[Senate Hearing 114-704]
[From the U.S. Government Publishing Office]
S. Hrg. 114-704
STEALING THE AMERICAN DREAM OF BUSINESS OWNERSHIP: THE NLRB'S JOINT
EMPLOYER DECISION
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE NATIONAL LABOR RELATIONS BOARD'S JOINT EMPLOYER DECISION
__________
OCTOBER 6, 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
TUESDAY, OCTOBER 6, 2015
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions............................................ 1
Murray, Hon. Patty, a U.S. Senator from the State of Washington.. 3
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia... 33
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 36
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas....... 37
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 39
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 40
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 42
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of
Pennsylvania................................................... 44
Witnesses
Stockeland, Ciara, Owner, Founder, MODE Stores, Fargo, ND........ 5
Prepared statement........................................... 7
Martin, Edward, President/CEO, Tilson Home Corporation, Austin,
TX............................................................. 11
Prepared statement........................................... 12
Kisicki, Mark G., Shareholder, Ogletree Deakins, Nash, Smoak &
Stewart, P.C., Phoenix, AZ..................................... 14
Prepared statement........................................... 16
Rubin, Michael, Partner, Altshuler Berzon LLP, San Francisco, CA. 24
Prepared statement........................................... 26
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Independent Electrical Contractors (IEC)..................... 49
Letters:
Associated Builders and Contractors (ABC), Inc........... 49
American Hotel & Lodging Association (AH&LA)............. 50
Asian American Hotel Owners Association (AAHOA).......... 51
Chamber of Commerce of the United States of America...... 52
Response by Ciara Stockeland to questions of:
Senator Collins.......................................... 57
Senator Scott............................................ 57
Response by Edward Martin to questions of:
Senator Collins.......................................... 58
Senator Scott............................................ 59
.........................................................
(iii)
STEALING THE AMERICAN DREAM OF BUSINESS OWNERSHIP: THE NLRB'S JOINT
EMPLOYER DECISION
----------
TUESDAY, OCTOBER 6, 2015
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, chairman of the committee, presiding.
Present: Senators Alexander, Isakson, Collins, Hatch,
Roberts, Murray, Casey, Franken, Bennet, Baldwin, Murphy, and
Warren.
Opening Statement of Senator Alexander
The Chairman. The Senate Committee on Health, Education,
Labor, and Pensions will please come to order.
This morning, we have a hearing about the recent National
Labor Relations Board decision that threatens to steal the
American Dream from owners of 780,000 franchise businesses and
millions of contractors. We'll also discuss the legislation
I've introduced to undo this decision and restore the law the
way it was before the NLRB decision.
Senator Murray and I will each have an opening statement.
We'll introduce our panel of witnesses. We thank each of you
for coming. After the witness testimony, each Senator will have
5 minutes of questions.
Last week, I met a man named Aslam Khan. He is an immigrant
from Pakistan who started out as a dishwasher at Church's
Chicken and who today has become a very successful owner of
Church's Chicken franchises. He talked about achieving the
American Dream. He said it was possible because of our
Nation's, ``free enterprise, entrepreneurial spirit.''
On August 27, the NLRB released a decision that threatens
to steal that American Dream from owners of the Nation's
780,000 franchise businesses and millions of contractors. It
threatens to destroy that free enterprise, entrepreneurial
spirit.
The labor board's new joint employer standard will make big
businesses bigger and make the middle class smaller by
discouraging larger companies from franchising and contracting
work to small businesses. It is the biggest attack on the
opportunity for small businessmen and women in this country to
make their way up the economic ladder that we've seen in a
long, long time, and I am committed to fighting it with
legislation that already has 45 cosponsors in the Senate and a
total of 60 cosponsors in the House, including three Democrats.
For three decades, Federal labor policies have held that
two separate employers are joint employers if both have direct
and immediate control over employment terms and working
conditions. That means two employers who are both responsible
for tasks like hiring and firing, work hours, issuing
directions, determining compensation, and handling day-to-day
recordkeeping.
Under the new joint employer standard adopted in August in
Browning-Ferris Industries, a 3 to 2 NLRB majority said that
merely indirect control or even unexercised potential to
control working conditions could make two employers joint
employers. This means all these franchisees and contractors who
have worked so hard to build businesses in their communities,
hire the right people, and sometimes spend 12 hours or more a
day serving customers, meeting a payroll, dealing with
government regulations, paying taxes, and trying to make a
profit--they will no longer be considered their workers' sole
employer.
For the businesses that have franchised their brand or used
subcontractors to haul their waste or clean their offices and
are now considered one of the employers of those companies'
workers, there will be a huge incentive to retake control of
those franchises and retake control of those contracted tasks,
because if you're going to have all the liability of being the
boss, you might be much better off being the boss.
That means costs go up--less ability to invest capital. As
joint employers, business owners will be forced to engage in
collective bargaining and share liability for labor law
violations.
This change also harms employees. Millions of employees
will lose the ability to negotiate things like pay, hours, and
leave time with their direct supervisor, because those
decisions will now be made between the larger employer and the
union. As one employee put it in an interview with a Denver
news channel, ``I would be just another number to a
corporation. I'm a person to my employer now.''
Franchising will be particularly impacted by this decision.
There are 780,000 franchise establishments across this country,
and they create nearly 9 million jobs.
Last week, I met with a Chattanooga, TN couple who started
their own franchisee location of Two Men and a Truck, a moving
company. With hard work and commitment, they have been able to
grow that first franchise into six locations. They would like
to continue to grow, but this new NLRB decision is causing them
to put their plans on hold.
Two Men and a Truck is a good example of how franchising
allows entry into business ownership and the middle class. It
was started in Michigan by a mom with two sons she was ready to
put to work. Her first franchisee was her daughter. It has now
grown to 220 franchisees, who have created 8,000 jobs. Thirty-
eight percent of their franchisees began by working on a truck.
Successfully operating a franchise business is one of the
most important ways to climb the ladder of success.
Women own or co-own nearly half of all franchise
businesses. Minorities own about 20 percent. Why would we want
to cutoff this business model?
The Protecting Local Business Opportunity Act that I have
introduced would roll back the NLRB ruling and reaffirm that an
employer must exercise actual, direct, and immediate control
over essential terms and conditions of employment. This is the
commonsense standard that has been applied for decades. We have
45 cosponsors of our bill, and I hope we will add more. I hope
that will include some Democratic members of the Senate.
This is an issue that is important. I believe it's time for
Congress to act as soon as possible to stop a destructive
policy that damages the middle class growth that has made this
Nation what it is today. I hope my colleagues on both sides of
the aisle will agree.
Senator Murray.
Opening Statement of Senator Murray
Senator Murray. Thank you very much, Mr. Chairman.
Our economy and our workplaces and our country should work
for all of our families, not just the wealthiest few. I assume
everyone agrees we can't make that happen without considering
the massive changes in the labor market over the past 30 years.
Many big corporations increasingly rely on temp agencies,
franchises, and other third-party sources to stay competitive
and lower labor costs. Sometimes corporations still maintain
significant control over the workers performing their day-to-
day operations of franchises and subcontractors.
Some of these corporations work very hard to ensure workers
are treated fairly and have access to the protections they
deserve. Unfortunately, when some other parent companies
maintain this control, it can often come at a huge cost to
workers and to small business owners alike.
For example, some of the biggest corporations can dictate a
franchise's pricing and store hours, they decide how many
people are on a franchisee's staff, and they sometimes even
have a say in how much employees can earn. Yet, these parent
companies can escape all liability for poor working conditions
and rock-bottom wages.
In some cases, workers have tried to exercise their basic
rights to join together and improve wages and workplace
conditions. When those workers sit down to negotiate, they find
out that not all of the people who have control over the terms
and conditions of their jobs have to show up at the bargaining
table.
Take for example a worker named Arold, who worked for a
temp agency that supplied workers for a warehouse in
California. In a report from the National Employment Law
Project, he said he and his coworkers barely made more than the
minimum wage. They never knew when their shift would end, and
they never had a set day off of work. That made it impossible
for them to plan their lives.
When they joined together to form a union, instead of
meeting them at the bargaining table, the company that owned
the warehouse threatened to close the temp agency and fire all
the workers. These employment arrangements can be bad for small
business owners as well.
Take for instance a man named Syed. In a story from NPR, he
said he came to the United States from India, and he's been a
franchise owner for nearly a quarter of a century. Over time,
the parent company had enacted tighter and tighter controls
over Syed's business, and that has really limited his ability
to free up resources to treat his workers better. He said,
``When I lived in Bombay, this is not what I thought they meant
by the American Dream.''
While there are many responsible corporations, other parent
companies put all liability for low wages and poor working
conditions squarely on the shoulders of the small business
owners. I believe we need to help our workers and grow our
economy from the middle out, not from the top down. That means
that we as a nation should not turn our backs on empowering
workers, especially because that's the very thing that has
helped so many workers climb into the middle class.
There has been an overwhelming amount of disinformation out
there about the NLRB's Browning-Ferris 's decision. Before
hearing testimony, I want to make a couple of things clear.
When workers want to join together with their coworkers,
they are not looking for special treatment. They are simply
exercising their basic rights that are guaranteed by law.
Second, one of the Board's responsibilities is adapting to the
realities of today's workplaces to make sure workers can
exercise their right to collectively bargain.
Some of my Republican colleagues have claimed that this
decision is somehow an over-reach. Given the changes in the
workplace, the Board is simply carrying out its duties under
the law.
This might be the most important point. I've heard some
opponents of this decision use sweeping language about the
scope of this decision. Let's be clear. This decision does not
change the relationship between a local business owner and her
employees. If she was deciding who to hire and who on her staff
deserved a raise before this decision, she will continue doing
that going forward.
The Browning-Ferris 's decision only clarifies that if
another company also has substantial control in the critical
terms of employment, like who to hire and fire or how much to
pay franchise owners' employees, the NLRB is going to take it
at its word and treat it as an employer as well. Workers can
only exercise their basic rights, rights that are guaranteed
under the Constitution and the National Labor Relations Act,
when all of the employers who have a say in their working
conditions are at the table.
Again, the labor market looks a lot different today than it
did 30 years ago. Rather than using these trends to end basic
worker protections and undermine the fundamental fairness of
due process, this committee should study these trends and
discuss what we can do for workers and small business owners to
keep the American Dream in reach for all families.
I hope this committee can find ways to look at these trends
and work together on policies that expand economic security,
grow the economy from the middle out, and ensure our country
and workplaces work for all families, not just the wealthiest
few and the biggest corporations.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murray.
