
treated as joint employers of the employee look at the ``actual 
relationship between the employer and [the employees], rather than the 
reasons for the relationship.'' Redichs Interstate, Inc., 255 NLRB 
1073, 1077 (1980). None attempts to define ``essential terms of 
employment,'' ``direct and immediate control over employees,'' or limit 
the analysis to ultimate employment decisions like hiring and firing. 
They consider all relevant terms and conditions of employment and ask 
whether the two employers control the meaningful aspects of the 
employment relationship.
    The fact-specific nature of the joint-employer inquiry is well 
illustrated by the Browning-Ferris case itself. The record in that case 
reflects that Browning-Ferris operates a recycling facility in 
Milpitas, CA, where it directly employs approximately 60 workers at the 
facility, including loader operators, equipment operators, forklift 
operators, sort line equipment operators, spotters, and one sorter. 
These employees are all represented by Sanitary Truck Drivers and 
Helpers Local 350. Browning-Ferris also contracts with Leadpoint to 
supply mostly sorters for the facility and maintains that Leadpoint is 
these employees' sole employer. Leadpoint employs approximately 240 
full-time, part-time, and on-call employees who work within the plant 
and are not part of any union.
    Browning-Ferris maintains the entire physical plant, including the 
conveyors, screens, and motors that are used for the sorting operation. 
Browning-Ferris possesses and exercises significant authority over work 
hours, work days, and headcount. It sets the facility's hours of 
operation, including the start and end times of each of its three 
shifts, and controls the speed of the line and thus the speed at which 
the sorters must work.
    Under the restrictive test the Board currently uses for determining 
joint employer status, Browning Ferris will have to establish that it 
has direct and immediate control over the Leadpoint workers' terms and 
conditions of employment. Frankly, it seems to me that this is a 
situation where Browning Ferris could and should be found a joint 
employer under the Board's current test because it exercises such 
substantial control over the Leadpoint workers' employment. The 
economic realities are such that Browning-Ferris is in charge, and if 
the Leadpoint workers are to unionize and bargain over their terms and 
conditions of employment, Browning-Ferris really needs to be at the 
table in order for meaningful bargaining to take place. The fact that 
an NLRB regional director applied the Board's current test and found 
Browning Ferris not to be a joint employer demonstrates why the General 
Counsel is right to argue that the Board should re-examine and adjust 
its test to better reflect economic realities.
    Again, the point I want to emphasize to the committee is that under 
any joint employer test, the actual decision is incredibly fact-
intensive. Many employers working together, in franchise and temp 
agency arrangements and other relationships, will not be considered 
joint employers. Where the facts show that both employers meaningfully 
affect the terms of workers' employment, they may be found to be joint 
employers with joint responsibilities to bargain with the workers and 
their representative over terms of employment.
    In conclusion, the Board's decision to take a hard look at its 
joint employer standard is reasonable and practical as a means of 
considering whether the current test is effectuating the National Labor 
Relations Act's purpose of enabling workers to organize and 
collectively bargain with their employers to improve their lot in the 
workplace. By considering whether its existing joint employer standard 
is consistent with Congress' intent in light of changing employment 
practices, the Board is acting responsibly and well within its 
statutory authority. I ask that the committee allow the administrative 
process to run its normal course before any conclusions about the 
impact of such a decision are reached.
    I look forward to your questions. Thank you.

    The Chairman. Thank you, Mr. Secunda.
    We will begin a 5-minute round of questioning, and I'll go 
first. Then Senator Murray, Senator Burr and Senator Franken.
    Mr. Moore, you indicated you were thinking about a sixth 
site, and you slowed down on that. Mr. Sims, you indicated the 
franchisor used to own your site before.
    That's really the nub of it, isn't it, with franchisees and 
franchisors? Seven-hundred-thousand franchisees in the country. 
You're two of them. You and your families risked your savings. 
You are independent business people. You're making your way up 
the ladder.
    There's another alternative to that, and that is Ruby 
Tuesday can either have a franchisee or it can own the store. 
The same with your company. The same with any of these 
companies. Mr. Moore, what do you think would be the danger of 
an expanded joint employer standard? What do you think would 
happen? Do you think it's likely that your franchisor or other 
franchisors might decide in the future to own more of their own 
stores and there would be fewer opportunities for people like 
the Moore family and the Sims family?
    Mr. Moore. Yes, I agree with that premise. I have actually 
worked for other large corporations, and I understand the 
positions that they take. The fact is that a lot of 
corporations have to report to their stockholders and their 
stakeholders. As an independent business owner, we don't have 
to do that. What we have in our hands is ours to determine how 
we're going to handle it, how we're going to run the business.
    If this decision were to go forward, having the franchisor 
be responsible and getting involved in our business would be no 
different than working for someone. I may as well go back to 
work for the large corporations because it's taken all the 
controls, all the reasons that I wanted to be an owner to begin 
with, it takes all that away from us. Those people who go into 
the business and take the risks want that independence. We've 
been to the corporate level, and that's not what we like.
    The Chairman. A suggestion was made that an expanded joint 
employer standard might help the little guy. It sounds to me 
like an expanded standard might make the franchisee--the little 
guy compared to the big corporation--less independent, less 
autonomous, less able to determine your own life.
    Mr. Moore. Yes, sir. I would agree with that.
    The Chairman. Mr. Babson, we've talked a lot about 
franchisees and franchisors, but the possibility of an expanded 
joint employer standard applies to lots of other people, 
including contractors and subcontractors. Mr. Secunda seems to 
say, well, they shouldn't worry very much about it, this is 
just a single case. If you were a subcontractor of, say, an 
auto manufacturer in Tennessee, would you worry at all about 
the NLRB proceedings going on today?
    Mr. Babson. I would. I do agree with you, Senator. I think 
there would be something to worry about, not only in the auto 
industry where we have Tier 2 and Tier 3 suppliers that the 
auto industry has relied upon to be efficient, effective, to 
provide product in the necessary time, and to be competitive in 
a very competitive world market, but we see that also in the 
construction industry. If we had a building that was being 
built down here on Pennsylvania Avenue, there's going to be a 
general contractor. There will be 10, 11, or 12 subcontractors. 
I've worked and advised many clients who are contractors at the 
Kennedy Space Center and at the Johnson Space Center.
    We work very, very hard, and with all due respect, these 
are not necessarily lower paid workers. We work very, very hard 
to keep the relationships separate, and the subcontractors with 
whom I've worked, whether it's in the construction industry, 
auto suppliers, at the Space Center, they all take very, very 
seriously their own responsibility for recruiting their own 
employees, training them, setting their terms and conditions, 
and overseeing them. That is their calling card. That's how 
they succeed.
    The Chairman. It seems to me, based on what I've heard, 
that an expanded joint employer standard is likely to mean more 
company-owned stores, more company-owned services, or more 
company interference in a business like Mr. Moore's or Mr. 
Sims', where you become an effective manager of a big 
corporation's outlet, which is something that is not what you 
really wanted to do to begin with when you left a big 
corporation to go start your own company.
    Thank you all very much for being here. My time is up.
    Senator Murray.
    Senator Murray. Thank you, Mr. Chairman.
    Mr. Secunda, in your testimony you touched on the changes 
in the labor market. Can you talk a little bit about what those 
trends have meant for workers, in particular our fast-food 
franchise workers?
    Mr. Secunda. Absolutely, Senator Murray. When the standards 
that exist today were adopted for the joint employer definition 
in 1984, we were looking at a very different economy than we 
have today in 2015. As I mentioned, the number of temp workers 
has skyrocketed. The number of fast-food workers has 
skyrocketed. Although we have seen rebound in our economy, many 
people have noted that the lower-income workers are not sharing 
in that prosperity, and it's not surprising because with more 
franchisees and more workers being employed by fast-food 
companies and temping agencies, they're making very low wages. 
I read in the paper today that the average wage of the 
McDonald's worker is about $8.34. If you do the calculations, 
almost no one in any part of the country can live on those 
types of wages.
    Senator Murray. Thank you. We've heard a lot of predictions 
that if, in fact, the NLRB through this process does decide to 
alter its joint employer standard, it will result in the end of 
franchising models as we know it. Can you comment on that?
    Mr. Secunda. Absolutely, Senator. I want to emphasize what 
I emphasized in my remarks, which is that the actual decision 
of whether any franchisor-franchisee relationship amounts to a 
joint employer test is incredibly fact-intensive. Many 
employers working together in franchise, in temp agency 
arrangements and other relationships will not be considered 
joint employers. Where the facts show that both employers 
meaningfully affect the terms of workers' employment, they may 
be found to be joint employers with joint responsibilities to 
bargain with the workers and the representatives over terms of 
employment.
    Senator Murray. From what you have heard about Rainbow 
Station and Little Gym today, are these the kinds of business 
arrangements where the NLRB is likely to find joint employer 
status?
    Mr. Secunda. Absolutely not, Senator. These gentlemen have 
spoken eloquently about the independent control that they 
maintain over their businesses. Those are the facts of the 
situation, and if the joint employer test were applied, they 
would not be found to be joint employers with their franchisor.
    Senator Murray. As you talked about in your testimony, the 
NLRB looks at these cases individually. They wouldn't just 
broadly say we made this decision and it covers every 
franchise. They would look at the facts of the case. Can you 
describe that?
    Mr. Secunda. Absolutely. The NLRB is unusual when it comes 
to Federal agencies because it doesn't generally engage in 
what's called rulemaking; that is, regulations. It actually 
develops the law through adjudication of individual cases, and 
they do it that way because of the changing circumstances all 
the time of the workplace. By going case by case, they can move 
more incrementally and decide what's appropriate at that point 
in time for that particular doctrine.
    Senator Murray. OK. One other question here. I've heard 
some of our colleagues who oppose raising the minimum wage. 
They argue that low-wage workers should take responsibility for 
their own earning power. How does this current narrow joint-
employer standard prevent employees from doing just that?
    Mr. Secunda. Many of these employees who work for fast-food 
companies and temp agencies are operating under a service 
agreement between the franchisor and the franchisee. In fact, 
if the local franchisee wants to raise the wages, many times 
they're not able to. They are told they can't because if they 
do it at one franchisee, then all franchisees will start 
raising wages and that will cut into the profits of the 
corporate franchisor.
    It's a big impediment. I think the reason that we have more 
under-employed people today than we've ever had in our history 
is because of the growth of many of these types of models.
    Senator Murray. OK. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Babson. Senator Murray, may I respond just very briefly 
to what Mr. Secunda said?
    Senator Murray. Absolutely. I have 20 seconds left. Go for 
it.
    Mr. Babson. Just very quickly, two points, it seems to me, 
need to be made. The General Counsel of the NLRB in the brief 
to which Mr. Secunda referred in Browning-Ferris, and in the 
McDonald's case, alleges, among other things, that this should 
be the test: unexercised potential to control working 
conditions, unexercised potential to control working 
conditions.
    Senator Murray. In those two specific cases.
    Mr. Babson. That's correct. That is the suggestion--that, 
that be the test, and I would suggest that everybody present in 
this room satisfies that test, unexercised potential to control 
working conditions. This has not been supported in the 
jurisprudence of the NLRA.
    Senator Murray. Isn't that what the NLRB has to look at and 
make that determination that hasn't been made?
    Mr. Babson. This is the second point, Senator Murray, if I 
may, and with all due respect to Mr. Secunda, he understands 
that it is true that the Board members--and I agree--in an 
appropriate case, have the obligation to mold the statute, 
within the bounds of the statute. I contend that this proposed 
definition is outside the bounds of the statute. Apart from the 
Board members' decision one way or the other, this represents 
the standard--that I mentioned that the General Counsel is 
arguing for--that represents the enforcement policy of the NLRB 
today. There are going to be many small businesses who are 
going to be ensnared in this allegation before the Board makes 
its final decision.
    Senator Murray. I appreciate that, but I really would like 
to hear from Mr. Secunda, and I'm out of time. If you could at 
least give it to us in writing why you believe that that 
doesn't apply broadly and that they do have the power to make 
these decisions within the law.
    The Chairman. Thank you, Senator Murray.
    Senator Burr.