I'm pleased to welcome our four witnesses today. Ms. Ciara
Stockeland is the founder of MODE designer fashion discount
stores headquartered in Fargo, ND. Founded in 2007, MODE now
has nine franchises operating boutique stores across six
States.
Ed Martin is the president of Tilson Home Corporation in
Austin, TX. Tilson Homes is a family-owned, build-on-your-lot
custom home builder that's been in business for 80 years.
Mark Kisicki is a shareholder of the Ogletree Deakins law
firm in Phoenix, AZ. He has represented clients in some of the
most significant cases before the National Labor Relations
Board. He is a member of the American Bar Association section
of Labor and Employment Law Committee on Practice and Procedure
under the NLRA.
Mr. Michael Rubin is a partner at Altshuler Berzon LLP in
San Francisco, CA. Mr. Rubin specializes in class action and
appellate litigation, representing workers.
We thank the four of you for coming, some of you long
distances today. We ask that you keep your testimony to about 5
minutes. That will leave more time for the Senators to have a
conversation with you and ask questions.
Why don't we start with you, Ms. Stockeland.
STATEMENT OF CIARA STOCKELAND, OWNER, FOUNDER, MODE STORES,
FARGO, ND
Ms. Stockeland. Good morning Chairman Alexander, Ranking
Member Murray, and members of the committee. My name is Ciara
Stockeland, the owner and operator of MODE, a designer outlet
concept, which I founded in Fargo, ND. I currently live in
Grand Forks, ND, with my husband and our two children, Harrison
and Isabella, who are actually watching today's events at their
schools, fifth and sixth grades.
Thank you very much for the invitation to appear before
this committee today to share my story of small business
ownership and discuss the concerns of local business owners
everywhere regarding the NLRB decision to change the joint
employer standard. It is an honor to be in Washington before
you today. Likewise, it will be an honor to join employees,
employers, and many others as I attend the White House Summit
on Worker Voice tomorrow.
Today's joint employer issue is a critical threat to our
livelihoods, and it is very important that small business
perspectives are heard by our Nation's leaders. I am here to
speak on behalf of the hundreds of small business owners like
myself who are members of the Coalition to Save Local Business,
which I joined because I believe saving local business is
what's at stake in this so-called joint employer issue.
Today, I will share why it's so critical for the future
viability of millions of small businesses and the 780,000
franchise businesses in America that this committee and
Congress reinstate the very successful joint employer standard
by passing S. 2015. This simple, one sentence legislation will
restore certainty to small business, and I urge every committee
member to support the bill.
Mr. Chairman, I am a small business owner and a third
generation entrepreneur. I employ 10 people in my North Dakota-
based company, and our franchisees have about 40 employees
across 11 stores. I love creating jobs in America.
Nine years ago, I opened my first store in Fargo, ND. Four
years ago, we began franchising and have successfully expanded
to 12 locations across the Midwest and South Carolina. Why did
I franchise rather than own a company-based operation? I knew
it would be difficult to operate company-owned stores and
support employees from a remote location in North Dakota.
By franchising, my brand could grow through the operations
of local entrepreneurs. I hope to continue to grow, and I plan
to have 75 stores by 2024.
I am a franchisor. My company, MODE, is one of more than
3,000 franchisors in the United States. While some people may
hear the terms, franchise or franchisor, and think only of
major corporations, they should also think of my story and the
story of hundreds of thousands of both franchisors and
franchisees who are small business owners. My company is
precisely the kind of small business that Members of Congress
can support.
Like many small business owners, I have known the stress of
working to ensure I can cover payroll and rent. While my
employees have been paid first, I did not take a consistent
paycheck until 2014. That's 8 years of working virtually for
free.
Every day I work, knowing that if my business fails, my
family will lose everything. We do not need another insecurity
to add to the already extreme risk of business ownership.
You might think we would have government that supports us.
Instead, the NLRB has created extreme uncertainty by
introducing the BFI decision. I have two points to share.
First, the joint employer ruling affects every small
business. The majority of NLRB members made clear that the BFI
's decision was an isolated one. The Board wrote,
``We have decided to restate the Board's legal
standard for joint employer determinations and make
clear how that standard is to be applied going
forward.''
All businesses covered by the NLR Act and their business
partners may face liability under the Board's new joint
employer doctrine.
Second, there can be no question that the joint employer
standard makes small business unsafe. No one here can assure me
that my business will not run afoul of a nebulous indirect
control standard. The expansion of joint employer liability
from direct control to both direct and indirect leaves small
businesses facing serious uncertainty.
Mr. Chairman, I plead for the use of common sense. The
joint employer standard that has existed for decades works and
protects small business. Why change it? If S. 2015 is not
enacted, why would I continue to grow, knowing that I have the
risk and that I am liable for other employers' workers.
Senator Alexander has put forth a proposal today to protect
entrepreneurs and small business. I urge all members of this
committee to support locally owned businesses in your States by
working to enact and protect, using the Protecting Local
Business Opportunity Act, S. 2015.
Thank you very much.
[The prepared statement of Ms. Stockeland follows:]
Prepared Statement of Ciara Stockeland
Good morning Chairman Alexander, Ranking Member Murray, and members
of the committee. My name is Ciara Stockeland, the owner and operator
of MODE designer outlet stores, which I founded in Fargo, ND. I
currently live in Grand Forks, ND with my husband and our two amazing
children, Harrison and Isabella. Thank you very much for the invitation
to appear before this committee to share my story of small business
ownership and discuss the concerns of local business owners everywhere
regarding the National Labor Relations Board's (NLRB) recent decision
to change the ``joint employer'' standard.
It is an honor to be in Washington before the distinguished members
of this committee today. Likewise, it will be an honor to attend the
``White House Summit On Worker Voice'' tomorrow. This is an issue of
great importance to franchise businesses like mine, and it is important
that small business perspectives are heard by our Nation's leaders.
I am here to speak on behalf of the hundreds of small business
owners like myself who are members of the Coalition to Save Local
Businesses. I joined the Coalition because I believe saving local
businesses is what's at stake in this so-called joint employer issue.
Today I will share why it's so critical for the future viability of
millions of small businesses and the 780,000 franchise businesses in
America that this committee and Congress reinstate the very successful
joint employer standard by passing S. 2015. This simple, one-sentence
legislation will restore certainty to small businesses and our
employees. I urge every member to support the bill.
my north dakota small business story
Mr. Chairman, I am a franchisor. By working extremely hard and
expending immeasurable time and energy, I founded a successful brand
that has grown into a franchise. While some people may hear the term
``franchise'' or ``franchisor'' and think only of major corporations,
they can also think of me, my story, and the story of hundreds of
thousands of both franchisors and franchisees who are small business
owners.
Nine years ago, I opened my first retail store, Mama Mia, a high-
end maternity store, in Fargo, ND. Shortly after, I developed the
concept for MODE, and we opened our first location right next door to
Mama Mia. In 2008, I chose to merge the two stores into what was our
first MODE location, as you would see it today. We wanted to build a
brand. We began offering franchise opportunities in 2011, and we have
successfully expanded to 12 locations across the Midwest and South
Carolina. We hope to continue growing. Our goal is to have 75 stores by
2024.
I am here today because my goal is to grow our business and
continue creating opportunities for future franchisees and their
employees. The uncertainty introduced by the NLRB's BFI 's decision
jeopardizes the expansion of my business. As a small business owner who
meets countless public and private demands and competes against massive
corporations each day, I find it terribly frustrating to have
regulators harming my business and the careers of so many others in our
system.
To understand my frustration, you must understand how franchising
actually works. When our franchisees enter into an agreement to run a
MODE franchise store, they sign up to own and operate their own
business. I simply provide franchisees with a foundation from which to
launch their business: our recognized brand and trademark, a set of
business practices to ensure consistency and quality across all
locations, and support for marketing and advertising. From there, our
franchisees are responsible for operating their own stores and enacting
their own employment practices, including hiring and training their own
employees, setting their wages, and offering benefits based on their
own competitive local markets. Franchisees obtain their own tax ID
number and pay their own taxes. And, as part of their contract, they
are required to abide by and operate under all existing laws, labor and
otherwise. They are truly an independent business. I want to see each
and every one of my franchisees succeed, and I try to support them
however I can, but I am not a joint employer of their employees. I
don't need to be. I would not lend my trademark, business model, and
reputation to any of my franchisees if I had any reservations about
their ability to handle the operations of the business themselves. In
fact, the very reason I started a franchise instead of opening stores
under the ``company-owned'' business model, was to ensure that every
MODE location is run by local business women who had ``skin in the
game.'' I wanted these women to be able to have the full responsibility
of owning and operating their own MODE store versus being a mere
manager with constant oversight from hundreds of miles away in Fargo.
I am extremely proud of my success, and the success of our
franchisees. From the very beginning, I believed that each franchisee
gave me the opportunity to help foster a leader. Together with my team
in North Dakota, we mentor, train, and work with our franchisees to
create a successful business that strengthens its community. We want
each of these talented individuals to grow in their leadership skills
so that they too can pay it forward to what some may refer to as
employees, but whom I call rising entrepreneurs.
One of our primary goals as a franchisor is to motivate women to
dream big and take risks in all areas of their lives. Last week during
our industry's annual meeting here in Washington, DC, I was thrilled to
celebrate the success of one of my entrepreneurs, Heather Pitsiladis,
as she was recognized by her peers as the recipient of the ``Franchisee
of the Year Award'' Heather has worked incredibly hard and is truly a
leader in her community. I could not be happier to see her recognized
for her hard work and determination. As part of the ``Lean In''
generation, I am overwhelmed by the extent to which MODE is
contributing to the success of women in business. These are successes
that we should all be celebrating, especially the strong women on this
committee, rather than watching while the NLRB takes actions that have
the intended or unintended effect of upending their businesses. Because
that is what is happening.
Mr. Chairman, franchising works. There are more than 780,000
franchise establishments employing nearly 9 million professionals in
America today. Franchise businesses generate $890 billion of economic
output for the U.S. economy, representing 3 percent of the Gross
Domestic Product. And, they have grown faster than the U.S. economy for
5 consecutive years. Franchising is perhaps the most successful
business model in American history. It has been a successful model for
myself, allowing me to take my concept and vision and allow other
business women to realize their own success through its principals.
Franchises are small businesses. Franchising jobs cannot be outsourced.
Franchising means economic opportunity for people from any background.
Why is this not precisely the business model that every regulator and
Member of Congress supports?
Our businesses are threatened because the NLRB's new, ``indirect''
standard may make employers liable for employees, even if they are not
in their direct control. No longer can businesses be sure they will be
safe from liability simply because they do not control the hiring,
wages, or supervision of another business's employees. No one can
safely assure me or any other small business that we are safe from
joint employer liability with our franchisees or contractors.
scope of the browning-ferris industries decision
On August 27, 2015, the NLRB issued its Browning-Ferris Industries
(BFI) decision and invented a new joint employer standard based on one
company having ``indirect control'' and ``reserved contractual
authority'' over another company's employees. The Board's ruling is
troublesome for numerous reasons.
First, the majority of NLRB members made clear that this is a
significant, not a minor, change in Federal labor law. The Board
members write that ``we have decided to revisit and to revise'' the
joint employer standard after being urged by the NLRB General Counsel
``to abandon (the) existing joint-employer standard.''
Second, the BFI 's decision was not an isolated one. The Board
writes,
``We have decided to restate the Board's legal standard for
joint-employer determinations and make clear how that standard
is to be applied going forward.''
Furthermore, small and growing franchise businesses like mine are
not the only ones jeopardized by this ruling. As the dissenting NLRB
members write,
``(T)he number of contractual relationships now potentially
encompassed within the majority's new standard appears to be
virtually unlimited.''
All businesses covered by the National Labor Relations Act and
their business partners may face liability under the Board's new joint
employer doctrine.
Third, the expansion of joint employer liability from ``direct''
control to both direct and ``indirect'' leaves small businesses facing
serious uncertainty. As the Board majority states,
``(W)e will no longer require that a joint employer not only
possess the authority to control employees' terms and
conditions of employment, but also exercise that authority.''
In other words, under the Board's new doctrine, an entity need not
actually commit a crime to be found guilty; it need only to possess the
ability to commit it. That alone creates the uncertainty and risk that
will directly affect my willingness to continue moving forward and
growing my business.
Mr. Chairman, we need some common sense. The joint employer
standard that has existed for decades works and protects small
businesses from liability. Why change it? Because of issues pertaining
to control? Let's address that. I do not have direct control over my
system's employees. Do I have indirect control over my franchisees? Of
course I do. And so does any franchise system with its local
franchisees. While I have nothing to do with their employment
decisions, I have a lot to do with their brand. Our brand was my idea,
and it is in my best interest to protect it. Some other people thought
our store concept was a good idea, so we gave them the permission to
use it. That is the spirit of franchising. And now it needs the
protection of Congress. The NLRB has now prepared such a nebulous,
unpredictable joint employer test that practically allows them to
target any business relationship.
consequences of bfi decision on locally owned businesses
How will the new joint employer standard impact local businesses
throughout the country? Under the new indirect control test, prime
companies may be held liable for the employment and labor actions of
third-party vendors, suppliers, staffing firms, franchisees, or
subcontractors, over which they have no direct control. Consequently,
local business owners may forfeit operational control of their stores,
clubs, inns or restaurants to their franchisors, or their contractual
business may dry up because no one wants to partner with a business for
which they could be held liable. The enterprise value of thousands of
franchises and small businesses may be reduced due to their decreased
operational control. Future franchise development is jeopardized as
brands expand using a corporate ownership model.
Another real world effect of the new joint employer standard
relates to small business insurance coverage. Employment practices
liability insurance, known as EPLI, provides coverage to employers
against claims made by employees alleging discrimination, wrongful
termination, harassment or other issues. Insurers determine EPLI
coverage based on the number of a company's employees; the more
employees a business has, the higher the premium. All businesses carry
management liability insurance, which insures directors and officers
from employment practices liability, fiduciary liability, and fidelity
coverage, which is crime coverage related to employee dishonesty. In
the eyes of any carrier, the more employees you have, the higher their
risk. Under this new joint employer definition, if a franchisor takes
responsibility for the total number of employees on the payroll of all
franchisees--which you can be sure is how insurance companies will
perceive that ruling, and not on a ``case-by-case'' basis--our premiums
will either skyrocket or we may be unable to secure coverage at all.
The risk to the carrier is much greater, in terms of class action
lawsuits, so insurance companies will have no choice but to charge
more. Inevitably, that cost will trickle down from the franchisor to
the franchisee. And the only people who win in that scenario are class
action lawyers.
As a franchisor who is now potentially facing new indirect control
liability over my franchisees, I am faced with countless questions.
Should I be compelled to start meddling in my franchisees employment
decisions, such as their hiring, direction, supervision, and training
practices? Should I distance myself from my franchisees or allow
existing franchise agreements to expire? As I think about myself, my
husband, and my two children, the bigger question becomes: Should I
stop franchising altogether? I cannot afford the risk this would bring
to our family.
Under the expanded joint employer standard, Main Street will see
small businesses replaced by big businesses. There will be fewer local
businesses because franchises will consolidate or choose to open
corporate locations instead of franchises. Large companies will be less
likely to expose themselves to unpredictable liability by contracting
with small businesses for their products and services. Local
entrepreneurs will not open new businesses in their local areas as
small business opportunities decrease. As a result, America's Main
Street will lose small businesses created by independent owners in
their local communities.
Employees will lose too. They will have reduced opportunities to
learn and advance in a massive corporation than in a locally owned
business. There will be fewer mentoring opportunities because owners
will be in distant corporate headquarters. They will earn lower wages
because they are not advancing. And they will enjoy less workplace
flexibility because they will no longer be managed by small business
owners in their hometown, but rather by corporate management in faraway
headquarters.
This issue is undoubtedly confusing. As we heard at last week's
House hearing, labor law scholars and even NLRB members cannot agree
what the impact of this ruling will be on my business. The Board who
implemented this new ruling didn't bother clarifying it. My concerns
are many, but they boil down to this: Why are businesses like mine not
being given a fair shake by our government? Why can't we have a
government that supports small businesses? Why are small business
owners facing the artificial threat of losing our businesses because of
unelected bureaucrats? All we want is a commonsense solution so we can
continue to grow our businesses in the communities we care about, and
in so doing, contribute something to our world. Certainly, we can find
more clarity in a one sentence piece of legislation than in an arcane
regulatory body's 50-page decision.
In response to our concerns about our livelihoods, some academics
and legal scholars have practically patted small business owners like
me on the head and said ``Don't worry, the NLRB will make its decisions
on a `case-by-case basis.' '' Case-by-case inconsistency based on an
unpredictable ``indirect'' control joint employer standard makes small
business owners fear when we might be in the crosshairs of regulators.
Small business leaders deserve more certainty and protection from
Senators than the NLRB and its apologists provide.
freshii memorandum offers no comfort to small businesses
While the NLRB's BFI decision has created tremendous uncertainty
and fear within the small business community, we heard from some
advocates at the U.S. House subcommittee hearing on September 29, 2015
that there is no reason for franchise business people to be concerned.
Certain witnesses told the U.S. House subcommittee that the BFI
decision does not involve franchising, but they contended that the more
important recent NLRB opinion to franchising involved a franchisee
called Freshii.
The Freshii advice memorandum is simply a distraction. While I am
not an attorney, I do understand that the Freshii advice memorandum was
issued in May 2015 not by the NLRB, but rather by the Division of
Advice, which is part of the General Counsel's office of the NLRB. The
distinction is that the General Counsel is the prosecutor and the Board
members are the judges. The General Counsel's office wrote the Freshii
advice memo, and the Board members decided the BFI case.
Mr. Chairman, importantly, the Freshii memorandum does not have the
force of law. The BFI decision does. Freshii deals with one specific
case, which is not being prosecuted, while BFI has been litigated and
applies to all industries and all kinds of contracts held by
businesses, small and large. And importantly, while the BFI decision
was a contracting case, every franchisor-franchisee relationship is
based on a contractual franchise agreement. Franchising is contracting.
As I've previously mentioned, this issue may seem confusing to
members of the committee, and it is also confusing to small business
owners. And that is the point: confusion produces uncertainty and more
litigation and less growth. Hard-working local business owners need the
common sense clarity of S. 2015.
need for this legislation cannot be overstated
All Senators will soon have an opportunity to stand up for small
businesses in their States and support S. 2015. There is no time to
lose. Prior to the BFI decision, some elected leaders told concerned
small business owners not to worry and, effectively, ``Let's wait for
BFI to come out.'' Now, too many Members of Congress are saying, ``It's
too soon after BFI came out to rush to judgment.'' I cannot overstate
the urgency needed in responding to a dangerous, unpredictable
``indirect'' control standard. What the NLRB has done is establish a
nebulous joint employer doctrine that allows it to target any business
relationship it wants. Which one of our small businesses will be their
next target?
Mr. Chairman, as I've outlined in this testimony, there are real-
world consequences to this ruling. Senators who refuse to support the
one-sentence ``Protecting Local Business Opportunity Act'' will have to
explain to their constituents why companies like mine may be liable for
workers I don't even employ; why franchisees can no longer get
Employment Practices Liability Insurance; why franchisees may lose
operational control of the stores they established and built; why
franchisees find that their franchise agreements are not being renewed;
and why small business livelihoods are being taken away. The fact is,
this legislation means everything to us and our futures. We need your
help. I need your help.
My grandfather was an entrepreneur. My father was an entrepreneur.
I have created jobs in my own State through the growth of my company,
and I now give the opportunity to countless business women to also own
their own business through franchising. I want this freedom and
opportunity for my son and daughter should they choose to pursue the
American Dream by starting their own business.
Thank you Mr. Chairman, for recognizing and responding to an
overreach by another branch of the Federal Government by authoring S.
2015. I urge all members of this committee to support locally owned
businesses in your States by working to enact the ``Protecting Local
Business Opportunity Act.'' I look forward to answering any questions
you may have.
The Chairman. Thank you, Ms. Stockeland.
Mr. Martin.
STATEMENT OF EDWARD MARTIN, PRESIDENT/CEO, TILSON HOME
CORPORATION, AUSTIN, TX
Mr. Martin. Thank you, Chairman. Good morning. Thank you
for the opportunity to testify today. My name is Eddie Martin.
I am a home builder from Austin, TX, and president and chief
executive officer of Tilson Home Corporation.
I have been active in the National Association of Home
Builders throughout my career. The NAHB is also a member of the
Coalition to Save Local Businesses, which was formed to protect
the traditional joint employer standard. I am honored to
participate in this hearing.
I have over 30 years of experience in the home building
industry. Tilson Homes has been a family-owned and -operated
company since 1932. We currently have 140 employees with a wide
range of disciplines, including construction supervisors,
design and drafting professionals, warranty tech, and
administrative staff.