                       Statement of Senator Burr

    Senator Burr. Mr. Moore, Mr. Sims, I know neither one of 
you are fast food or temp employers, but Mr. Secunda said you 
can't raise or lower wages. Can you make that decision, Mr. 
Moore, in your operation and for your employees?
    Mr. Moore. Yes, sir.
    Senator Burr. Mr. Sims, can you do it?
    Mr. Sims. Yes, sir.
    Senator Burr. OK. Mr. Babson, if I understood you--and I'm 
going to make it simple, but you correct me if I'm wrong--you 
said that the statute of the law is very clear, that the NLRB 
does not have this authority to change the definition. Is that 
accurate?
    Mr. Babson. This Congress and the Supreme Court have made 
clear on numerous occasions that the terms ``employer'' and 
``employee'' as used in the National Labor Relations Act are 
bounded by the common-law definitions. Before you can become a 
joint employer, you have to be an employer and you have to have 
exercised some control over those terms and conditions of 
employment. Most of the franchisors that I've represented 
understand this demarcation and they abide by it.
    I'll just say in 1947, when the Taft-Hartley Congress 
amended this statute, they said in the House report, in 
frustration over the NLRB's continuing to expand the 
definitions beyond the common law, they have a phrase that has 
stuck in my mind, and I certainly remembered it when I was at 
the NLRB. The report says that apparently everybody in the 
United States knows who is an employer and who is an employee 
except the members of the National Labor Relations Board.
    Senator Burr. Mr. Secunda, are you saying he's wrong?
    Mr. Secunda. I would never say that about a former Board 
member.
    [Laughter.]
    I would say it's incomplete. I would say in the 1940s, the 
definition of who was an employee and who was an employer was 
pretty straightforward indeed. Unfortunately, in 2015 in our 
current economy, it's anything but clear.
    Senator Burr. Are you saying that--and you've made the 
phrase that things change over time. Does the statute of law 
change over time without congressional involvement?
    Mr. Secunda. The statute itself, Senator Burr, does not 
change. However, the Congress has----
    Senator Burr. The interpretation of what that statute 
means?
    Mr. Secunda. Right. The Congress has delegated to the 
National Labor Relations Board the authority to interpret and 
to administer the National Labor Relations Act. What has 
happened is that both the Congress, as Mr. Babson has said, and 
the Supreme Court of the United States have told us what to 
consider when looking at who is an employer, and there is a 
multi-factor test----
    Senator Burr. Do you think there's a gray area in what 
we've told them to look at?
    Mr. Secunda. With all due respect, yes. I think the 
National Labor Relations Act has not been meaningfully amended 
in 65 years, and so it's pretty much, as we like to say, 
ossified. It doesn't necessarily speak to the current 
realities.
    Senator Burr. One of the things we look at for the need to 
change statute or law is whether it's applicable.
    Mr. Secunda. Yes.
    Senator Burr. Clearly Congress has felt that it was clear, 
it was applicable to today. Congress has reemphasized, as the 
Supreme Court has, clarifications of what the NLRB should look 
at. Is the only reason that you're suggesting that they do this 
is because it makes it easier to organize workers if, in fact, 
they carry this out? Is that what you're after?
    Mr. Secunda. First of all, the National Labor Relations 
Act, in its purpose--it says its purpose is to promote 
collective bargaining. That's not a bad thing, right? 
Collective bargaining brings power to workers.
    Senator Burr. Aren't you saying that this change is so that 
that happens easier?
    Mr. Secunda. Not that it happens easier but that it can 
happen at all, because if you can't bring the members who are 
in charge of the workplace to the bargaining table, you can't 
change anything. If people have meaningful control of----
    Senator Burr. You'd re-interpret the statute of the law. 
You'd reinterpret what congressional intent, specific intent 
was to say, yes, but we're going to do this anyway. Is that the 
way it works?
    Mr. Secunda. It doesn't work that way.
    Senator Burr. That's what you're suggesting.
    Mr. Secunda. I am not, with all due respect. The Supreme 
Court has said that the intent of Congress in defining 
employers can be looked at by considering a number of factors, 
most recently in the 1989 case of CCNV v. Reid, which was 
concerning who is an employer under the Copyright Act, but it 
applies here as the common-law test. We look at a number of 
things. We look at staffing. We look at who decides how many 
people should work on a given day, who brings their tools and 
implements, how do they get paid, do they get a W-2, do they 
get a 1099. There are about 12 or 13 different factors, and all 
I'm suggesting is those factors might apply differently in 
today's economic reality.
    Senator Burr. I thank all of you.
    Mr. Babson. Senator, could I respond to that?
    Senator Burr. Certainly.
    Mr. Babson. With regard to the purposes, very briefly, I do 
not disagree that a purpose of this statute is to promote 
collective bargaining. It's very clear, if you go back and read 
the purposes in the preamble, this is not a zero-sum game. 
Senator Wagner and that Congress were clear that the reason 
that workers and the way that workers succeed is if business 
succeeds, and the reason for this statute is because we had 
work stoppages that were interfering with commerce, and the 
references to ``efficient and successful business enterprise'' 
is made no less than five times in the preamble to this 
statute. When business succeeds, workers will succeed and share 
in that. You can read this morning in the newspaper about what 
General Motors has done with its union workers. When business 
succeeds, workers will succeed. That's what collective 
bargaining is about.
    The Chairman. We're over by about a minute. Mr. Secunda, 
I'll give you a little time to comment on that, if you'd like, 
and then we'll go to Senator Franken.
    Mr. Secunda. I completely agree with Mr. Babson. Workers do 
well when employers do well, and employers do well when workers 
do well. General Motors is giving a big bonus to its workers in 
today's paper because they have recovered as a company. Those 
are unionized workers. To the point that on construction sites 
those workers make good money, it's because they're unionized.
    The Chairman. Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman.
    Professor Secunda, in your testimony you say that the 
current standard under the NLRA is ``inconsistent with the 
joint employer test under other Federal labor and employment 
statutes,'' including the Fair Labor Standards Act and civil 
rights statutes.
    If I'm understanding that correctly, that means that if a 
worker at McDonald's doesn't get paid minimum wage, then 
McDonald's, the corporation, would be responsible as a joint 
employer because it exerts enough control over that worker.
    Mr. Secunda. That is correct, Senator.
    Senator Franken. OK. But, if a worker at a McDonald's is 
fired for trying to organize to bargain for better wages or 
hours because McDonald's corporate wants to discourage 
organizing, is McDonald's corporate off the hook?
    Mr. Secunda. Currently, yes.
    Senator Franken. OK. Well, that doesn't make a lot of sense 
to me and, frankly, it just doesn't seem fair.
    Again, Professor Secunda, some are concerned that the 
National Labor Relations Board's consideration of changes to 
the joint employer standard is unusual or would be a violation 
of the common-law definition of what an employer is. Yet, as 
you point out in your testimony, the Supreme Court has 
entrusted the Board ``the responsibility to adapt the National 
Labor Relations Act, or the Act, to changing patterns of 
industrial life.'' Based on your expertise, the Board is 
following its usual procedures to fulfill its responsibilities 
under the NLRA.
    Can you address these concerns and explain how the Board's 
process in a review of the joint employer standard is not only 
within their right but is required, given the changes that we 
have seen in the workplace where the result is often to deprive 
workers of their rights and push more of the risks of dangerous 
low-wage work onto workers?
    Mr. Secunda. Sure. In the 1960s, the U.S. Supreme Court 
decided a case called Boire v. Greyhound. That was the case 
that basically set up the joint employer standard under the 
NLRA, and it talked about you can be a joint employer if, like 
the other employer, you have meaningful control over the 
workplace. That was the standard until about 1984. Two cases 
were decided that year, the TLI case and the Laerco case. They 
added some additional glosses, but the test was still pretty 
much the same, who co-determines what happens in the workplace, 
who has control. The emphasis has always been on control.
    They changed it a little bit, to be frank, because over 20 
years the workplace had changed from 1964 to 1984. I might 
point out, that was a Republican board.
    The next time it was changed, it was changed in 2002 in a 
case called Airborne Express. Again, a Republican board added 
an additional gloss, this time requiring direct and immediate 
control over the workplace. It was at that point in 2002 that 
the National Labor Relations Act no longer mirrored its sister 
and brother statutes such as the FLSA, OSHA, ERISA, the Family 
Medical Leave Act.
    What we see now occurring from 2002 to 2015 is another 
attempt to try to adapt the Act, using the common-law 
definition, as we always have in this area of the law, to the 
current realities in the workplace which, as I mentioned to 
Senator Murray, include a vast expansion of precarious workers 
working for fast-food companies, temporary agencies, and other 
forms of subcontractors.
    Senator Franken. Mr. Sims, first of all, you said that you 
went into your business so your children could be close to 
their grandparents. Is that right?
    Mr. Sims. Yes, sir.
    Senator Franken. As a grandfather, I so commend that and 
think that should be actually written into law.
    [Laughter.]
    In your testimony you say that you have pretty significant 
autonomy to run your business as you see fit, and that your 
franchisor provides just mainly branding, marketing and 
curriculum materials, and advice. Does your franchisor track 
your sales or your labor costs, and do they continually monitor 
your compliance with their standards?
    Mr. Sims. They do, sir. They do monitor our revenues. The 
royalties that I pay to them are based on a percentage of our 
gross revenues. As far as the standards, they do visit our 
location twice a year, unannounced basically, to check on the 
standards. Other than that, they have no control over the 
hiring or pay or anything like that of the workers themselves.
    Senator Franken. Because they have no control over the 
hiring--and I'm out of time, so I'll just try to draw a 
conclusion from that. It seems to me that since this would be 
determined on a case-by-case basis, that in many ways this 
might cause the franchisor, so that it doesn't get caught under 
this joint employer status, to give you even more autonomy, and 
that would be a good outcome for a small business owner like 
you. That's just an observation.
    I'm over my time.
    Mr. Babson. Senator Franken.
    The Chairman. Mr. Babson, we'll give every witness the 
chance at the end, if we have time, to say anything that's left 
unsaid. We've got several Senators who are here, and I'd like 
for them to have a full chance to use their 5 minutes.
    Senator Cassidy.