Beyond our full-time staff, Tilson contracts with 287
companies to perform a range of specialized services that are
required to build a home, like roofers, framers, and cleaners.
On average, each of our contractors has about 15 employees.
Because we contract with so many small companies, we are
very concerned about the potential impact of NLRB's Browning-
Ferris 's decision. The Browning-Ferris' decision leaves
employers guessing over how much indirect control constitutes a
joint employer.
Of particular concern to me is whether basic business acts,
like choosing a project's completion date or scheduling an
electrician to come to a job site at a certain time, would
trigger a finding of joint employment. For example, if Tilson
contracted with a paint company for a home in Austin, TX, we
would be prevented from telling a subcontractor when to paint
the walls or even when the walls would be constructed.
You might argue that indirect or potential control over
just one essential term of employment, like scheduling, would
not be sufficient to justify a finding of joint employment.
Because the new indirect test is so vague and nonspecific, the
NLRB has not excluded that possibility.
Browning-Ferris simply does not make sense in the real
world. I ask the question of whether I have indirect control if
I ask a contractor to bring on extra staff to make up for
delays. In an industry that is at the mercy of weather, if rain
sets my schedule back, shouldn't I be able to ask a contractor
to increase the labor on the job site without becoming a joint
employer?
Browning-Ferris is so ambiguous and creates such blurry
lines that even a homeowner doing a remodel project could be
viewed as a joint employer. In the real world, a homeowner is
going to be involved in decisions regarding when workers begin
and end the work day and will set deadlines for the completion
date. Those acts could meet the test of joint employer.
Or consider a homeowner who has a clogged drain. They may
call a plumbing company and ask for a specific plumber that
they've used in the past. Does that homeowner have indirect
control over staffing by requesting a specific employee and
then scheduling a time for completion? This new standard is
fundamentally flawed because it does not provide a clear and
definite role for determining if a company is a joint employer.
Home building is highly decentralized, supporting numerous
local small businesses. Having a large number of such small
firms in the industry promotes competition, which ultimately
benefits home buyers by helping them keep construction costs
down. How can a business like mine work with hundreds of other
businesses to navigate this maze of uncertainty?
If the goal of the NLRB is to put small firms out of
business, then congratulations are in order. This ruling may
very well do that. Ultimately, less competition among small
firms leads to higher home prices for consumers. Congress must
act quickly to restore the traditional definition of joint
employment so that companies like Tilson can have a clear
picture of our responsibilities.
Thank you again, and I look forward to your questions.
[The prepared statement of Mr. Martin follows:]
Prepared Statement of Edward Martin
introduction
I appreciate the opportunity to participate in today's hearing on
the National Labor Relations Board's (NLRB) joint employer standard. My
name is Ed Martin. I am a home builder from Austin, TX, and the
president and chief executive officer of Tilson Home Corporation. I am
also a past president of the Texas Association of Builders and have
been active in the National Association of Home Builders' (NAHB)
leadership structure at the local, State and national levels throughout
my career.
I have more than 30 years of broad-based experience in the housing
industry. I have worked as an HVAC technician, a leasing agent, and as
an attorney representing the multifamily industry. Currently, I am the
President of Tilson Homes, one of the largest custom home building
production companies in the United States.
I began working at Tilson Homes during law school, and the company
has grown considerably since that time. We currently employ 140
individuals, including construction supervisors, design and drafting
professionals, and warranty technicians. The majority of these
employees are full-time staff with competitive salaries and benefits.
We are a ``Build on Your Lot'' custom home builder, meaning we
design and construct every inch of the home to the customer's
specifications on their own personal property. On average, we build
300-500 homes per year at an average price of $270,000. This year, we
will construct approximately 400 homes. Building quality, affordable
housing for our customers and their families is our top priority.
The building industry is made up of a vast system of general
contractors and subcontracted businesses. Beyond our full-time staff,
Tilson Homes contracts with 287 companies and specialty trades to
perform a range of services, including HVAC work, cleaning,
landscaping, and roofing, amongst other specialties.
It is important for our company and the housing industry at large
to stay current on policies that affect our ability to contract with
the myriad of specialty trades needed to build a home. Timely delivery
of homes is inextricably tied to our ability to promptly schedule
trades and manage issues that could lead to production delays, such as
weather-related incidents or labor shortages. For these reasons, we
have been closely monitoring the developments at the NLRB regarding its
joint employer standard.
the new browning-ferris standard is limitless, unrealistic in real
world
The new joint employer standard adopted by the NLRB in Browning-
Ferris is alarming. Under the decision, Tilson Homes could be
considered a joint employer if it has indirect control or the potential
to exercise control or co-determine the essential terms of a
subcontractor's employee's employment, including hiring and firing,
discipline, supervision, scheduling, seniority and overtime, and
assigning work and determining the means and methods of performance.
This is a radical departure from the traditional standard of ``direct
and immediate control.''
According to the dissenting opinion in Browning-Ferris, all
business-to-business relationships, including subcontracting, could
fall under the umbrella of this standard. The NLRB acknowledged that
issues related to the nature and extent of a putative joint-employer's
control over particular terms and conditions of employment ``are best
examined and resolved in the context of specific factual
circumstances.'' \1\ That being said, one of the factors of significant
discussion in both the majority and dissenting opinions in Browning-
Ferris is scheduling.
---------------------------------------------------------------------------
\1\ Browning Ferris Industries at 16.
---------------------------------------------------------------------------
The discussion of scheduling is important to home builders because
we are, by our very nature, schedulers. At Tilson Homes, our
construction supervisors' chief responsibility is to ensure the
specialty trades are scheduled on time in order to meet the consumer's
delivery date. With an average of 22 subcontractors needed to build a
home, we are greatly concerned about our inability to limit our
exposure to joint liability under the National Labor Relations Act
(NLRA) under the new Browning-Ferris test.
The new ``indirect or potential'' control standard in Browning-
Ferris is ambiguous, at best. We question whether the simple act of
choosing a project's completion date would trigger a finding of joint
employment. For example, if Tilson Homes contracted with a painting
company for a home in Austin, would we be prevented from telling the
subcontractors when to paint the walls or even when the walls would be
constructed? Would we be prevented from scheduling installation of the
fire sprinklers or cabinets? Would the roof be completed in time for
the codes inspector to visit? This would be akin to ordering a pizza,
but allowing the delivery service to show up at the driver's
discretion.
It is also common for general contractors to request additional
labor or time on the job site when weather-related delays jeopardize
deadlines. Would the act of requesting two additional workers to get a
deck installed trigger a finding of joint employment? If a project gets
delayed due to heavy rainfall, would I not be able to tell the
contractor to double his labor and meet the construction deadline? If I
know one of the trades' employees is a diligent and efficient worker,
would I not be able to request the specific worker on my job site?
Would it be fair for the NLRB to prohibit this worker from being
requested?
Let us take another example from a typical relationship between a
homeowner and a remodeler. If I am, as a homeowner, doing a renovation
of my bathroom, I may very well meet the standards set by Browning-
Ferris as a joint employer. In the real world, the homeowner is going
to be involved in decisions regarding when the workers begin their day,
leave for the day, and will generally set deadlines for project
completion. If, as the homeowner, I am dissatisfied with the work
product, I will not hesitate to fire the company doing the work. If I
am uncomfortable with one of the workers coming into my home, I will
ask the company to send someone else. This is not atypical for a
remodeling project, but Browning-Ferris creates such blurry lines that
a homeowner could be viewed as a joint employer in certain
circumstances.
Under the new standard, I believe that each of these factors could
be assessed in a finding of joint employment. It could be argued that
indirect or potential control over just one of the essential terms of
employment, such as scheduling, would not be sufficient to justify a
finding of joint employment. The NLRB, however, has not excluded such a
possibility. In reality, businesses could be found to be joint
employers of another company's workers by merely doing one of the
aforementioned actions--scheduling or requesting additional labor or
even a specific worker. There is no certainty or predictability
regarding the identity of the employer under this new standard. It is
fundamentally unrealistic.
browning-ferris will harm housing affordability
The Nation's housing markets are beginning to see widespread
consistent, sustainable growth. Home builders are major job creators.
Currently, the industry employs 694,000 individuals in the builder
category and 1.761 million as residential specialty contractors, for an
industry total of 2.46 million. These workers and entrepreneurs are
spread out across the Nation. Since the start of 2014, 201,000 jobs
have been added by home builders and remodelers. More are expected with
continued gains in construction activity.
In order to meet the housing needs of a growing population and
replacement requirements of older housing stock, the industry should be
constructing about 1.4 million new single-family homes each year and
more than 1.7 million total housing units. In comparison, home builders
in 2014 constructed only 647,000 single family homes and 354,000
multifamily units.
According to NAHB estimates, construction of 1,000 single family
homes creates 2,970 full-time equivalent (FTE) jobs. Similarly, 1,000
new multifamily units results in 1,130 FTE jobs and $100 million in
remodeling expenditures creates 890 jobs. This means as we return to
normal levels, home builders will have millions of jobs to fill.
According to the most recent release of the NAHB/First American Leading
Markets Index, the U.S. market is running at 92 percent of normal
economic and housing activity. As the recovery continues, there will be
millions of more jobs in home building and related trades. Congress
should consider policies that support a continued housing recovery.
Policies that reduce labor market flexibility, such as those that
limit the use of independent contractors, will reduce the number of
local home building firms. The industry is highly decentralized,
supporting a large number of local, competitive firms.\2\ At Tilson
Homes, each of the specialty trades we contract with has an average of
15 employees, varying from 5 to 150 employees. Besides being a sector
that supports local small businesses, a large number of such small
firms in the industry promotes competition, providing a benefit for
prospective home buyers.
---------------------------------------------------------------------------
\2\ As of 2012 (the most recent data available), there were 48,557
residential construction firms. See ``Construction Job Openings Steady,
Hiring Slowing'' by Robert Dietz at http://eyeonhousing.org/2015/09/
construction-job-openings-steady-hiring-slowing/.
---------------------------------------------------------------------------
The Browning-Ferris decision will make home builders employers of
other company's workers. The decision calls into question the very
basic idea of what it means to be a business. Employers will be forced
to re-examine their entire business model since it affects their
responsibilities not only at the NLRB, but with other Federal agencies
such as the Internal Revenue Service, the U.S. Department of Labor, or
for the purposes of the Affordable Care Act.
Without the human resources departments typical of large firms,
small firms will find it challenging to compete. This will lead to a
centralization of the industry, with less competition among small firms
and higher home prices. Decentralization of the market is better for
the housing recovery because more competition among small firms will
yield more affordable housing options for consumers. If the goal of the
NLRB is to put small home builders out of business, this may very well
be the outcome.
conclusion
Codifying the NLRB's traditional definition of ``direct and
immediate control'' will provide certainty and predictability of the
identity of the employer. If left unchecked, the Browning-Ferris
decision will be damaging to the marketplace and housing affordability.
For these reasons, I strongly encourage Congress to restore the
traditional definition of joint employment and ensure a level playing
field for all businesses. It is imperative that our government does not
act to raise the cost of housing through policies that limit the
ability of businesses to organize as independent contractors.
Thank you again for the opportunity to testify today.
The Chairman. Thank you, Mr. Martin.
Mr. Kisicki.
STATEMENT OF MARK G. KISICKI, SHAREHOLDER, OGLETREE DEAKINS,
NASH, SMOAK & STEWART, P.C., PHOENIX, AZ
Mr. Kisicki. Thank you, Chairman Alexander and Ranking
Member Murray. I appreciate the opportunity to be here and
testify about this very important legislation.
The Protecting Local Business Opportunities Act would amend
the National Labor Relations Act, but it would accomplish far
more than its title or its simple language suggests. It would
require the NLRB to employ an ordinary meaning of the term,
employer, when interpreting the Act, just as Congress intended,
not the far-fetched definition that the Board just adopted in
BFI or Browning-Ferris.
The touchstone of the National Labor Relations Act is the
right of employees, as a group, to collectively decide if they
want union representation to act on their behalf collectively,
or if they want to deal directly with their employer on an
individual basis. In order for them to exercise that right and,
indeed, for employers to know what their rights and obligations
under this law are, it is of fundamental importance to be able
to identify who is the employer of any particular group of
employees.
Yet the Board has limited who can be defined as an
employer, and, in fact, Congress has limited who can be defined
as an employer to just one employer of any particular unit.
That employer can be two companies acting together as an
employer, but it can only be one employer.
Because it's so important for employees and employers to
know their rights and the limits of this act, defining who is a
joint employer is necessary. The Board, however, failed to
define what a joint employer was or provide any clear standards
until 1984, when it finally did so, and it adopted the ordinary
meaning that we all understand constitutes an employer. It's
the entity that actually exercises direct and immediate control
over significant terms and conditions of employment, the things
that we all associate with an employer, the ability to hire, to
direct the employee by supervision, to reward the employee
through compensation, and, when necessary, to discipline and
discharge.
In Browning-Ferris, however, the Board undid that clarity
that had existed under this Act, uninterrupted for 30 years. It
adopted a new standard that, in reality, is no standard at all.
Employers and, indeed, no union can be comfortable thinking it
can determine who is a joint employer under this standard,
because the NLRB failed to give us any guidance as to how this
very nebulous standard is going to be applied.
For example, the new joint employer standard is a two-part
test. The first part of the test is itself another multi-part
test, and the Board failed to give us any standard as to how
those factors would be weighed or evaluated.
In fact, the standard that the Board adopted, the common
law test, is, in fact, rooted in the common law. It was a test
that was developed not to determine an employer-employee
relationship, but to distinguish between employees and
independent contractors. When there's no question that
individuals at issue are somebody's employees, this test does
very little to help us figure out whose employees they actually
are.
Moreover, the Board failed to give us any guidance as to
how it would weigh the remaining factors of this test that are
actually relevant once we conclude that we're dealing with an
individual who is somebody's employee. The Board left that
entirely to its own discretion in future cases and the
discretion of its general counsel.
One thing that the Board did make clear, however, in
Browning-Ferris, is that indirect control by one company over
another's employees, or the potential to control them, is
enough to create a joint employer standard and a relationship
as a joint employer. That standard is inherently nebulous,
because the ability to exercise indirect control or the ability
to potentially control employees is inherent, at least to some
extent, I would posit, in every business relationship where one
employer is supplying goods or services to another.
It will take years of litigation and cost before we have
standards that can be applied consistently and can be
understood by all the constituents of this Act, employers,
unions, and employees alike. Until then, this standard that the
Board has adopted in BFI will do violence to the very purpose
of the National Labor Relations Act, which is to provide
stability in labor relations.
Further undermining the purpose of the Act is the damage
this new standard will cause to the collective bargaining
process. Bargaining initial contracts is a very difficult and
time-sensitive, time-consuming commitment. Typically, it takes
more than a year. This new standard is going to put together
employers that may have some interests in common, but certainly
have competing interests, because they are, in fact, different
employers. It is going to require them to have to come to an
agreement as to what the appropriate----
The Chairman. Could you wind up your testimony, please?
Mr. Kisicki. Thank you, Senator--what the appropriate terms
of a collective bargaining agreement should be. Congress should
act to restore stability in labor relations to protect the
National Labor Relations Act's fundamental purpose by adopting
this legislation.
Thank you.
[The prepared statement of Mr. Kisicki follows:]
Prepared Statement of Mark G. Kisicki\1\
i. executive summary
The Protecting Local Business Opportunity Act is a simply worded
amendment to the National Labor Relations Act (the ``NLRA'' or ``Act'')
that would accomplish far more than its name and simplicity suggest. It
would require the National Labor Relations Board (the ``NLRB'' or
``Board'') to give the term ``employer'' its ordinary meaning--as
Congress intended not the ``far-fetched'' one that the Board just
adopted in Browning-Ferris Industries of California, Inc. d/b/a BFI
Newby Island Recyclery, 362 NLRB No. 186 (August 27, 2015) (``BFI'').
Although the Board's new standard might serve a political agenda in the
short run, in the long run, it will cause serious damage to large
sections of our economy and to the Act itself.
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\1\ Mr. Kisicki is a shareholder in the law firm of Ogletree,
Deakins, Nash, Smoak & Stewart, P.C. (``Ogletree Deakins''), one of the
Nation's largest law firms dedicated to representing management in
labor and employment matters. Mr. Kisicki is a member of the ABA
Section of Labor and Employment Law Committee on Practice & Procedure
Under the NLRA. The statements and opinions contained in this testimony
are those of Mr. Kisicki personally and are not being presented as
views or positions of Ogletree Deakins or any of the firm's clients.
---------------------------------------------------------------------------
Notably, the Act never references the term ``joint employer,'' and
expressly limits the Board's ability to certify bargaining units to
groups of individuals who are employed by a single employer. 29 U.S.C.
151, et seq. The Board, however, recognized the reality that two
entities could, in fact, exercise such control over a group of
employees' terms and conditions of employment that, collectively, the
two employers should be deemed ``the employer'' of those employees.
Initially, the Board applied the approach to situations where the two
entities were not truly separate, and developed the ``single employer''
test for such situations. In the 1960s, the Board expanded on that
approach by recognizing that wholly distinct business entities could,
despite their separate identities, collectively control as a ``joint
employer'' a group of employees' terms and conditions of employment.
The Board, however, failed to articulate any consistent standard for
determining when two entities would be found to be a joint employer.
The lack of any readily identifiable standard led to confusion, even by
the Board. See, e.g., NLRB v. Browning-Ferris Indus. of Pa., Inc., 691
F.2d 1117 (3d Cir. 1982) (noting that ``there has been a blurring of
these concepts at times by some courts and by the Board'').
The Board soon adopted the standard articulated in the Third
Circuit's 1982 Browning-Ferris Industries decision and applied it
consistently for more than 30 years. In its recent BFI decision,
however, the Board reversed 30 years of established labor law to adopt
a new but amorphous standard for determining when two legally separate
companies jointly employ a group of employees. In particular, the Board
adopted a two-part test. The first part of that test is, itself, a
multi-factor test that the Board asserts determines whether a ``common
law employment relationship'' exists between a particular group of
workers and the putative joint employer. If so, and ``the putative
joint employer possesses sufficient control over those employees'
essential terms and conditions of employment to permit meaningful
collective bargaining,'' then both employers will be deemed to jointly
employ the unit of employees. Id. at p. 2. The common law employment
test the Board adopted, however, is not particularly helpful for
identifying ``the employer'' of a group of employees because that was
not the purpose it was developed to serve. That test was not developed
to identify which one (or more) of several entities was an individual's
employer, but to determine whether an individual was an employee or an
independent contractor.\2\ When there is no dispute that the workers in
a group are, in fact, employees of some entity, many of the factors of
the common law test are already satisfied and provide no meaningful
guidance to help determine which particular entity (or entities) is (or
are) their employer(s). Also, the common law test the Board purportedly
incorporates was rooted in judicial efforts to resolve questions of
liability for the torts committed by individuals while acting on behalf
of others, not in any effort to define statutory employer-employee
relationships. Indeed, the unique nature of the NLRA, which grants and
protects the rights to employees as a group, not as individuals, makes
the application of the Board's proposed test ill-suited to the purposes
of the Act and yields results antithetical to the Act's goals.
---------------------------------------------------------------------------
\2\ Cf. Clackamus Gastroenterology Associates v. Wells, 538 U.S.
440, 444 n.5 (2003) (in coming as close as the Court ever has to
defining the term ``employer'' under a labor or employment law, the
Supreme Court concluded that the common law factors for determining
whether an individual is an employee [the factors the Board's new
standard expressly adopts] were ``not directly applicable to this case
[under the Americans with Disabilities Act] because we are not faced
with drawing a line between independent contractors and employees.
Rather, our inquiry is whether a shareholder-director is an employee
or, alternatively, the kind of person that the common law would
consider an employer'').
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In addition, the Board's decision in BFI fails to provide any
guidance as to how the common law test is to be applied. It does not,
for example, explain how its particular factors are to be weighed and
balanced. It provides no help to employees, employers, unions, or the
Board's own regional directors in enabling them to determine, with any
reasonable certainty, what entity is, will or should be deemed to be a
joint employer. Instead, BFI holds that an entity's indirect control
over another's workers is sufficient in itself to render that entity a
joint employer of the employees. BFI also dictates that the theoretical
ability one entity has to control another's workers, even if not
exercised, is also sufficient to establish a joint employer
relationship. Indirect control and the unexercised theoretical
potential to control another company's workers are inherent aspects of
almost every business relationship where one entity provides goods or
services to another. Moreover, the right to control the workers of
another company is always inherently reserved by operation of law to
any business that owns or leases property on which another company's
workers perform their jobs. Obviously, the extent of such indirect
control or unexercised right to control varies dramatically in business
relationships. BFI gives employers, employees and unions no basis for
guessing how much indirect control or reserved but unexercised right to
control will be deemed sufficient by the NLRB to find that two entities
are joint employers.