                      Statement of Senator Cassidy

    Senator Cassidy. Mr. Secunda, building off what Senator 
Franken just said, I am struck that some people are just born 
entrepreneurs. I mean, my gosh, they roll out of bed, they 
start a business. There are others who are not quite so gifted. 
I'm struck that the genius of the franchisee-franchisor 
relationship is that you can take someone who doesn't 
necessarily have the intuitions of an entrepreneur, but by 
wrapping around the services of the franchisor--I feel a little 
bit like Flip Wilson--that they are able to become 
entrepreneurs.
    They don't have the ability to come up with the software 
that would track employees' hours, and they probably don't have 
the legal status to define compliance with all the kind of 
myriad of laws required. Because it's wrap-around, that person 
who otherwise is not born with the intuition develops it.
    By what you're describing, the more wrap-around it becomes, 
the more likely the franchisor would be ruled a dual employer. 
Is that a fair statement?
    Mr. Secunda. It's a fair statement, and if you don't mind 
me saying, the Browning-Ferris case, the case that is actually 
in front of the Board right now, provides kind of the facts 
that you would tend to see that would lead----
    Senator Cassidy. I know. As I read your testimony, it 
seemed self-evident.
    Mr. Secunda. Yes.
    Senator Cassidy. It almost seems prejudicial against the 
person who needs to be more dependent upon the franchisor. If a 
company, if a franchisor is going to be more proactive, how do 
I bring in people who traditionally have not been small 
business people? Really, you're opening yourself up to this 
sort of ruling against you. Would you accept that as fair?
    Mr. Secunda. I would say that most of the small business 
franchisors that I know or have met are more like the two 
gentlemen to the right of me, which is to say they're very 
successful, they're independent----
    Senator Cassidy. I accept that. When I look at a Subway 
owner who moved to Louisiana, who moved here from Africa, and 
he might be quite entrepreneurial but he's not like these 
gentlemen, who kind of come from a tradition, I suspect, of 
``'This is how you do it, son,'' and he's an incredibly 
successful fast-food franchisee. I do have a sense that there 
is a wrap-around--this is how you do it, this is how you limit 
labor costs because if you don't, you will go out of business. 
Again, his franchisor now seems to be opening himself up to 
that involvement in your case because he is providing these 
wrap-around services. Again, I think that's an intuitive and 
fair statement, correct?
    Mr. Secunda. I think when you're talking about fast-food 
companies like Subway, you're absolutely correct.
    Senator Cassidy. In that case, it almost seems like you're 
encouraging that company not to provide those wrap-around 
services, that you're saying to that company, listen, if you're 
trying to cultivate this set of entrepreneurs, boom, the NLRB 
is going to hammer you. It almost seems discouraging for them 
to provide the support they need to provide for folks who never 
dreamed of having a business to become a successful business 
owner. Would you dispute that?
    Mr. Secunda. I would disagree with that, Senator.
    Senator Cassidy. Why?
    Mr. Secunda. Because when we're talking about a franchisee 
like someone who owns a Subway store, we're talking about 
someone who has to run their business in a way to be 
profitable, but it doesn't give them the right, if they treat 
their workers unfairly, to----
    Senator Cassidy. You define treating them unfairly as just 
paying them about minimum wage and limiting the number of hours 
they work.
    Mr. Secunda. I think they should have a right to have a 
voice in the workplace if they and their fellow employees would 
like to organize, and the only way they can organize is by----
    Senator Cassidy. You have two systems. You have, one, a set 
of franchisees who are able to run it on their own, and 
therefore are going to be immune to this, and another set who 
really need a lot more support from the franchisor, otherwise 
they will not be successful. If you've got the kind of native 
ability or the father and mother who told you how to do so, 
then, by golly, you'll be immune from this. If you need that 
wrap-around support, again, NLRB is going to insert themselves 
in your business. That seems inherently unfair to those who are 
a little less advantaged and more dependent upon a franchisor 
providing that wrap-around service.
    Mr. Secunda. The NLRB would actually apply equally to an 
independent franchisor----
    Senator Cassidy. No, because these gentlemen are able to 
disassociate themselves more from the franchisor, can make 
themselves immune to this--you just told me it wouldn't be a--
--
    Mr. Secunda. They wouldn't be a joint employer, but they 
would be an employer.
    Senator Cassidy. Yes, but they would not be a joint 
employer. Therefore, they would be, again, exempt from what 
you're telling me is going to come down from NLRB.
    Mr. Secunda. Under other NLRB doctrine they would still be 
subject to organizing campaigns and other forms of collective 
bargaining.
    Senator Cassidy. They would be less vulnerable, if you 
will, if you consider this a vulnerability.
    Mr. Secunda. I don't think so.
    Senator Cassidy. You just told me that these two fellows--
I'm sorry, I don't mean to be rude--that these two fellows 
probably wouldn't be covered by the decision that's coming down 
now.
    Mr. Secunda. Not this decision, but there are other 
decisions that they would be covered by.
    Senator Cassidy. Just to finish up this point. The Subway 
owner who now is vulnerable because Subway can be considered a 
joint employer, these two fellows are as equally vulnerable, if 
you will, to be unionized as the one who is a joint employer 
relationship?
    Mr. Secunda. It's not just unionization. It's any kind of 
concerted activity.
    Senator Cassidy. Just answer my question. They're equally 
likely to be unionized under NLRB doctrine, if you will, or 
rulings''
    Mr. Secunda. If employees so choose that's what they want.
    Senator Cassidy. It seems the whole point of this is that 
it's easier to get collective bargaining if you go with the 
mother ship, if you will, McDonald's or Subway, than if you go 
with the individual. That's the whole point of this, correct?
    Mr. Secunda. No. It's about making sure that the people are 
at the table who control the terms and conditions of employment 
so if you're unhappy with them, you can bargain with the person 
who can change them.
    The Chairman. We're running out of----
    Senator Cassidy. I'm out of time. I'm not sure I came to a 
conclusion, but I yield back.
    The Chairman. Thank you, Senator Cassidy.
    Senator Warren.

                      Statement of Senator Warren

    Senator Warren. Thank you, Mr. Chairman.
    Historically, if an employer violated the legal rights of 
its workers through, say, an illegal firing, the employer was 
on the hook for damages. Today, though, some big companies have 
figured out they can hide behind a complex arrangement like 
subcontracts and franchises to dodge their legal 
responsibilities toward their workers.
    Here's how it works. The big parent company may 
functionally control every tiny detail of what the workers do, 
including how much they get paid, how they're trained, and when 
they get bathroom breaks. When, for example, an employee 
doesn't get paid legally required overtime, the big company 
steps back and dumps all the responsibility and the costs on 
the franchise owner even if the franchise owner was just doing 
what the big company forced him to do.
    For decades, going back to the 1960s and affirmed by both 
the Supreme Court and the NLRB, the law has been clear that 
there is some sort of joint employer test to determine when, 
for example, a parent company is really in charge of franchise 
employees. No one disputes that such an obligation exists. 
Instead, this dispute today is really about how much control is 
enough to hold a parent company responsible for what happens to 
employees in its franchises.
    Is that right, Mr. Babson?
    Mr. Babson. I think not.
    Senator Warren. You don't think this is a fact question 
that we're disputing here and that the underlying law has been 
clear for decades?
    Mr. Babson. With respect, Senator, I think your premise is 
misplaced. I have been representing, with the exception of my 
service at the NLRB, for most of my career I've been 
representing employers in these matters, and I will tell you 
during my service at the NLRB I found that in the overwhelming 
majority of cases, both employers and unions were trying to do 
the right thing.
    Senator Warren. I'm sorry, that was not my question, Mr. 
Babson. My question was----
    Mr. Babson. Your premise was--I'm sorry, Senator. I 
apologize. Sorry.
    Senator Warren. My question was are we all clear on the 
law? There is an obligation, when the employer has sufficient 
control, when the franchisor has sufficient control, then we 
have employees to whom they will be responsible and can be held 
legally responsible, and that the dispute we're having today is 
solely over the question of what the facts are that trigger 
that.
    Mr. Babson. That's correct.
    Senator Warren. Thank you.
    Mr. Babson. One of the things that troubled me about what 
Mr. Secunda said earlier about McDonald's, I don't know how he 
can say so blithely in response to Senator Franken that 
McDonald's is responsible----
    Senator Warren. Thank you, Mr. Babson.
    Mr. Babson. I don't know what the facts are, and I don't 
think he does either.
    Senator Warren. I just wanted to establish what I thought 
was a pretty straightforward rule of law that I think everyone 
agrees with, and I'm glad to hear that you agree. Then let's 
look at the facts. You raised the question of the facts.
    McDonald's requires franchise owners to install software on 
their computers that collects data on a daily basis on when 
each employee, each and every one of them, clocks in, when each 
employee clocks out, and how long it takes each employee to 
fill a customer's order.
    Domino's Pizza literally tracks the delivery times of each 
and every employee and decides which ones, employee by 
employee, meet Domino's test.
    Mr. Babson, in your view, is it clear that none of this is 
enough to raise even a factual question about whether the 
company is in control, and that the NLRB can't even ask that 
question based on those facts?
    Mr. Babson. Of course not. I've been practicing law too 
long, Senator, to tell you that there's not a question. That's 
why the complaint is issued. It's my understanding that the 
General Counsel not only has been arguing for a new test of 
this unexercised potential, but it is my understanding, and I 
believe the record will show, that the General Counsel was 
arguing even under the present test that McDonald's satisfies 
the employer----
    Senator Warren. Thank you, Mr. Babson. The question I am 
simply trying to drive at is whether or not there are enough 
facts here that the NLRB should be called on to rule about 
whether or not there is joint responsibility.
    Mr. Secunda, how do you see that?
    Mr. Secunda. Senator Warren, clearly there is enough here 
under the existing test, the common-law test, to look at that 
fact question. Unlike Mr. Babson, of course, with all due 
respect, this is not outside the statutory authority in any way 
of the NLRB.
    Senator Warren. OK, and let me just ask--I think you raised 
this point earlier--is the current NLRB test consistent with 
how joint employment relationships are determined under other 
major labor and employment statutes?
    Mr. Secunda. The current test is not. The one that was 
developed in 2002 under the Airborne case requires direct and 
immediate control. There is no such language in any other labor 
and employment statute when talking about common-law control 
over employees.
    Senator Warren. The NLRB has been unduly restrictive in 
this area.
    Thank you very much, Mr. Chairman. I appreciate it, and I 
appreciate the extra time.
    The Chairman. Thank you, Senator Warren.
    Senator Isakson.

                      Statement of Senator Isakson

    Senator Isakson. Mr. Chairman, I'd like to ask unanimous 
consent that a letter dated February 4, 2015 from the Asian 
American Hotel Owners Association be admitted for the record.
    The Chairman. It will be.
    [The information referred to may be found in Additional 
Material.]
    Senator Isakson. Thank you, Mr. Chairman.
    I have deep respect for the Senator from Massachusetts, but 
I want to take issue with the premise of her last question, 
which was for years American businesses found ways to avoid 
responsibility; i.e., franchising was one of the things that 
she mentioned. I'm not a franchisee and never was one. I ran a 
business, a sub-S corporation business, but we had independent 
contractors.
    I think franchising started out as an opportunity for a 
business to expand and grow a brand and a product and a 
service, and an opportunity for the middle class to own a piece 
of it that they never could own if they had to do it as a big 
business. In fact, there are a lot of people today in Congress 
talking about the middle class and how we've got to look out 
for the middle class. If you take away the ability or the 
incentives for corporations to franchise or in other ways to 
offer their opportunity to middle America, you're going to make 
the big guys bigger, and the small guys are going to be out of 
business.
    Mr. Moore, I would assume that would be true. Do you think 
so?
    Mr. Moore. I would, yes.
    Senator Isakson. Your business is a sub-S or a C corp?
    Mr. Moore. I'm sorry?
    Senator Isakson. You're a sub-S or a C corp?
    Mr. Moore. We're sub-S.
    Senator Isakson. Most businesses or franchises are sub-S. 
Am I correct?
    Mr. Moore. I think so.
    Senator Isakson. If you took the thinking behind this rule 
potential and plot it to the IRS, why wouldn't the IRS say, 
well, since McDonald's is a C corp, and they pay withholding, 
and they pay Social Security taxes on a quarterly basis, unlike 
what you do as an independent contractor, everybody who's got a 
franchise is a franchisee and McDonald's now has to do the same 
thing McDonald's does in terms of tax filings and withholding? 
Wouldn't that be an actual extrapolation of the same rule, just 
a different application?
    Mr. Moore. I could see that happening, yes.
    Senator Isakson. If you did that, it would make franchising 
almost impossible because it would take away the benefits of a 
small entrepreneur from being able to start a small business 
and grow it using a brand name that was established by a major 
corporation. Am I correct?
    Mr. Moore. Yes, sir.
    Senator Isakson. Mr. Babson, the definition of ``employer'' 
and ``employee'' under Taft-Hartley was passed by the Congress 
of the United States, correct?
    Mr. Babson. Yes, sir.
    Senator Isakson. It was not written by an unelected 
employee of the National Labor Relations Board. Is that 
correct?
    Mr. Babson. Yes, sir.
    Senator Isakson. I think that's the important thing. If 
this is a legitimate debate for Ms. Warren and I to have, and 
the other members of the Senate, it ought to be on the floor of 
the U.S. Senate in a piece of legislation. It ought not be 
defending ourselves against a ruling by an attorney working in 
a department of the Federal Government, and I think that's my 
main point on this issue. I don't argue with there may be 
points we ought to look at, but I don't think it should be 
dictated by the NLRB attorneys. I think we should decide as the 
Congress of the United States, just like we did in Taft-
Hartley, what the definitions are.
    Senator Warren, you wanted to say something. Since I 
mentioned your name, I should at least let you respond.
    Senator Warren. That's very kind. The only thing I'd say, 
then, is should we go back to the standard as it was before 
1984, the standard as it was described in the Supreme Court in 
1968, which was an ``all the relevant facts'' standard? It's 
the NLRB that actually changed the standard, tightened it, and 
put us where we are today. If we hadn't had interpretations 
from the NLRB that shifted it over time, I think we'd be fine 
with the original interpretation of congressional intent by the 
NLRB. Let's go there. That's all we're asking for.
    Senator Isakson. You may be correct. My only point is that 
congressional intent ought to be determined on the floor of the 
U.S. Senate or the U.S. House, not in some office building down 
the street on Connecticut Avenue.
    Mr. Chairman, I appreciate the time. Thank you.
    The Chairman. Thank you, Senator Isakson, Senator Warren.
    Senator Scott.

                       Statement of Senator Scott

    Senator Scott. Thank you, sir.
    I'd ask a question, just going back to Senator Warren's 
point, of Mr. Babson, because I actually have owned a 
franchise. The conversation that we're having seems to be 
inconsistent with the experience that I had.
    When we talk about the desire of McDonald's or Domino's to 
track the progress of the activities of a franchisee, what 
they're tracking is a system that creates a higher and more 
profitable corporation. They're not hiring the employees. 
They're not responsible for the employees' activities. They're 
not responsible for which employees are chosen. Is that 
accurate?
    Mr. Babson. I'm not familiar with the--all I really wanted 
to say, and again very respectfully to Senator Warren, in 
response to the question is, unlike Mr. Secunda, I'm not 
willing here today, based on bits and pieces of information, to 
make a conclusion that McDonald's is a joint employer with its 
franchisees. I can tell you during the time that I've worked 
for McDonald's franchisees, McDonald's scrupulously avoided 
becoming a joint employer by not getting involved in these very 
items.
    All I really wanted to say is that I'm not willing to make 
the same judgment.
    The second thing, Senator, that I think needs to be said is 
that the issue isn't whether or not the Board's test was 
correct or not in 1984 when the Board arguably tightened a 
rule, or whether it even applied the rule correctly. The test, 
and I think the concern of this committee, rightly so, is 
whether a standard as open and untethered as unexercised 
potential control of working conditions, or looking at economic 
relationships, again as Senator Isakson pointed out--in 1947 
the Congress was very clear. They were so upset in 1947 that 
the NLRB had embarked on economic analysis, on looking at the 
economic relationships between parties and determining unfair 
labor practices, that they put a specific provision in the 
statute, section 4(a), that prohibits the NLRB from engaging in 
the very kind of economic analysis that the General Counsel is 
now urging.
    Senator Scott. Thank you, sir.
    Mr. Moore, you're a franchisee, I understand.
    Mr. Moore. That's correct. Yes, sir.
    Senator Scott. There's a part of your franchisee experience 
that really confuses me, even as a franchisee, I understand 
that you have a location in Mt. Pleasant, SC?
    Mr. Moore. That's correct, yes.
    Senator Scott. Yet you live in another State.
    Mr. Moore. That's correct.
    Senator Scott. Have you ever been to Mt. Pleasant, SC? 
Because you would want to live in Mt. Pleasant.
    Mr. Moore. Actually, you should know that I lived in South 
Carolina in the early 1970s and enjoyed it very much.
    Senator Scott. Yes, sir. So you were once wise. This is 
good, this is good.
    [Laughter.]
    Mr. Moore. Thank you.
    Senator Scott. I would recommend that you come back home.
    Just let me ask you a question. Your relationship with your 
franchisor, do they hire your employees?
    Mr. Moore. No, sir.
    Senator Scott. When I owned my insurance agency, AllState 
Insurance Agency--God bless the ``Good Hands'' people--the fact 
of the matter is Allstate--I think we're on the same page 
finally here. This is good news for me.
    [Laughter.]
    Or maybe not good for me, actually.
    They never came into my office and interviewed a single 
employee. They never told me that I had to hire anyone. Those 
decisions were mine. We had processes in place for 
profitability that were important to the business system and 
the continuation of the brand that I worked under. The 
responsibility for employees was totally and specifically mine. 
Has that been your experience?
    Mr. Moore. Yes, sir. That's been the experience in all 
States that I've worked.
    Senator Scott. Two questions for you, one on labor and the 
other one on what you do as a franchisor. Mr. Moore, how can we 
expect businesses to grow and innovation to flourish if the 
Board is simultaneously shortening the timeframe for union 
elections down to as few as 10 days, allowing micro-unions in 
the workplace, and altering the definition of ``joint 
employer''?
    Mr. Moore. I'm really not prepared to address anything 
relative to the union. We've never experienced that in any of 
our operations, so I don't know that I could speak to that. 
I've heard some interesting conversations today about the 
unions and so forth, but our interest primarily has been the 
control of our business. That's what we're here for today, and 
that's what I'm concerned about.
    Senator Scott. A question for you, though, with the few 
seconds I have left, before you get into this question. In 
addition to your relationship with the franchisor, do you 
contract out for any additional services, such as janitorial, 
landscaping, or others where you could potentially find 
yourself in the position as a joint employer?
    Mr. Moore. No, sir.
    Senator Scott. Good. OK.
    Mr. Babson, I only have a few seconds left.
    Mr. Babson. I was just going to say very briefly in 
response to your question, I do think, Senator, that this is a 
cause for concern, the shortening of the time and eliminating 
the opportunity for campaigning, when we have the Supreme 
Court, liberal justices in the Supreme Court saying as recently 
as the Brown case that in this area, full and open debate on 
this issue of representation is important and essential; when 
we have a recent decision like the Purple Communications case 
in which the NLRB has essentially said that an employer's email 
systems must be turned over for organizing, I think that raises 
constitutional concerns; and now with the joint employer issue, 
it seems to me this is a triple-headed attack.
    It is true the statute is intended to encourage collective 
bargaining. It's not intended to guarantee it.
    Senator Scott. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Scott.
    We have a vote at 11:30. What I'd like to do is ask the 
witnesses if you have one last word, and by that I'm suggesting 
a sentence or two, that you'd like us to remember. Mr. Secunda, 
that will give you the last word. Then we'll see what Senator 
Murray has to say in closing remarks, and then we'll conclude 
the hearing. I thank Senator Warren and Senator Franken and 
Senator Scott for being here.
    Mr. Babson, any last word for us?
    Mr. Babson. Just very briefly, Mr. Chairman, I believe that 
this is not a zero-sum game. I've been involved in collective 
bargaining for a long time. I believe that collective 
bargaining works, but it works best when we have successful, 
efficient, effective business, and organizers and employees who 
are free to choose to organize or not.
    The Chairman. Mr. Moore.
    Mr. Moore. First of all, I'd like to thank you for the 
opportunity to be here and listen to the debate. I guess the 
only thing that I would be interested in, I heard the comment 
earlier, it would really be nice, I think something that's so 
critical to our business and the independence we enjoy is that 
it would really be nice to see that this would be settled in 
Congress and not by a Board that's been appointed.
    The Chairman. Thank you.
    Mr. Sims.
    Mr. Sims. I'd like to thank you for the opportunity first 
to testify today. My final point that I would like to make is 
that giving the franchisor less control would give no brand 
protection to the brand, which I believe would hurt consumers 
and would hurt me as a small franchisee. If the franchise can't 
protect its own brand, I think it's bad for business 
altogether. That's my comment.
    The Chairman. Mr. Secunda.
    Mr. Secunda. The economy is changing. The Board needs to 
reevaluate the economy based on those changes. It's the 
responsible thing to do. Nothing has been done yet. It's a 
fact-intensive process, and let the NLRB, which has been 
charged with this process, do what it's supposed to do.
    The Chairman. Thank you, sir.
    Senator Murray.
    Senator Murray. Thank you very much, Mr. Chairman. Thank 
you to all of our witnesses today. I really appreciate it.
    As Mr. Babson said, collective bargaining works, and I 
think that's the question before the NLRB today, which is 
whether or not it works under today's working conditions where 
if you are a McDonald's employee, there is no one to bargain 
with. That's the question that they're looking at.
    Clearly, with the two witnesses today, the facts of those 
cases would be extremely different looking at the NLRB. But 
that's not me. I'm not an attorney, and they would make those 
decisions.
    I think it is important to think about what Mr. Secunda 
just said. The workplace has changed, so there is nowhere for 
McDonald's employees to be able to go to say we need better 
working conditions, or is there a way for us to work together 
to get better working conditions. I think that is a relevant 
question for them, and we will see, through a very long 
process, where they come out at the end of this.
    I appreciate the hearing today and look forward to future 
discussions.
    The Chairman. Thank you, Senator Murray.
    I think it's correct that if the employees of a franchisee 
wanted to organize, they have every right to organize under the 
National Labor Relations Act. They have that right today under 
current law.
    We thank you for coming. This has been very helpful and 
it's been a good mix of views and well stated and good 
participation by the Senators.
    I used to be on the board of a large restaurant company, 
Ruby Tuesdays. It wasn't very big when I was on the board. They 
had six restaurants. It wasn't making any money at all. Now I 
think it has about 800. I've watched it over the years, and 
I've watched the difference between a company-owned store and a 
franchise store, and I see that difference. If the result of 
decisions that expand the joint employer standard is to make 
the franchisees mere managers of their store, that's going to 
be depriving people like Mr. Moore and Mr. Sims of a great 
American opportunity. If the result is to cause Ruby Tuesdays 
and auto plants in our State to bring in-house more services, 
the big guys will get bigger and the medium and small size guys 
will have less opportunities.
    I'll be watching this very carefully. I think we all will 
as the Senate, and we have different points of view. That's why 
we're all here.
    The hearing record will remain open for 10 days. Members 
may submit additional information and questions for the record 
within that time if they would like.
    Our next hearing on labor matters will be next Wednesday on 
the NLRB's new ambush rule.
    Thank you for being here.
    The committee will stand adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

 Prepared Statement of the American Hotel & Lodging Association (AH&LA)
    On behalf of the American Hotel & Lodging Association (AH&LA), the 
sole national association representing all sectors and stakeholders in 
the U.S. lodging industry, including owners, REITs, chains, 
franchisees, management companies, independent properties, suppliers, 
and State associations, we thank Chairman Lamar Alexander and Ranking 
Member Patty Murray for the opportunity to submit a statement for the 
record for the U.S. Senate Committee on Health, Education, Labor, and 
Pensions hearing entitled, ``Who's the boss? The Joint Employer 
Standard and Business Ownership.'' We appreciate the committee's 
attention to this critical issue facing the hospitality industry.
    The lodging industry is one of the Nation's largest employers. With 
nearly 2 million employees in cities and towns across the country, it 
generates $155.5 billion in annual sales from 4.9 million guestrooms at 
52,529 properties nationally. It's particularly important to note that 
this industry is comprised largely of small businesses with more than 
55 percent of hotels having 75 rooms or less.
    Our industry's strong growth, sales, and employment base are key 
reasons that lodging has helped lead our Nation's economic recovery 
with 52 steady months of growth. The lodging industry is a valuable 
contributor to the local and national economy, creating well-paying 
jobs and career opportunities for millions of people. Hoteliers strive 
each day to make sure those opportunities continue to grow. We are 
concerned, however, that recent and pending decisions from the National 
Labor Relations Board (NLRB) could jeopardize growth within the lodging 
sector, particularly in relation to the franchised segment of the 
industry which makes upwards of 80 percent of the more than 52,000 
lodging properties across the country.
    We appreciate the committee's interest in expected changes to the 
NLRB's joint employer standard. Recent actions by the government 
indicate changes to the standard are both likely and imminent, 
including the NLRB's May 12, 2014, announcement (the Notice and 
Invitation to file Briefs in Browning-Ferris Industries) that it is 
considering adopting a new joint employer standard, the NLRB's General 
Counsel Richard Griffin's June 26, 2014, brief in Browning-Ferris 
Industries recommending changes to the joint employer standard, and 
Griffin's announcement in December 2014 that he issued complaints 
against McDonald's USA for the actions of its franchisees. For over 30 
years, the franchisor/franchisee relationship has been based on the 
fundamental understanding that franchisors and franchisees are not 
joint employers, because they do not exercise direct control over the 
same employee's responsibilities and conditions of employment. 
Overturning this long understood standard will put the over 4 million 
employees within the hospitality industry at risk.
    The NLRB's General Counsel advocates for a change to the standard 
that simply fails to recognize that independent owners of franchised 
hotel properties are small business entrepreneurs. These local small 
business owners and leaders of their communities are the epitome of the 
American dream--pouring their life savings into building a business 
from the ground up. While these local business owners and entrepreneurs 
may pay a hefty ``brand'' fee to own a franchised property, they are 
the ones doing the hiring and firing, handling all personnel matters, 
setting the schedule, and conducting employee reviews; all the while 
trying to turn a profit and hopefully create more jobs. Independently 
owned, franchised hotels have a contractual licensing agreement with 
their franchisors, but they are neither an agent of the franchisor nor 
an employee of the franchisor. They are independent businessmen and 
women and carry the authority and responsibility that comes with that 
role. The franchisor exercises no direct control over personnel issues 
at any of their franchised properties.
    Moreover, changes to the joint-employer standard could drastically 
alter thousands of contractual agreements already in effect between 
franchisors and franchisees. If a franchisor were to be held liable for 
the actions taken by one of their franchisees, then the business 
relationship and the contracts that govern that relationship would have 
to be wholly revisited. In its most basic terms, the franchisor 
licenses and protects its brand, while the franchisee owns and operates 
a location of that brand as a licensee. The contractual relationship 
between the franchisor and franchisee does not extend to the H.R. and 
personnel policies implemented at each individual location.
    The General Counsel's recommended changes to the joint employer 
will serve only to destroy the franchisor/franchisee relationship as it 
currently exists and, thus, deprive thousands of small business 
entrepreneurs from starting locally owned and operated businesses and 
creating new jobs. At the same time, it would negate thousands of 
contractual relationships putting many more thousands of existing jobs 
at risk. This will serve only to erode the American dream of starting 
and growing a small business and create a disincentive for future job 
creators to create locally owned and operated businesses. AH&LA 
strongly urges the committee to protect the current joint employer 
standard and reject efforts by the NLRB and its General Counsel to 
drastically alter the franchisor/franchisee relationship as currently 
constituted.
                                 ______
                                 
           Asian American Hotel Owners Association,
                                          February 4, 2015.
Hon. Johnny Isakson,
U.S. Senate,
131 Russell Senate Office Building,
Washington, DC 20510.