Being able to determine, with a degree of certainty, the statutory
``employer'' of a particular unit of employees is crucial under the
NLRA for employers, employees, and unions alike. Without reasonable
certainty, companies will be unable to know what legal rights and
obligations they have and what risks they have assumed. Without being
able to identify their employer with reasonable certainty, employees
will not know the extent of their rights under the Act, and unions will
not know whether their picketing is legal or illegal under the Act. The
lack of reasonable certainty will, in itself, have profound economic
consequences on businesses that cannot make rational decisions in the
marketplace because they have no meaningful standards to apply in
assessing their potential costs, risks and rewards. This lack of
certainty will adversely affect all businesses, and will
disproportionately affect small businesses and franchisees by adding
yet another layer of legal complexity and expense to their
entrepreneurial efforts. The latter comprise the segment of the
employer community that has led the country in creating jobs, and in
providing the greatest opportunity for women and minorities to move
from being employees to becoming business owners. Moreover, that same
lack of certainty undoubtedly will lead to a serious instability in
labor relations, undermining the most fundamental purpose of the Act.
For more than 30 years, the Board has provided that stability by
giving all of its stakeholders the ability to know, with reasonable
certainty, who employed any particular group of workers. The Board's
prior standard deemed two separate entities to be joint employers of a
unit of workers if they shared, or co-determined, ``the essential terms
and conditions of employment'' of those workers in a manner that
``meaningfully affects matters relating to the employment relationship
such as hiring, firing, discipline, supervision, and direction.'' TLI,
Inc., 271 NLRB 798 (1984). Moreover, the Board provided further clarity
to that standard by requiring that the putative joint employer's
control over the employment matters was direct and immediate. Id.
(citing Laerco Transp., 269 NLRB 324 (1984)).
Remarkably, the Board's stated reason for overturning the stability
that its 30-year-old standard had provided is to address what it
perceives to have been the prior standard's failure to ``keep pace with
changes in the workplace and economic circumstances'' in light of the
``more than 2.87 million of the Nation's workers employed through
temporary agencies.'' \3\ However, the standard the Board has been
applying for the past 30 years already provided that protection. Under
the pre-BFI standard, contingent employees of one company who worked at
another and were under the second company's direct supervision--as is
almost always the case--already would have been deemed to be jointly
employed by both companies. No change in the standard was necessary for
the Act to accommodate the changes in employment patterns that the
Board posits as the rationale for its radical revision of a long-
settled standard. In the absence of any legitimate rationale, the
unquestionable dislocation and uncertainty that will ensue by such
revision cannot be justified.
---------------------------------------------------------------------------
\3\ Board Issues Decision in Browning-Ferris Industries, Aug. 27,
2015; https://www.nlrb.gov/news-outreach/news-story/board-issues-
decision-browning-ferris-industries.
---------------------------------------------------------------------------
Unless Congress acts through this proposed amendment, it will take
years of litigation and untold cost to determine how the NLRB will
apply its new standard to the diverse business arrangements that exist
today. In the meantime, the economy--and the fundamental purposes of
the Act itself--will have been seriously damaged.
ii. analysis
A. For Thirty Years Before BFI, the Board Applied a Clear and
Appropriate Standard For Determining Joint Employer Status.
For more than three decades before BFI, the Board provided
stability in labor relations for all parties by applying a clear and
appropriate standard for determining when two separate entities were
joint employers under the Act. That standard required that each entity
exert direct and significant control over the same employees such that
they ``share or codetermine those matters governing the essential terms
and conditions of employment . . .'' TLI, Inc., 271 NLRB 798, 798
(1984). The Board applied that test by evaluating whether the putative
joint employer ``meaningfully affects matters relating to the
employment relationship such as hiring, firing, discipline, supervision
and direction'' and whether that entity's control over such matters is
direct and immediate. Id., (citing Laerco Transp., 269 NLRB 324
(1984)).
By tying joint employer status to direct and immediate control over
the fundamental aspects of the employment relationship--hiring, firing,
discipline, supervision and direction--the Board's pre-BFI standard
ensures that the joint employer is actually involved in matters
material to the scope of the Act, and is not merely engaged in a market
relationship that may have an indirect impact upon employees.
Additionally, by requiring that the control be direct and immediate,
the standard assigns joint employer status only to those entities with
the actual authority to impact the employment relationship, the
singular focus and subject matter of the Act.
In articulating the joint employer standard in Laerco and TLI, the
Board provided further clarity by applying it to the detailed,
particular facts of each case. Laerco involved a group of drivers that
another company, CTL, supplied to it under a cost-plus contract. 269
NLRB 324, 325 (1984). CTL made all the decisions regarding hiring,
discipline and discharge of the drivers it provided. Id. at 324-25. CTL
also made all legally required contributions and deductions from the
drivers' paychecks and provided them with benefits. Id. at 325. Once a
driver was assigned to a Laerco facility, CTL representatives sometimes
provided the driver with his or her initial job duty instructions;
however, other times Laerco provided those initial instructions alone
or with CTL representatives. Id.
Beyond occasionally providing CTL's drivers with their initial
instructions, Laerco supplied the drivers' vehicles and required them
to comply with Laerco's safety regulations. Id. at 324. Under Laerco's
contract with CTL, Laerco was permitted to establish driver
qualifications and refuse to accept any drivers provided by CTL. Id. On
occasion, Laerco pointed out issues regarding the drivers' performance
to CTL, which CTL then resolved. Id. at 325. CTL supervisors were
seldom at the Laerco facilities to which CTL assigned its drivers, so
Laerco provided what little supervision the CTL drivers needed, such as
directing them where to go for a pick-up or delivery and setting the
drivers' priorities. Id. Laerco would attempt to resolve minor problems
that arose for the drivers in the workplace, but CTL handled any
significant issues. Id. at 326.
In reviewing the facts of the case, the Board noted:
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. [Citing Biore v. Greyhound Corp., 376
U.S. 473 (1964) and NLRB v. Browning-Ferris Industries, 691
F.2d 1117 (3d Cir. 1982)] Whether an employer possesses
sufficient indicia of control over petitioned-for employees
employed by another employer is essentially a factual issue. To
establish joint employer status there must be a showing that
the employer meaningfully affects matters relating to the
employment relationship such as hiring, firing, discipline,
supervision, and direction. Id. at 325.
Examining the facts before it in Laerco, the Board held that the
level of control exercised by Laerco was inadequate to establish that
Laerco and CTL functioned as a joint employer. Id. Although Laerco
provided some supervision of the CTL drivers, it was ``of an extremely
routine nature'' and ``the degree and nature of Laerco's supervision''
failed to render it a joint employer. Id. at 326. Moreover, while
Laerco exercised some control in resolving minor issues raised by CTL's
drivers,
``[A]ll major problems relating to the employment
relationship'' were handled by CTL. Id. Consequently, the Board
concluded that Laerco was not a joint employer because its
control of the CTL employees' terms and conditions of
employment was not meaningful, given ``the minimal and routine
nature of Laerco's supervision, the limited dispute resolution
attempted by Laerco, [and] the routine nature of the work
assignments.'' Id.
TLI, Inc. also involved a situation where one company, TLI,
provided drivers to another company, Crown. 271 NLRB 798 (1984). Each
day, Crown directed the drivers as a group about which deliveries to
make, but the drivers selected their specific assignments based on
seniority. Id. at 799. The drivers reported their accidents to Crown;
however, TLI investigated the accidents and determined whether
discipline was warranted. Id. When a driver engaged in conduct that
concerned Crown, Crown would give an incident report to TLI and TLI
conducted its own investigation. Id. Crown did not hire, fire or
discipline TLI's employees. Id.
The Board analyzed these facts under the standard set forth in
Laerco and the Third Circuit's 1982 Browning-Ferris decision and
determined that,
``[A]lthough Crown may have exercised some control over the
drivers, Crown did not affect their terms and conditions of
employment to such a degree that it may be deemed a joint
employer.'' Id.
The Board found that Crown's daily supervision was not
``meaningful'':
``The supervision and direction exercised by Crown on a day-
to-day basis is both limited and routine, and considered with
[Crown's] lack of hiring, firing, and disciplinary authority,
does not constitute sufficient control to support a joint
employer finding.'' Id. (emphasis added).
Furthermore, even though a Crown representative actually attended
bargaining sessions between TLI and the union and discussed cost
savings, the Board found his involvement did not amount to sharing or
co-determining terms and conditions of employment because the Crown
representative left the actual savings determinations to TLI and the
union. Id.
The standard articulated by the Board in Laerco and TLI is clear,
rational and withstood the test of time for 30 years. Indeed, the
Board's direct control standard was ``settled law'' since 1984, until
August 27, 2015. See Airborne Express, 338 NLRB 597, n.1 (2002). Over
that span of years, the Board developed a coherent body of law from
Laerco and TLI that elucidates the facts, circumstances and scenarios
under which an entity becomes a joint employer.\4\ Reviewing courts
likewise have adhered to the Board's bright-line test for decades.\5\
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\4\ See, e.g., Aldworth Co., 338 N.L.R.B. 137, 139-40 (2002)
(affirming ALJ's finding of joint employer relationship because
``[b]ased upon a thorough review of the record, the judge determined
that Respondents Aldworth and Dunkin' Donuts together share control
over the hiring, firing, wages, benefits, discipline, supervision,
direction and oversight of the truck drivers and warehouse employees
and thereby meet the standard for joint employer status''); Mar-Jam
Supply Co., 337 N.L.R.B. 337, 342 (2001) (affirming finding of joint
employment after analyzing all terms and conditions of employment and
finding that putative employer directly hired and fired employees,
solely supervised and directed the employees with regard to work
assignments, time, attendance and leave, and disciplined the
employees); C. T Taylor Co., 342 N.L.R.B. 997, 998 (2004) (affirming
finding of no joint employment where none of essential terms and
conditions of employment were controlled by putative employer); Mingo
Logan Coal Co., 336 N.L.R.B. 83, 95 (2001) (stating that the putative
joint employer meaningfully affected all five essential terms and
conditions of employment); Villa Maria Nursing and Rehab. Center, Inc.,
335 N.L.R.B. 1345, 1350 (2001) (affirming finding of no joint employer
relationship where ``Villa Maria does not have any authority to hire,
fire, suspend or otherwise discipline, transfer, promote or reward, or
lay off or recall from layoff ServiceMaster's employees. Villa Maria
does not evaluate them or address their grievances.''); Windemuller
Elec., Inc., 306 N.L.R.B. 664, 666 (1992) (affirming ALJ's finding of
joint employment based on facts that putative joint employer shared or
co-determined hiring, firing, discipline, supervision and direction);
Quantum Resources Corp., 305 N.L.R.B. 759, 761 (1991) (affirming joint
employer finding and specifically adding to Regional Director's
decision that FP&L's control over hiring, discipline, discharge and
direction ``[t]ogether with the close supervisory relationship between
FP&L and [contract] employees . . . illustrate[s] FP&L's joint employer
status''); D&S Leasing, Inc., 299 N.L.R.B. 658, 659 (1990) (finding
joint employment based on facts that putative joint employer shared or
co-determined the hiring, firing, discipline, supervision and direction
of contract employees); G. Heileman Brewing Co., 290 N.L.R.B. 991, 1000
(1988) (affirming joint employer finding based on the fact that G.