    Dear Senator Isakson: We are writing on behalf of the Asian 
American Hotel Owners Association (AAHOA). As you may know, AAHOA is 
based in Atlanta, GA, and represents more than 14,000 small business 
owners nationwide. Our members own more than 40 percent of all hotels 
in the United States and employ nearly 600,000 workers, accounting for 
over $9.4 billion in annual payroll. As small business owners, our 
members consistently contribute to the economy through tourism, real 
estate development, job creation and community investment.
    We understand that the Senate Committee on Health, Education, 
Labor, and Pensions will hold a hearing entitled, ``Who's the Boss? The 
`Joint Employer' Standard and Business Ownership,'' this week. We 
strongly urge you and your colleagues to work to preserve the current 
definition of joint employer status, as any alteration in the current 
regime would adversely impact small businesses across the country.
    Nearly 70 percent of the over two million guest rooms owned by 
AAHOA members are located in franchised properties. The franchise 
business model has been essential in creating entrepreneurship 
opportunities for our members, who are nearly all first and second 
generation Americans. We fear the prospects for business ownership 
would be significantly limited if franchising were no longer available 
to AAHOA members.
    The franchising model in the lodging industry can provide 
considerable benefits to franchisees and in many markets, affiliating 
with a nationally recognized brand can be the difference in determining 
whether or not a hotel can succeed. Moreover, the franchising model 
succeeds for hoteliers because of the distinct responsibilities of 
franchisees and franchisors.
    Hotelier-franchisees are responsible for identifying a suitable 
market, applying for a franchise license, securing financing, 
purchasing land, acquiring insurance, establishing agreements with 
contractors, passing health and safety inspections, setting prices, 
determining staffing needs, understanding local laws and regulations, 
undertaking all of the financial risk, and running the daily operations 
of the business.
    Conversely, hotel franchisors' responsibilities include granting 
franchise licenses, providing guidelines for construction, interior and 
exterior design, conducting national marketing campaigns, developing 
training for management, furnishing software and services such as point 
of sales systems and reservation portals, and generally offering 
guidance to ensure consistency of brand quality.
    Typically, franchisors also charge a fee upwards of $50,000 for use 
of a brand name, or ``flag,'' as it is known in the industry, and 
monthly royalties of around 15 percent of the gross revenues of the 
business. The net profits earned by the business belong to the hotel 
owner.
    As hoteliers, we have come to depend on the franchise model as the 
most advantageous means to small business ownership. Consequently, we 
are deeply concerned that the NLRB's efforts to expand the definition 
of joint employer status will transfer control of small businesses from 
independent hotel owners and operators to large corporations. This loss 
of control will have devastating effects on employers, employees and 
the lodging industry. This expanded definition intimated by the NLRB 
would compel franchisors to take an active role in staffing decisions 
due to the potential for liability. Franchisees, including the majority 
of AAHOA members, would lose independence in decisionmaking and may 
effectively become employees of the franchisor.
    Currently, it is the hotel owner and operator who controls the day-
to-day operations of the property, including staffing decisions. 
Hoteliers exclusively establish working conditions, staffing needs, 
wages, promotions, benefits, schedules, evaluation metrics, raises and 
disciplinary procedures. Further, once the license agreement is signed, 
interactions with franchisors are fairly limited. Discussions usually 
involve the status of maintenance and renovations, compliance with laws 
and regulations, and availability of technology that can improve 
efficiency--generally, the topics focus on how to ensure a hotel 
property can continue to maintain the standards of quality that 
customers come to expect from a specific brand. Franchisors do not 
provide input on staffing decisions and certainly do not comment on 
specific employees.
    The new direction for joint employer status suggested by the NLRB, 
attributing liability for franchisees' employment decisions onto 
franchisors, will cause franchisors to exert control over the 
operations of the respective hotel properties in an effort to prevent 
legal action. Franchisors would begin to dictate policies on staffing 
decisions and hoteliers would be compelled to comply. Once this occurs, 
hoteliers would become the de facto employee of the franchisor, because 
they would be forced to follow someone else's directives.
    A new, essentially coerced partnership arrangement between 
franchisees and franchisors that would arise based on a new joint 
employer standard would devastate the industry, because the interests 
of both parties are particularly distinct. As franchisees, our 
interests are to ensure our individual properties are as successful as 
possible. That means growing, maintaining and developing a dedicated 
workforce. As hotel operators, intimately involved in the daily 
functions of the hotel, we know our staff members personally and 
understand their unique importance to the business. It is important to 
remember, most franchisors are public companies with different goals 
and motives than small business owners. As a result, franchisors value 
expenditures and investments differently than we do and our employees 
and staffs may suffer if new standards impose a new management 
structure.
    For example, under a new joint employer regime, there are easily 
conceivable circumstances where a disagreement on employment decisions 
exist between the franchisee and franchisor. At such an impasse, the 
franchisee may have to capitulate to the franchisor's judgment. 
Franchisors may also insist on reviewing or approving promotion 
criteria, wage increases, benefits, schedules and other staffing 
decisions. It would be extremely harmful to the business for a third 
party with a limited understanding of the culture of the specific 
property to encroach on the employer-employee relationship. The 
franchisor and franchisee relationship is certainly not without its 
frictions as a result of some conflicting interests, and oversight of 
this nature would only add strain to the relationship.
    A result of a more intrusive relationship caused by a new joint 
employer standard, hoteliers would lose the equity they have built in 
their businesses and for no other reason than the extreme decision of 
an unelected bureaucrat in Washington, DC.
    Further, an added role for franchisors may also cause them to raise 
franchising fees and royalties, or demand to participate in the net 
profits of the hotel. These outcomes are unsustainable for the lodging 
industry and frankly threaten to undo the entrepreneurial success of 
AAHOA members. Ultimately, if a new joint employer standard is adopted, 
AAHOA members would be discouraged to grow their businesses, create new 
employees or invest in their local communities.
    Expanding joint employer status would collapse the franchising 
model and extinguish aspirations of business ownership. Consequently, 
many good American jobs would be lost, or never created, because 
entrepreneurs do not want to simply manage some else's hotel.
    We strongly urge you to consider the tremendously adverse impacts 
on franchisees and workers when deliberating policy proposals 
associated with the definition of a ``joint employer.''
            Respectfully,
                                              Pratik Patel,
                                                          Chairman.
                                               Jimmy Patel,
                                                     Vice Chairman.
                                               Bruce Patel,
                                                         Treasurer.
                                             Bhavesh Patel,
                                                          Secretary
                                               Chip Rogers,
                                                 Interim President.

         Associated Builders and Contractors, Inc.,
                                      Washington, DC 20001,
                                                  February 4, 2015.
Hon. Lamar Alexander, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20515.

Hon. Patty Murray, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20515.

    Dear Chairman Alexander and Ranking Member Murray: On behalf of 
Associated Builders and Contractors (ABC), a national construction 
industry trade association with 70 chapters representing nearly 21,000 
chapter members, I am writing in regards to Thursday's full committee 
hearing, Who's the Boss? The ``Joint Employer'' Standard and Business 
Ownership. We applaud the committee for exploring this issue, which is 
of great concern to ABC members.
    On May 12, 2014, the National Labor Relations Board (NLRB or Board) 
issued an invitation to the public to file amicus briefs in the 
Browning Ferris Industries case, on whether the Board should revisit 
its 30-year-old joint employer standard. The unprecedented changes the 
Board is considering would redefine who qualifies as a ``joint 
employer'' under the National Labor Relations Act, potentially imposing 
unnecessary barriers to and burdens on the contractor and subcontractor 
relationships throughout the construction industry. Contractors may 
find themselves vulnerable to increased liability making them less 
likely to hire subcontractors, most of whom are small businesses, to 
work on projects.
    The NLRB under the Obama administration has continually issued 
radical decisions and rules threatening small business. The possibility 
of overturning decades of standards that have worked for both the 
contractor and the subcontractor is yet another example.
    Again, we thank you for exploring this important issue and look 
forward to working with Congress to protect hard working ABC members 
and the businesses they have built.
            Sincerely,
                                             Geoffrey Burr,
                                Vice President, Government Affairs.

                               Chamber of Commerce,
                                      Washington, DC 20062,
                                                 February 12, 2015.
Hon. Lamar Alexander, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20515.

    Dear Chairman Alexander: The U.S. Chamber of Commerce, the world's 
largest business federation representing more than three million 
businesses and organizations of every size, sector, and region, 
appreciates this opportunity to provide a statement for the record as 
part of the committee's February 5, 2015 hearing entitled ``Who's the 
Boss? The `Joint Employer' Standard and Business Ownership.'' The 
purpose of this letter is to provide you with a summary of our members' 
concerns regarding the National Labor Relations Board's efforts to 
overturn its long-standing ``joint employer'' standard.
    The National Labor Relations Act is a vital law which is designed 
to strike a balance between the rights of workers, employers and 
unions. Unfortunately, over the last few years, the Board has upset 
this delicate balance by overturning decades of precedent and pursuing 
one-sided regulatory initiatives. As detailed below, the Board's recent 
efforts to overturn its joint employer standard is simply the latest 
example of this radical policy shift. Consequently, we wish to thank 
you for holding a hearing on this important subject in particular and 
making NLRB oversight a priority. We look forward to working with you 
and other members of the committee on these issues in the coming 
months.
                               i. summary
    The National Labor Relations Board (``NLRB'' or ``Board'') is 
attempting to redefine what it means to be an employer. Through two 
separate vehicles, the Board and its General Counsel are attempting to 
upend the Board's longstanding ``joint employer'' standard. This is a 
complicated but important issue that will have a significant impact on 
Chamber members and the business community in general.\1\
---------------------------------------------------------------------------
    \1\ In light of this concern, on March 5, 2015, the Chamber will be 
hosting a conference entitled, The NLRB and the Joint-Employer 
Standard: New Interpretations, New Liabilities and the Impact On Other 
Statutes.
---------------------------------------------------------------------------
    While the Board's recent joint employer allegations involving 
McDonald's have received much of the attention, a change in the joint 
employer standard would have the potential to extend far beyond the 
circumstances of those cases, and threatens to impact any business 
which uses non-traditional workplace arrangements (e.g., franchise 
arrangements, temporary workers, subcontractors, etc.). Countless 
industries would be impacted by the Board's actions. They include, but 
are not limited to, restaurants and other franchises, construction, 
healthcare, hospitality, employment services companies and logistics 
companies.
    As explained more thoroughly below, if the Board is successful in 
changing the joint employer standard, businesses that franchise or use 
subcontractors or temporary workers will be susceptible to increased 
liability and litigation. Worse, a bad ruling by the Board could 
permeate other areas of employment law such as wage, hour and workplace 
discrimination law.
          ii. the board's current ``joint employer'' standard
    Under the National Labor Relations Act, two separate and 
independent business entities are considered ``joint employers'' when 
they ``share or codetermine those matters governing the essential terms 
and conditions of employment.'' Laerco Transportation, 269 NLRB 324, 
325 (1984). For example, a factory owner may be considered the ``joint 
employer'' of janitorial workers who perform services in the factory 
but who are directly employed by a separate outside vendor if the 
factory owner participates in the hiring, firing and discipline of the 
workers, sets their work schedules, and directs and supervises the work 
to be performed.\2\
---------------------------------------------------------------------------
    \2\ In this way, the phrase ``joint employer'' should not be 
confused with ``single employer''--a similar but different labor law 
term of art--which addresses the question of whether two supposedly 
separate employers are actually one employer. The test for determining 
whether two entities are actually the same, ``single employer'' 
involves an analysis of the following factors: (1) inter-relation of 
operations; (2) common management; (3) centralized control of labor 
relations; and (4) common ownership or financial control. See, e.g., 
NLRB v. Browning-Ferris Industries, Inc., 691 F.2d 1117, 1122 (3d Cir. 
1982).
---------------------------------------------------------------------------
    For over 30 years, the Board has maintained a clear test for 
determining whether two separate companies are joint employers.\3\ The 
test is whether the putative joint employer\4\ exercises direct and 
immediate control over the employees at issue. This direct control is 
generally understood to include the ability to hire, fire, discipline, 
supervise and direct.\5\ The test is very fact-intensive and no one 
factor is particularly more compelling or persuasive than another.
---------------------------------------------------------------------------
    \3\ ``Prior to 1982 when the United States Court of Appeals for the 
Third Circuit decided NLRB v. Browning-Ferris Industries, 691 F.2d 1117 
(3d Cir. 1982), the Board's analysis of what constituted a joint 
employer relationship was somewhat more amorphous.'' The Goodyear Tire 
& Rubber Co., 312 NLRB 674, 676 (1993).
    \4\ For purposes of this document, the phrase ``putative joint 
employer'' shall refer to the employer which is alleged to meet the 
legal standards of constituting a joint employer.
    \5\ The test adheres to the agency principles that Congress 
instilled in the Taft-Hartley Act in 1947, which changed the definition 
of ``employer'' from ``any person acting in the interest of the 
employer,'' to ``any person acting as an agent of the employer.'' 29 
U.S.C. Sec. 152(2)(emphasis added).
---------------------------------------------------------------------------
    Over the years, employers, employees and unions have come to rely 
upon the predictable application of the standard, and the Board has 
rejected several efforts to upend this consistent standard. The result 
is 30 years of unbroken NLRB jurisprudence which holds that two 
entities are ``joint employers'' only when they share direct and 
immediate control over the same employees. For example, even where 
there is evidence of integration of certain operations between a 
putative joint employer and a direct employer, the Board and Federal 
courts have found that two entities were not joint employers in the 
following situations:

     Where the putative joint employer owned the facility used 
by the direct employer, placed its logo on the uniforms and trucks of 
the workers, and provided equipment necessary for the work. Airborne 
Express, 338 NLRB 597 (2002).
     Where the putative joint employer engaged in ``limited and 
routine'' supervision of work and retained the contractual right to 
approve hires by the direct employer. AM Property Holding Corp., 350 
NLRB 998, 1000 (2007).
     Where the putative joint employer engaged in ``limited 
supervision'' of the direct employer's employees and also participated 
in collective bargaining. AT&T v. NLRB, 67 F.3d 446, 451-52 (2d Cir. 
1995).

    In each of these cases, there was no finding of joint employer 
status because the two companies did not share direct and immediate 
control over the terms and conditions of employment. On the other hand, 
where two entities share a sufficient degree of control and direction 
over the employees at issue, the Board has found that the joint 
employer standard was met in the following cases:

     Where the putative joint employer disciplined, terminated, 
and set work assignments of the direct employer's employees and also 
participated in decisions involving employee incentive awards. Aldworth 
Co., 338 NLRB 137, 140 (2002).
     Where the putative joint employer hired the direct 
employer's employees, authorized their overtime and ``conducted an 
informal grievance meeting concerning one of the employees.'' Computer 
Assoc. Int'l, Inc., 332 NLRB 1166, 1167 (2000).
     Where the putative joint employer, in addition to other 
indicia of control, ``through the constant presence of the site 
superintendents and a high degree of detailed awareness and control of 
unit employees' daily activities, exercise[d] substantial supervisory 
authority over unit employees.'' Quantum Resources Corp., 305 NLRB 759, 
760 (1991).

    There are good policy reasons why the current standard has been in 
place for over 30 years. The current standard ensures that the putative 
joint employer is actually involved in matters that fall within the 
Board's purview, to wit, the employment relationship. Accordingly, the 
putative joint employer is required to come to the bargaining table 
only when it actually controls terms and conditions of employment--the 
very issues that will be the subject of bargaining.
    As explained more fully below, depending on the circumstances, a 
large company may have contractual relationships with hundreds or 
thousands of franchisees, vendors and contractors. The current direct 
control test ensures that such companies will not be embroiled in labor 
negotiations or disputes involving employees and workplaces over which 
they have little or no control. Indeed, it makes sense to impute 
liability--as the current standard does--only in those cases in which 
an employer is in a position to investigate and remedy unlawful 
actions.
      iii. current board efforts to upend the joint employer test
A. The McDonald's and Browning-Ferris Cases
    Since the establishment of the current well-defined standard, labor 
unions and their allies on the Board have advocated a return to a 
looser, ambiguous joint employer test which would make it easier to 
enmesh multiple employers in labor disputes and organizing campaigns. 
See Airborne Express, 338 NLRB at 597 n. 1 (rejecting then-Member 
Liebman's suggestion to revisit joint employer standard). Now, however, 
with the rise of worker centers\6\ and a locked-in Democrat majority at 
the Board, there is a new concerted effort by the NLRB to topple the 
existing standard. The Board is trying to change the current standard 
through two different cases:
---------------------------------------------------------------------------
    \6\ See, The New Model of Representation: An Overview of Leading 
Worker Centers, http://www.workforcefreedom.com/sites/default/files/
WFI%20Worker%20Center%20Study%20-
%20New%20Model%20of%20Representation.%20Final%20version%20downloaded%202
.20.14.pdf; The Emerging Role of Worker Centers in Union Organizing, 
http://www.workforce
freedom.com/sites/default/files/WFI%20Manheim%20Study%2011-21-2013.pdf; 
Labor Organizations by Another Name, http://www.fed-soc.org/
publications/detail/labor-organizations-by-another-name-the-worker-
center-movement-and-its-evolution-into-coverage-under-the-nlra-and-
lmrda.

     McDonald's. On July 29, 2014, the Board's Division of 
Advice recommended that the General Counsel issue complaints against 
McDonald's USA LLC for the employment decisions of individually owned-
and-operated franchised restaurants. The pending complaints stem from 
charges filed by employees who claim that their rights were violated 
when they were disciplined for walking off the job to support minimum 
wage protests orchestrated by the Service Employees International Union 
(SEIU). In filing the charges against the individually owned McDonald's 
franchisees, these charges also named McDonald's USA LLC as a joint 
employer. The recommendation upends decades of established Board law 
governing joint employers and has applications beyond both the 
franchise model and the NLRA. Following this recommendation, on 
December 19, 2014, the NLRB's Office of General Counsel announced that 
it issued complaints against McDonald's franchisees and their 
franchisor, McDonald's USA, LLC, as joint employers. The complaints 
allege various violations of the NLRA and were issued from 13 different 
NLRB Regional Offices. According to the NLRB, absent settlement, 
hearings in these cases will begin on March 30, 2015.
     Browning-Ferris. At the same time that the decision to 
issue complaints against McDonald's USA LLC was likely being formulated 
in the General Counsel's office, the Board took its own steps to 
reconsider the current joint employer standard. In Browning-Ferris, 
Leadpoint Business Services provided workers to perform recycling and 
cleaning duties at a facility operated by Browning-Ferris. The 
Teamsters filed a representation petition, asking the Board to hold an 
election of employees of both Leadpoint and BFI, claiming that the two 
entities were joint employers. The NLRB Acting Regional Director 
applied the existing joint employer test and determined that Leadpoint 
was the sole employer of the employees at issue. The union appealed the 
Acting Regional Director's ruling to the Board, claiming that BFI and 
Leadpoint were joint employers under the current standard, and that if 
they were not, the Board should reconsider the standard. The Board has 
invited stakeholders to submit comments on whether a change in the 
standard is appropriate.\7\
---------------------------------------------------------------------------
    \7\ The Chamber submitted an amicus brief here: http://
www.chamberlitigation.com/sites/default/files/cases/files/2014/
U.S.%20Chamber%20Amicus%20Brief%20-%20Browning%20Ferris
%20Industries%20of%20California%20%28NLRB%29.pdf. Additionally, the 
Chamber signed on to the brief submitted by the Coalition for a 
Democratic Workplace here: http://myprivateballot
.com/wp-content/uploads/2012/10/Brown-Ferris-Brief-Amici-Curiae.pdf.

    Both the McDonald's and Browning Ferris cases indicate the Board's 
clear intention to overturn its current joint employer test in favor of 
a looser test that will have a negative impact on employers. Such a 
standard will result in instability and uncertainty.
B. The Board's Likely New Standard
    As noted above, the Board has not actually decided anything yet or 
articulated a new standard. However, the amicus brief submitted by the 
Board's General Counsel in the Browning-Ferris case likely foreshadows 
what the new joint employer standard may be. In the brief, the General 
Counsel proposes the following test for establishing joint employer 
status:

        ``[W]here, under the totality of the circumstances, including 
        the way the separate entities have structured their commercial 
        relationship, the putative joint employer wields sufficient 
        influence over the working conditions of the other entitity's 
        employees such that meaningful bargaining could not occur in 
        its absence''

    See General Counsel brief at page 17.
    The brief advocates ``a return to the Board's traditional 
approach'' which, in the past, the Board itself has described as 
``amorphous.'' \8\ Rather than the existing standard which focuses on 
the direct and immediate control of the employees, the General Counsel 
proposes finding joint employers even when there is only indirect 
control of employees.
---------------------------------------------------------------------------
    \8\ See Footnote 2, supra.
---------------------------------------------------------------------------
    This ``indirect control'' standard means that joint employer status 
could be found simply through the existence of a contractual agreement 
between a company and its contractor or vendor. For example, the 
structure of certain contracts may result in the putative joint 
employer influencing the direct employers' operations by setting 
certain production or safety standards or wage reimbursement rates. In 
such a situation, the General Counsel's argument goes, ``meaningful'' 
collective bargaining cannot occur absent the participation of the 
putative joint employer.\9\ Essentially, almost any economic or 
contractual relationship could trigger a finding of joint employer 
status under the proposed new standard.
---------------------------------------------------------------------------
    \9\ Proponents of the indirect control standard continue to advance 
this line of reasoning despite the fact that the Board has ruled that 
vendors, suppliers and contractors are free to pay wage rates that are 
higher than the reimbursement rates provided for in their agreements 
with the putative joint employer. See Management Training Corp., 317 
NLRB 1355, 1356 (1995). In fact, the Regional Director in Browning-
Ferris noted that the direct employer was not prohibited from paying 
its employees over and above the reimbursement levels in its contract 
with Browning-Ferris. See Decision and Direction of Election, 32-RC-
109684, pg. 15.
---------------------------------------------------------------------------
   iv. impact of a change in the joint employer standard on employers
    The NLRB's actions in both McDonald's and Browning-Ferris will have 
direct impacts in the labor law context. Some potential direct negative 
impacts of a joint employer standard which focuses on ``indirect 
control'' include the following:

    1. Corporate Campaigns. Being able to characterize large, well-
known businesses as the ``employer'' of a targeted group of workers who 
are employed by smaller, lesser-known businesses, will encourage unions 
to launch very public organizing campaigns in hopes that the larger 
employer will bend to public pressure and recognize the union. A 
national card check/neutrality agreement extracted from a nationally 
recognized brand could be used to quickly organize smaller local 
affiliates or franchisees.
    2. Liability under the National Labor Relations Act. The putative 
joint employer would be liable for labor violations committed by the 
direct employer, even though the putative joint employer exerts no 
control over the employees of the direct employer or how the direct 
employer manages its labor relations.
    3. Collective Bargaining. If the direct employer is organized, the 
putative joint employer would have to participate in collective 
bargaining. Depending on the circumstances, the putative joint employer 
could be dragged into bargaining relationships with hundreds of 
entities over whose day-to-day operations they have no control. The 
union could require the putative joint employer to supply information 
relevant to bargaining, including wage and benefit data for its 
employees.
    4. Secondary boycotts. The NLRA's prohibition on secondary boycotts 
means that if a union has a dispute with one employer (e.g., a 
janitorial services company), it cannot entangle other employers in the 
dispute (e.g., the factory owner that contracts with the janitorial 
services company). This distinction would likely be eviscerated under 
the potential new standard, and unions could picket and demonstrate 
against both entities.
    5. Effects Bargaining. Under the NLRA, unionized employers retain 
the inherent managerial right to unilaterally determine whether to 
downsize or shutdown its business. However, the law requires the 
employer to bargain about the decision's effects on unit employees. 
Accordingly, an employer must provide the union with notice of such a 
decision, as well as an opportunity to bargain about issues such as 
severance pay, or health coverage for displaced workers. See First 
National Maintenance Corp. v. NLRB, 452 U.S. 666 (1981). Under a new 
joint employer standard, should an entity wish to terminate an existing 
services contract for whatever reason--such as poor performance or to 
reduce costs--it could be required to engage in effects bargaining with 
the union who represents the workers who are employed by that 
particular service provider. See W.W. Grainger, 286 NLRB 94, 97 (1987). 
This will erode both economic competition and employers' flexibility.
       v. potential ramifications under other employment statues
    Furthermore, although a new test established by the NLRB would not 
be binding on other agencies, it will likely be persuasive, and the new 
expansive standard could be applied by the Department of Labor, the 
Equal Employment Opportunity Commission and other agencies' enforcement 
efforts. Plaintiffs' attorneys will also be eager to explore how they 
may exploit a new standard. If the current joint employer standard is 
relaxed, some negative effects beyond the NLRA include the following:

    1. Threshold employer coverage. Many statutes, such as Title VII of 
the Civil Rights Act of 1964 and the Americans with Disabilities Act 
have small business exceptions and only apply if an employer has a 
certain number of employees. By loosening the joint employer standard, 
employer coverage under such statutes will explode.\10\ This would 
essentially eliminate carefully negotiated small business exceptions in 
these Federal statutes.
---------------------------------------------------------------------------
    \10\ See EEOC Compliance Manual, Section 2: Threshold Issues (``To 
determine whether a respondent is covered, count the number of 
individuals employed by the respondent alone and the employees jointly 
employed by the respondent and other entities. If an individual is 
jointly employed by two or more employers, then s/he is counted for 
coverage purposes for each employer with which s/he has an employment 
relationship.'')
---------------------------------------------------------------------------
    2. Discrimination law. In its amicus brief submitted in the 
Browning-Ferris case, the EEOC notes that ``the Board's joint employer 
standard influences judicial interpretation of Title VII.'' If the 
Board adopts a new, looser joint employer standard, this might 
encourage both the EEOC and the plaintiffs' bar to stretch the bounds 
of the law in an effort to entangle more employers in discrimination 
lawsuits.\11\ Perhaps already trying to take advantage of pending 
McDonald's cases at the NLRB, on January 22, 2015, 10 employees at 
three different McDonald's locations in Virginia filed a lawsuit 
alleging race discrimination and sexual harassment under title VII, and 
named as defendants not just the individual local restaurants, but also 
McDonald's corporate. See Betts v. McDonald's Corp., et al., Case No. 
4:15-cv-00002 (W.D. Va. Jan. 22, 2015). Lawsuits like this one are 
likely to become more frequent should the Board adopt the General 
Counsel's proposed ``indirect control'' test.
---------------------------------------------------------------------------
    \11\ By now, it has been well-documented that the EEOC is more than 
willing to pursue questionable litigation theories. See ``Part II: 
EEOC's Unsuccessful 2013 Amicus Program'' in U.S. Chamber, ``A Review 
of EEOC Enforcement and Litigation Strategy During the Obama 
administration--A Misuse of Authority.'' June 2014, https://
www.uschamber.com/sites/default/files/documents/files/
021449_LABR%20EEOC%20Enforcement%20Paper.pdf.
---------------------------------------------------------------------------
    Importantly, compensatory damages are capped under title VII, and 
the caps generally increase as the number of employees increases. Thus, 
the plaintiff 's bar will be encouraged to establish joint employer 
status because doing so could increase the number of employees, thereby 
increasing the amount of available damages.
    3. Wage and Hour issues. Employers who use subcontractors may be 
liable for the subcontractor's wage-and-hour violations if it is 
determined they are a joint employer of the employee. Because of the 
broad definitions in both the Fair Labor Standards Act and its 
implementing regulations, most Federal courts already use a more 
expansive ``economic realities'' test in wage and hour cases.\12\ 
However, some circuits' tests are more restrictive than others and all 
tests focus on the element of control. Accordingly, both the Wage & 
Hour Division and the plaintiffs' bar will likely look to see how they 
may exploit any new joint employer standard adopted by the Board. It is 
no secret that the current Wage and Hour Administrator, David Weil, has 
a strong distaste for alternative workplace arrangements.\13\
---------------------------------------------------------------------------
    \12\ A similar test is used with regard to Family and Medical Leave 
Act cases. See Moreau v. Air France, 356 F.3d 942 (9th Cir. 
2004)(applying FLSA joint employer factors in an FMLA case to conclude 
that Air France was not a joint employer with various ground handling 
service companies and therefore exempt from scope of FMLA). However, 
``only the primary employer is responsible for giving required notices 
to its employees, providing FMLA leave, and maintenance of health 
benefits.'' 29 CFR 825.106(c).
    \13\ See David Weil, Enforcing Labor Standards in Fissured 
Workplaces: The U.S. Experience, 22 The Econ. & L. Rel. Rev. 33, 44 
(2011)(``Strategic enforcement should therefore focus on higher-level, 
seemingly more removed business entities that affect the compliance 
behaviour `on the ground' where vulnerable workers are actually 
found'').
---------------------------------------------------------------------------
    4. Occupational Safety and Health Administration (OSHA) issues. An 
expansion of the joint employer standard may also provide an 
opportunity for OSHA to ratchet up fines against a parent company for 
repeated violations. For example, the same safety violation occurring 
at several different franchisees could be considered repeat violations 
if the franchisor is considered to be a joint employer with each of the 
franchisees. Also, OSHA has recently launched an effort to target 
workplaces that use outside sources for their workers such as temporary 
staffing agencies or services. If the new joint employer model 
advances, OSHA's ability to cite the host employer would be enhanced 
which could be used by unions as leverage against employers who have 
been targeted for organizing.
    5. Affordable Care Act Issues. Under the health care law's employer 
mandate, any employer with 50 or more ``full-time equivalent 
employees'' (FTEs) must provide a certain mandated level of health care 
coverage to all full-time employees and their dependents, or 
potentially face a penalty. The employer mandate takes effect in 2015 
for businesses with 100 or more FTEs, and in 2016 for businesses with 
50 to 99 FTEs. If the current joint employer standard is changed, 
individual franchises falling well below the employer mandate threshold 
and small businesses that depend on independent contractors or 
temporary workers could soon have to comply with the employer mandate's 
requirements. They would not only be on the hook for providing coverage 
to all of their full-time employees (and dependents), but would also 
have to ensure that the coverage meets the new affordability and 
minimum value standards of the ACA. Since the formula for determining 
FTEs includes full-time employees and hours worked by part-time 
employees, figuring out if these new ``joint employer'' entities are 
subject to the employer mandate will be an extreme burden because the 
requisite record keeping by each organization involved may not be 
complete. The franchise and temporary worker/subcontractor communities 
will be particularly hit hard since they use high numbers of part-time 
workers that might now be considered ``full-time'' under the new 
definition of full-time work in the ACA as 30 hours per week.
    6. Blacklisting in Federal Contracting. On July 31, 2014, President 
Obama signed Executive Order 13673, ``Fair Pay and Safe Workplaces,'' 
which seeks to use the Federal procurement process as a vehicle to 
create additional remedies for labor and employment law violations.\14\ 
The Order would require Federal contractors and subcontractors seeking 
to obtain Federal contracts or subcontracts worth $500,000 or more to 
disclose violations that occurred within the last 3 years. The 
reportable violations include ``administrative merits determinations,'' 
``arbitral awards or decisions,'' and ``civil judgments'' issued under 
the following 14 Federal labor employment laws and their State 
equivalents:
---------------------------------------------------------------------------
    \14\ The Chamber has been steadfast in its opposition to Federal 
contracting blacklisting proposals. See, e.g., Randel K. Johnson, U.S. 
Chamber of Commerce, Comments on U.S. Department of Agriculture Direct 
Final Rule (DFR)( 76Fed. Reg. 74,722) and Notice of Proposed Rulemaking 
(NPRM)( 76 Fed. Reg. 74,755) covering ``Labor Law Violations'' (RIN 
0599-AA19) (January 24, 2012). Available at: https://www.uschamber.com/
sites/default/files/documents/files/120124
usdablistcommentsDFR.pdf.

    a. Fair Labor Standards Act
    b. Occupational Safety and Health Act of 1970
    c. Migrant and Seasonal Agricultural Worker Protection Act
    d. National Labor Relations Act
    e. Davis-Bacon Act
    f. Service Contract Act
    g. Executive Order 11246 of September 24, 1965 (Equal Employment 
Opportunity)
    h. Section 503 of the Rehabilitation Act of 1973
    i. Vietnam Era Veterans' Readjustment Assistance Act of 1974
    j. Family and Medical Leave Act
    k. Title VII of the Civil Rights Act of 1964
    l. Americans with Disabilities Act of 1990
    m. Age Discrimination in Employment Act of 1967
    n. The President's February 12, 2014 Federal contractor minimum 
wage Executive Order (No. 13658)

    During the bidding process, the contracting officer will then take 
these violations more closely into account when evaluating whether the 
company satisfies the requirement for having a satisfactory record of 
integrity and business ethics. The phrase ``administrative merits 
determinations'' could include NLRB General Counsel complaints, EEOC 
cause determinations and other non-final agency actions. This nebulous 
reporting requirement is bad enough on its own, but becomes worse when 
contemplating the Board's current actions. For example, an expansion of 
the joint employer concept could require a contractor to report, as 
part of the Federal contract bidding process, on labor or wage and hour 
violations committed by the vendors with whom it contracts to supply 
cleaning or security services. Considering that Federal contractors 
likely have hundreds or thousands of relationships with subcontractors 
and vendors, a change in the joint employer standard will exacerbate 
the bad policy results of the Executive order.
                          vi. economic impacts
    In an increasingly competitive economy, companies make decisions on 
a daily basis to adapt, change and find unique advantages over their 
competitors. As part of this decisionmaking, companies often find that 
certain functions of the workplace--such as logistics, information 
technology, human resources, etc.--can be more efficiently performed by 
an outside vendor. The Board's current joint employer test strikes the 
right balance in these situations by allowing the putative joint 
employer the ability to monitor and oversee the performance of its 
subcontractors and vendors, while ensuring that employees have a right 
to bargain with the employer that actually controls the terms and 
conditions of employment.
    Unfortunately, these contractual relationships would become less 
attractive under a new joint employer standard, as a company could be 
considered a joint employer simply for setting operational or 
performance standards in an agreement with a vendor or supplier. 
Because myriad liabilities and obligations--including the duty to 
bargain--attach to a finding of joint employer liability, employers 
could respond in very different ways.
    First, some employers may determine that, as long as they are going 
to be held liable for the actions of their subcontractor or vendor, 
they must exert more control over the day-to-day operations of the 
vendor. The McDonald's case illustrates how this could be particularly 
devastating to both franchisors and franchisees. Franchisors would have 
to exert themselves into the decisionmaking process regarding issues 
such as hiring/firing, compensation, training, and labor costs. Even if 
this were possible for certain franchisors, the costs of exerting this 
control would be astronomical. For the franchisees, they would be 
relegated to partners or employees of a business over which they worked 
so hard to build.\15\ Ultimately, this would discourage both existing 
companies and entrepreneurs from participating in the franchise 
business model.
---------------------------------------------------------------------------
    \15\ See testimony Mr. Gerald F. Moore, Franchise Owner, The Little 
Gym. ``Who's the Boss? The `Joint Employer' Standard and Business 
Ownership.'' Senate Committee on Health, Education Labor & Pensions, 
February 5, 2015.
---------------------------------------------------------------------------
    Conversely, employers could try to avoid a finding of joint 
employer liability altogether by further distancing themselves from 
their subcontractors. This could have unintended negative consequences 
as employers might choose to remove certain labor, safety or 
environmental standards from the agreements with subcontractors in 
order to avoid a joint employer finding.
    Finally, employers could choose to cancel or eliminate these 
relationships which will most directly impact small businesses and 
independently owned operations. Ultimately, the ``indirect control'' 
test as advanced by the General Counsel and union in the Browning-
Ferris case would limit employer flexibility and competition at a time 
when the economy continues to experience anemic economic growth.
    vii. changing the joint employer standard is the latest example 
                        of the board's overreach
    Of course, the Board's efforts to upend its joint employer standard 
do not occur in a vacuum. Rather, this is just the latest attempt by 
the Board and the Administration to dramatically overhaul labor law in 
favor of their union allies. Set forth below are several examples of 
such actions taken by the Board and the Administration.