Heileman shared or co-determined all five essential terms and
conditions of its contract employees' employment, and in addition
negotiated directly with the union); Island Creek Coal, 279 NLRB 858,
864 (1986) (no joint employer status because there was ``absolutely no
evidence in this record to indicate that the normal functions of an
employer, the hiring, firing, the processing of grievances, the
negotiations of contracts, the administration of contracts, the
granting of vacations or leaves of absences, were in any way ever
performed by [the putative joint employer]).
\5\ See, e.g., SEIU Local 32BJ v. NLRB, 647 F.3d 435, 443 (2d Cir.
2011) (finding that supervision which is ``limited and routine'' in
nature does not support a joint employer finding, and that supervision
is generally considered ``limited and routine'' where a ``supervisor's
instructions consist primarily of telling employees what work to
perform, or where and when to perform the work, but not how to perform
the work.'') (citation omitted); AT&T v. NLRB, 67 F.3d 446, 451 (2d
Cir. 1995) (finding no joint employment where only one indicium of
control (participating in the collective bargaining process) existed
and there was no direct and immediate control over hiring and firing,
discipline, supervision or records of hours, payroll, or insurance);
Holyoke Visiting Nurses Ass'n v. NLRB, 11 F.3d 302, 307 (1st Cir. 1993)
(finding joint employer status where the putative joint employer had
``unfettered'' power to refuse to hire certain employees, monitored the
performance of referred employees, assumed day-to-day supervisory
control over such employees, gave such employees their daily
assignments, reports, supplies, and directions, and held itself out as
the party whom employees could contact if they encountered a problem
during the work day); Carrier Corp. v. NLRB, 768 F.2d 778, 781 (6th
Cir. 1985) (finding joint employer status where the putative joint
employer ``exercised substantial day-to-day control over the drivers'
working conditions,'' was consulted ``over wages and fringe benefits
for the drivers,'' and ``had the authority to reject any driver that
did not meet its standards'' and to direct the actual employer to
``remove any driver whose conduct was not in [the putative joint
employer's] best interests.'').
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The stability and predictability provided by the Board's pre-BFI
standard has allowed thousands of businesses, large and small, to
structure their business relationships in a sensible and optimal
fashion, subcontracting discrete tasks to other companies with
specialized expertise to provide services that would otherwise be far
more difficult or costly. At the same time, that joint employer
standard did not deny any employee the right to union representation
granted by the Act, nor prevent any union from bargaining with the
employer directly involved in setting the terms and conditions of
employment in a workplace.
B. The BFI Standard for Determining Joint Employer Status is Amorphous
and Contrary to the Language, Legislative Intent and
Fundamental Policies of the Act.
As the Supreme Court has opined,
``[A] fundamental principle in our legal system is that laws
which regulate persons or entities must give fair notice of
conduct that is forbidden or required.''
FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317-18
(2012) (holding due process required fair notice even when regulations
imposed no criminal penalty or monetary liability). Inherent in the
notion of due process is the requirement that the obligation be clear
enough that citizens can reasonably ascertain to whom it applies.
The ``standard'' the Board adopted in BFI, however, is no standard
at all; rather, it merely provides for the NLRB to make post-hoc
conclusions drawn after results-oriented inquiries. It fails to explain
how the common law test--which was never developed to resolve disputes
about which entity was an individual's employer--is to be applied to
any of the numerous business arrangements that pervade our economy,
much less, how any particular factor is to be weighed and the scales
balanced. Absent such guidance, that standard fails to provide the
notice required by due process.
Rather than provide meaningful guidance that reasonably limits the
new joint employer standard, the Board has demonstrated through other
recent cases that its view of that standard is expansive and untethered
to either the clear language or the intent of the NLRA. In CNN America,
Inc., 361 NLRB No. 47 (2014), for example, the Board found CNN to be a
joint employer of employees provided by a contractor (TVS), despite the
fact that the Board had certified TVS as ``the employer'' of those
employees some 20 years earlier. As noted above, the Act envisions that
a group of employees has one and only one employer. Although two
employers can be deemed to jointly employ a group of employees, it
belies the language and purposes of the Act for the Board to ignore its
own certification as to who is ``the employer'' of a group of
employees. The Board has processes that can be used to modify a
certification when economic situations change, but, in the absence of
the certification being modified, employers must be able to rely on the
Board's certification to conclude whether they are, or are not, the
employer of any particular group of employees.\6\ Yet, despite its own
certification to the contrary, the CNN Board found CNN to be a joint
employer liable for back pay awards for approximately 300 highly
compensated individuals for up to a 10-year period of time. If a Board
certification of employer status can be ignored at the whim of a
subsequent NLRB on a joint employer theory, then it will be, as a
practical matter, impossible for employers to determine their rights
and potential obligations under the Act. Moreover, the 10-year lapse of
time it took the Board to resolve CNN is indicative of the lengthy
delays we can expect before countless dollars are spent by employers to
figure out what the parameters of the Board's new joint employer
standard are.
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\6\ A union or employer, for example, may file an ``AC Petition''
asking the Board to modify a prior certification. NLRB's Rules and
Regulations, 29 C.F.R. 102.60(b).
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Indeed, the BFI standard is incapable of clear application because
business relationships today typically involve an agreement or physical
realities that necessarily but indirectly result in one entity
impacting the terms and conditions of employment for the other's
employees. Service contracts, in particular, often involve significant
control by the customer over the service provider and, when services
are performed on the customer's property, the amount of control is even
greater. That control, in turn, can indirectly impact the service
provider's employees' terms and conditions of employment. Hours the
services are performed, the skills of the individuals who will perform
them and conduct requirements to ensure the customer's employees,
property and its own customers are reasonably protected--not to mention
the amount the customer is willing to pay for the services--all
necessarily impact the service provider's employees' terms and
conditions of employment. Under the Board's new test, the customers in
such cases apparently would be deemed to jointly employ the service
providers' employees. Yet, it would be absurd to treat a homeowner as
the joint employer of the workers a contractor hires to remodel her
home simply because she and the contractor have agreed to a specified
amount she will pay for the services, she controls the location,
environment and hours where and when the work will be performed, and
what the individual must do to leave her home clean and free of hazards
at the end of every day.
The Board's assertion that its indirect control test is limited
because it applies only to common law employees is simply incorrect
given that the multi-factor test it adopted provides no basis for
determining who an employee's employer is. Moreover, the fact that the
Board applied that test on the facts of this case demonstrate that the
purported common law test can be manipulated to find almost any company
is a joint employer if it contracts with another for services to be
rendered on its property. In particular, Leadpoint hired, fired,
disciplined, paid and supervised its employees. Yet, it provided
services that were part of BFI's business operation on its property
during hours BFI mandated the services be performed, and the Board had
no difficulty concluding that BFI was a joint employer of Leadpoint's
workers under its new standard.
1. The BFI Standard Would Violate the Clear Provisions and
Dictates of the Act
Although the Supreme Court has never defined the term ``employer''
under the Act, it has made it abundantly clear that an employment
relationship is defined by direct supervision of the putative employee.
Allied Chemical & Alkali Workers of Am., Local Union No. 1 v.
Pittsburgh Plate Glass Co., 404 U.S. 157, 167-68 (1971). And in Allied
Chemical, the Court rejected the Board's attempt to expand the
definition of the term ``employee'' beyond its ordinary meaning,
observing that,
``It must be presumed that when Congress passed the Labor
Act, it intended words it used 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. . . .
``Employees'' work for wages or salaries under direct
supervision. . . . 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. On the contrary, Congress
intended then, and it intends now, that the Board give to words
not far-fetched meanings, but ordinary meanings.''
Id. at 167-68 (quoting H.R. Rep. No. 245, at 18, 80th Cong., 1st
Sess. (1947) (emphasis in original)). Just as the Board cannot define
the term ``employee'' in a manner inconsistent with its ordinary
meaning, it cannot adopt a ``far-fetched'' definition of ``employer''
that dramatically expands it by eliminating the fundamental touchstone
of an employer-employee relationship; namely, direct control of the
employee.\7\ Cf. NLRB v. Lundy Packing Co., 68 F.3d 1577 (6th Cir.
1995) (``The deference owed the Board . . . will not extend, however,
to the point where the boundaries of the Act are plainly breached.'').
If Congress meant ``employee'' to be defined by the fact that she is
directly controlled by her employer, it is axiomatic that Congress
meant ``employer'' to be the person who directly controls the employee.
Moreover, the Act clearly limits the certification of any bargaining
unit to employees of a single employer. Although the Board has
developed the fiction of a single, joint employer, to be consistent
with the dictates of the Act, its new approach in BFI is utterly
inconsistent with the clear language of the Act and its policies and
purposes.
---------------------------------------------------------------------------
\7\ Similarly, Congress limited the Board's ability to certify a
unit of employees employed by more than one company in requiring that
all employees in a unit be employed by a single employer. Oakwood Care
Ctr., 343 NLRB 659 (2004). Obviously, had Congress intended to allow
for the certification of a unit of workers with different employers, it
would have done so by simply adding the two words, ``or employers,'' to
section 9(b). As noted above, the Board has overcome this limitation by
utilizing the fictional ``joint employer'' entity. That fiction, as it
has been applied historically, may be consistent with congressional
intent. But the fiction that two wholly separate companies constitute a
``joint employer'' entity cannot be legitimately extended as far as the
Board directs in BFI such that it includes as a joint employer any
entity that has the right to control some terms and conditions of
another's employees without ever having exercised that right. Such a
definition is inconsistent with any reasonable interpretation of what
Congress meant by using the singular term, ``the employer,'' in the
Act.