     Unconstitutional Appointments to the Board. In June 2014, 
the Supreme Court in Noel Canning unanimously ruled that President 
Obama exceeded his constitutional authority when he appointed Sharon 
Block and Dick Griffin to the NLRB while the Senate was in session.\16\ 
During their time as unconstitutionally appointed members of the Board, 
Griffin and Block participated in numerous decisions which departed 
radically from Board precedent and which were harmful to the employer 
community. Making matters worse, Griffin in now the Board's General 
Counsel and Block was re-nominated to serve as a member of the Board, 
though her re-nomination was eventually withdrawn.
---------------------------------------------------------------------------
    \16\ The U.S. Chamber Litigation Center represented Noel Canning, a 
member of the Chamber, in the Supreme Court, and served as co-counsel 
to Noel Canning alongside the law firm Jones Day.
---------------------------------------------------------------------------
     Ambush Elections. The Board issued its final ``ambush'' 
election regulation on December 12, 2014, just prior to the December 16 
expiration of Democrat Board Member Nancy Schiffer's term. The changes 
to the Board's election procedures will dramatically shorten the time 
period between the filing of a representation petition and the actual 
election. It will also require employers to hand over to union 
officials and the NLRB personal contact information about employees, 
even if the employees wish to keep such information private. Like the 
Employee Free Choice Act, the goal of the proposal is to limit an 
employer's ability to communicate with its employees about the pros and 
cons of unionization. Given that the Board's own statistics demonstrate 
that 94% of elections are held within 56 days, this endeavor is nothing 
more than a sop to the labor unions whose membership numbers continue 
to crater.\17\ The committee's hearing on February 11, 2015, entitled 
``Ambushed: How the NLRB's New Election Rule Harms Employers & 
Employees,'' detailed the serious negative consequences that the 
Board's rule will have on both employers and employees.\18\
---------------------------------------------------------------------------
    \17\ The Chamber's comments to the Board's ambush election proposal 
are here: https://www.uschamber.com/sites/default/files/documents/
files/NLRB%202011%200002%20US%20
Chamber%20of%20Commerce.pdf.
    \18\ The Chamber's testimony at the hearing is here: https://
www.uschamber.com/sites/default/files/
chamber_testimony_on_ambush_elections_mark_carter_-_final_2-11-2015
.pdf.
---------------------------------------------------------------------------
     Fractured Workplaces. The Board has overturned it's long-
standing criteria for determining an appropriate bargaining unit under 
the NLRA. Under Specialty Healthcare and its progeny, unions can now 
gerrymander bargaining units into very small micro-units of known union 
adherents. This has already lead to a Balkanizaton of the 
workforce,\19\ and will potentially saddle an employer with multiple 
unions, multiple bargaining agreements (with potentially different pay 
scales, benefits, work rules, bargaining schedules, and grievance 
processes for similarly situated employees) and increased chances of 
work stoppages.\20\
---------------------------------------------------------------------------
    \19\ See Macy's, 361 NLRB No. 4 (2014)(finding appropriate the 
union's petitioned-for unit of only the cosmetics and fragrance 
employees at a Macy's department store).
    \20\ The Chamber's amicus brief which urged the U.S. Circuit Court 
of Appeals for the 6th Circuit to overturn Specialty Healthcare is 
here: http://www.chamberlitigation.com/sites/default/files/cases/files/
2012/Kindred%20Nursing%20Centers%20East%2C%20LLC%2C%20fka%20
Specialty%20Healthcare%20v.%20NLRB%2C%20et%20al.%20%28NCLC%20Amicus%20Br
ief%
29.pdf.
---------------------------------------------------------------------------
     Mandatory, Biased Posters. In an ill-advised rulemaking, 
the Board attempted to promulgate a regulation which would have 
required employers to post a biased notice of labor rights in their 
workplaces. The regulation created a new unfair labor practice out of 
whole cloth for an employer's failure to post the notice. Fortunately, 
the Federal courts prevented the Board's power grab, as one Federal 
court of appeals--in a case filed by the Chamber--ruled that the Board 
had no statutory authority to issue the regulation,\21\ and another 
court of appeals ruled that the regulation violated the First 
Amendment.
---------------------------------------------------------------------------
    \21\ The opinion of the U.S. Circuit Court of Appeals for the 4th 
Circuit is here: http://www.chamberlitigation.com/sites/default/files/
cases/files/2011/Opinion%20--%20Chamber
%20of%20Commerce%20et%20al%20%20v%20%20NLRB%20%28Posting%20Rule%29%20%28

Fourth%20Circuit%29.pdf.
---------------------------------------------------------------------------
     Union Access to Employer Email. In a case called Purple 
Communications, issued in December 2014, the NLRB ruled that once an 
employee is given access to company email, he or she may generally use 
that email for union organizing during non-working time. This ruling 
infringes on employers' property interests to prohibit personal use of 
its email system in order to maintain production, ensure protection 
from computer viruses, and limit its exposure to legal liability.
     Expansive Application of Section 7. The Board has 
undertaken a specific agenda which is intended to severely limit 
employers' abilities to effectuate rules and policies in their 
workplaces. The Board has accomplished this by expanding its 
interpretation of ``protected activity'' under Section 7 of the 
National Labor Relations Act (NLRA or Act). In this way, the Board has 
dramatically expanded its role beyond being a neutral arbiter of labor 
disputes to become an agency which now concerns itself with second-
guessing employers' H.R. policies. For example, in Karl Knauz Motors, 
Inc.,\22\ the Board invalidated an employer's common sense rule which 
encouraged courteous behavior on the sales floor of a car dealership. 
Additionally, in Plaza Auto,\23\ an employee berated the owner of the 
car company for which he worked, calling him a ``f*****g crook'', an 
``a***hole'' and telling him he would regret it if he was fired. The 
Board determined that the termination was unlawful and violated the 
employee's section 7 rights because it occurred during a discussion 
over working conditions.
---------------------------------------------------------------------------
    \22\ 358 NLRB No. 164 (Sept. 28, 2012).
    \23\ 360 NLRB No. 117 (May 28, 2014).
---------------------------------------------------------------------------
                            viii. conclusion
    While a new joint employer standard will have significant 
implications in the labor-management realm, a new standard has the 
potential to extend beyond just the Browning-Ferris and McDonald's 
cases and the NLRB. Clever agency enforcement officials and plaintiffs' 
attorneys will undoubtedly explore any avenue to expand and apply a 
relaxed joint employer standard to their own particular circumstances, 
resulting in devastating consequences for both employers and employees. 
Unfortunately, discarding a doctrine that has worked consistently well 
for over 30 years in order to increase union organizing opportunities 
and plaintiffs' attorneys' prospects has become de rigueur for an 
agency that is supposed to be a neutral arbiter of labor disputes.
    We wish to thank you for taking the time to hold this important 
hearing on NLRB oversight. These comments only begin to summarize the 
very great concern that we have with the NLRB's policy agenda. We look 
forward to working with you as you continue to examine these important 
issues. Please do not hesitate to contact us if we may be of assistance 
in this matter.
            Sincerely,
                                         Randel K. Johnson,
                                             Senior Vice President,
                          Labor, Immigration and Employee Benefits.

                                            James Plunkett,
                                        Director, Labor Law Policy.

             National Association of Manufacturers,
                   National Restaurant Association,
                                          February 5, 2015.
Hon. Lamar Alexander, Chairman,
U.S. Senate,
Committee on Health, Education, Labor & Pensions,
Washington, DC 20510.

Hon. Patty Murray, Ranking Member,
U.S. Senate,
Committee on Health, Education, Labor & Pensions,
Washington, DC 20510.

Re:  Hearing on ``Who's the Boss? The `Joint-Employer' Standard and 
Business Ownership''

    Dear Chairman Alexander and Ranking Member Murray: On behalf of the 
National Association of Manufacturers and the National Restaurant 
Association, we want to thank you for the oversight your committee is 
providing through today's hearing on ``Who's the Boss? The `Joint-
Employer' Standard and Business Ownership.'' We would also like to ask 
you to introduce our comments for the record.
    The National Association of Manufacturers (``NAM'') is the largest 
manufacturing association in the United States, representing small and 
large manufacturers in every industrial sector and in all 50 States. 
Manufacturing employs nearly 12 million men and women, contributing 
more than $1.8 trillion to the U.S. economy annually, has the largest 
economic impact of any major sector and accounts for two-thirds of 
private-sector research and development. The NAM is the powerful voice 
of the manufacturing community and the leading advocate for a policy 
agenda that helps manufacturers compete in the global economy and 
create jobs across the United States.
    The National Restaurant Association is the leading business 
association for the restaurant and food service industry. The 
Association's mission is to help members build customer loyalty, 
rewarding careers and financial success. Nationally, the industry is 
made up of one million restaurant and food service outlets employing 14 
million people--about 10 percent of the American workforce. Despite 
being an industry of mostly small businesses, the restaurant industry 
is the Nation's second-largest private-sector employer.
    Together members of our two industries employ nearly a fifth of the 
entire U.S. workforce. We appreciate the attention this committee is 
placing on the potential impact that the changes the National Labor 
Relations Board (``NLRB'') is considering to make to the ``joint-
employer'' standard would have on the franchise business model. 
Nevertheless, we are submitting this statement for the record to 
emphasize that the negative consequences of those potential changes go 
much deeper than that.
    The ongoing attempts by the NLRB to change the joint-employer 
standard would be bad for workers, employers, franchises, and the 
economy. The joint-employer standard has not been legally changed yet. 
However, the NLRB's General Counsel's recent opinions provide further 
proof that the NLRB is getting ready to assail the joint-employer 
standard that has been the bedrock of American business relationships 
for the last three decades.
    In May of last year, in the Browning-Ferris case (32--RC-109684), 
the NLRB issued a notice calling for briefs from interested parties to 
address whether the NLRB should obey the legally established joint-
employer standard or create a new one. Our organizations filed joint 
comments arguing that the current standard must be maintained because 
any deviation from the existing standard would seriously and adversely 
affect the Nation's manufacturing, restaurant, and food service 
industries. In addition, no new circumstances have arisen since the 
standard was clarified 30 years ago to justify modifying or overturning 
prior decisions.
    Besides the franchisees testifying today, any change to the current 
joint-employer standard would have profound negative effects on a 
company's ability to use temporary employees, staffing agencies, leased 
employees or other contingent workers. This is particularly so for 
companies in our industries, which rely on these contingent workers to 
supplement their own workforces. If the standard is changed, our 
companies may find themselves responsible for conduct beyond their 
control. For example, a company may be held liable for work duties and 
conditions that they had no part in establishing or bargaining over, 
such as violations of sections 7 (an employee's right to form a union) 
and 8(a)(3) (unlawful discipline or discharge of a temporary employee) 
of the National Labor Relations Act (``NLRA'').
    Additionally, if the staffing agency's employees are represented by 
a union, these companies may be unwittingly subjected to the staffing 
agency's collective bargaining obligations under Section 8(a)(5) of the 
NLRA. As a result, companies may be compelled to change their business 
models and terminate their contracts with staffing agencies because of 
their potential harmful and/or unpredictable ramifications.
    For the last 30 years, companies have comported themselves and 
organized their businesses on the basis of a clear joint-employer 
standard. Any change will hinder these companies and the current, 
stable environment in which contingent employees, unions and companies 
currently operate.
    Finally, we would like to offer our help to protect the current 
joint-employer standard. As stated, the changes envisioned by the NLRB 
and its General Counsel would be detrimental not only to the franchise 
model, but to the economy as a whole.
            Sincerely,
                                               Joe Trauger,
                            Vice President, Human Resources Policy,
                             National Association of Manufacturers.

                                    Angelo I. Amador, Esq.,
                   Senior Vice President, Labor & Workforce Policy,
                                   National Restaurant Association.

    [Whereupon, at 11:26 a.m., the hearing was adjourned.]

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