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2. The BFI Joint-Employer Test, in Practice, Will Undermine
the Act's Purpose of Encouraging Effective
Bargaining
When Congress adopted the Act, it made clear its primary purpose
was to ``encourag[e] the practice and procedure of collective
bargaining.'' 29 U.S.C. 151. As noted above, however, a series of
cases that had expanded the Act's reach beyond what Congress intended
caused Congress to revisit and substantially revise the Act in ways
that directly or practically limited the process of collective
bargaining. For example, Congress amended the Act to protect employee
rights to not engage in collective bargaining or otherwise support
unions and it made clear that the Act's reach was not as extensive as
the Board and Court seemed to believe. Taft-Hartley Act, Pub. L. No.
80-101, 61 Stat. 136 (1947) (amending 29 U.S.C. 157). Another limiting
change Congress made through the Taft-Hartley Act was to preclude the
Board from certifying a unit based solely on the extent to which a
union had been successful in organizing; instead, the unit must be
appropriate for bargaining. 29 U.S.C. 159(c). Clearly, the purpose of
the Act today is not merely to encourage collective bargaining for its
own sake but, rather, to encourage collective bargaining that can
meaningfully address the workplace concerns of a group of an employer's
employees that shares a community of interest.
In BFI, however, the Board failed to recognize the obstacles
created by forcing two different businesses to bargain over the terms
of employment for a group of employees only one of them directly
controls. Proposed contract terms that might be crucial to one of the
joint employers, and for which it might be willing to make significant
concessions, might be irrelevant to, or contrary to the interests of,
the other. Moreover, some issues that might be significant to the
union, and which might be acceptable to the direct employer if
negotiating alone, likely will be barriers to any agreement in a joint-
employer situation because the direct employer will not agree to be
bound to certain terms when its contract with the other joint employer
can be terminated on short notice. It belies logic to assume that,
simply because unions want to have both businesses at the bargaining
table, more effective bargaining will result. Indeed, precisely the
opposite is true.
Viewed in practical terms, the Board's new standard is plainly
intended, and will inevitably result in changes in the way the two
businesses negotiate with one another and structure their own business
relationship, far more than it will facilitate how an employer and its
employees negotiate and order their employment relationship. Congress
has made the latter the focus of the Act and its regulation of the
proper function of the Board. Congress, however, in no way has
authorized the Board to unnecessarily interfere, impair, or invalidate
business to business relationships. Yet, under the Board's new
standard, a general contractor easily could be deemed the joint
employer of its subcontractor's employees and, if the subcontractor's
employees are unionized, the general contractor and now joint employer
could be limited in terminating its relationship with the
subcontractor, and have an obligation to bargain with the union before
doing so.
The problems for effective bargaining caused by forcing two
different business entities into a bargaining relationship are clear
because:
[T]he interests of [the] employers will [ ] necessarily
conflict. Unlike joint employers that have explicitly or
tacitly agreed to a common undertaking, here the employers are
buyer and seller--roles that are complementary in some respects
and clearly conflicting in others. Each derives some benefit
from the other. However, only the user employer derives the
ultimate profit from the work of the employees; the supplier is
merely one of many resources utilized in the user's enterprise.
The structure of the relationship between these employers is
voluntary and contractual. . . . Requiring that the employers
also engage in involuntary multiemployer bargaining injects
into their relationship duties and limitations beyond those
established and allocated in their agreement, creating severe
conflicts in the underlying business relationship and rendering
impossible the productive collective bargaining the majority
envisions.
M.B. Sturgis, 331 NLRB 1298, 1320-21 (2000) (Member Brame,
dissenting) (citations omitted). Although Sturgis involved true multi-
employer unit considerations, the Board's new joint-employer test would
result in nothing more than deeming a multi-employer unit a joint-
employer unit by adjudicatory fiat. And, regardless of whether the
Board decides to call two different business entities a ``joint
employer'' even though one does not exercise direct control over the
other's employees, the practical problems that will arise in collective
bargaining are no less real than those that exist in what the Board
currently recognizes as a multi-employer unit.
3. The BFI Joint-Employer Test, in Practice, Will
Eviscerate the Protections Afforded in Section
8(b)(4) of the Act
Congress fundamentally re-structured the NLRA in 1947 with the
passage of the Taft-Hartley amendments. Taft-Hartley Act, Pub. L. No.
80-101, 61 Stat. 136 (1947). The amendments, for the first time,
delineated certain actions by unions that would henceforth constitute
unfair labor practices. Chief among these was a new prohibition against
unions engaging in secondary boycotts. The statutory prohibition and
resulting protections are contained in Section 8(b)(4) of the Act, as
amended. 29 U.S.C. 158.
The Act reflects the understanding of Congress that employees and
unions are entitled to, and will, engage in various activities
including handbilling, picketing and striking to influence employers
through the economic pressure attendant to such activities. However,
Congress has also expressly recognized, in particular by enacting
section 8(b)(4), that the right to exercise such economic leverage is
not unlimited, and must be closely regulated. When the immediate target
of that economic pressure is the employer with whom the employees have
a direct employment relationship and/or a labor dispute, that employer
is deemed to be the ``primary employer'' and the handbilling, picketing
and striking is thus deemed to constitute legitimate primary activity.
When, however, the target of the economic pressure is an employer that
has a business relationship with the primary employer, that employer is
deemed to be a ``secondary'' or ``neutral'' employer, and activity is
deemed to be ``secondary'' and outlawed by section 8(b)(4).
In enacting section 8(b)(4) Congress made clear that direct,
primary activity was legitimate and lawful. It made equally clear,
however, that secondary pressure aimed against neutral employer with
the object of causing that employer to adversely alter its business
relationship with the primary employer is unlawful. The prohibitions
against secondary activity in section 8(b)(4) are designed to protect
secondary or neutral employers from being enmeshed in the labor
disputes of the primary employer.
The Board's new joint employer standard would destroy the concept
of ``neutrality'' by finding the secondary employer to be a joint
employer whenever the primary employer is economically dependent on the
secondary employer. That would be so even though the secondary employer
has no ability or authority to control the employees' terms and
conditions of employment or to remedy the union's labor dispute. Under
the proposed standard, the secondary employer would become a joint
employer with the primary employer and the protections that Congress
specifically added to the Act through the enactment of section 8(b)(4)
would become meaningless.
4. The BFI Joint Employer Test Will Impose Massive Costs on
Businesses That Do Not Directly Control the Daily
Operations of the Other Joint Employer
Saddling a putative joint employer with all of the duties and
responsibilities required of direct employers under the Act could have
enormous financial and time-consuming consequences. For example, large-
scale franchisors who retain only the control required to protect their
brand, trade name and trademark could be drawn into hundreds of
collective bargaining relationships where they have little or no
involvement with the workplace. Additionally, joint employers with
limited involvement in the workplace would be required by section
8(a)(5) to execute bargaining agreements and subject themselves to
contractual and unfair labor practice liabilities without having any
control over day-to-day operations at myriad locations throughout the
country. Rather than accept such liabilities with no control over the
workplace, or engage in endless bargaining across the country, many
companies undoubtedly will opt to cancel subcontracts or franchise
arrangements, or subcontract overseas, thus displacing small businesses
and the millions of jobs that small businesses create. The impact upon
the economy of the Board's misguided new standard will be as
consequential as it is harmful.
iii. conclusion
The rationale that led the Board, three decades ago, to adopt a
direct control standard remains fully applicable today. No new facts or
industrial developments justify abandoning that test, and the language,
legislative history and purpose of the Act militate against the
purported ``standard'' the Board adopted in BFI. That new standard
sweeps too broadly and will enmesh separate businesses with different
interests in bargaining relationships that will render meaningful
negotiations far more difficult, result in far greater situations of
impasse in negotiations, and not benefit employees. It would create
massive uncertainty throughout large segments of American industry and
would cause significant economic upheaval. Moreover, it is not
justified by the reason the Board identified for the change because
contingent workers are already afforded the full protection of the Act.
The Board's adoption of the new standard is particularly troubling
given that it creates a host of practical and legal issues without
recognizing them, much less addressing them or providing guidance as to
how the amorphous standard might apply. Companies will learn for the
first time that they are supposedly the joint employer of workers who
are employed by wholly separate businesses when they face prosecution
by the Federal Government for unfair labor practices they did not
commit, or that only the employer of a group of workers' could have
committed. Without prior notice, the Board can subject them to
bargaining obligations and liabilities, and deprive employees of the
right to decide that they want a union to represent them in their
dealings with this newly discovered employer.
The Amendment would restore the standard for determining when a
particular group of workers is, for purposes of the Act, jointly
employed by more than one company. The Board had used that standard
consistently for more than 30 years and it is a standard that gave the
term ``employer'' its ordinary meaning, not a ``far-fetched'' one that
serves short-sighted political goals but undermines the Act. Congress
should act quickly to restore the labor stability that the Board's BFI
decision has thrown into turmoil before that decision causes the
serious damage that will otherwise be its inevitable consequence.
The Chairman. Thank you, Mr. Kisicki.
Mr. Rubin.
STATEMENT OF MICHAEL RUBIN, PARTNER, ALTSHULER BERZON LLP, SAN
FRANCISCO, CA
Mr. Rubin. Thank you, Senator Alexander, Senator Murray,
and members of the committee. Thank you for giving me this
opportunity to testify about the practical impacts of the
National Labor Relations Board's Browning-Ferris' decision.
I would like to focus on why the Board's joint employer
standard is entirely consistent with the purposes of the
National Labor Relations Act and why the Board reached the
proper result on the actual facts of that case.
I've had more than 30 years of experience representing low-
wage workers in industries like warehousing, garment
production, and janitorial services. In those industries and in
others where the use of perma-temp employees has become
increasingly common, violations of State, Federal wage and hour
and discrimination laws are rampant. Often, those violations
can be traced to the economic pressures that result when a
company that in the past would have employed those workers
directly instead decides to obtain its workers through a
staffing agency and then tries to contract away to the staffing
agency all responsibility for legal compliance.
Particularly in low-wage industries, staffing agencies and
labor services contractors are frequently undercapitalized, and
they operate on the tightest of profit margins. Even when they
are caught breaking the law, they often lack the resources to
pay significant back-pay awards, and they almost always lack
the ability to provide reinstatement or meaningful injunctive
relief. They also know that at the very first sign of workplace
dissent, not to mention union organizing activity, their
staffing contract is likely to be terminated, leaving them and
their workers without work.
The statistics cited by the Board dramatically illustrate
the recent upsurge in labor outsourcing. Between 1990 and 2008,
the number of workers hired through staffing agencies doubled
from 1.1 million to 2.3 million. Last year, the number was
almost 3 million, and it is expected to jump to almost 4
million by 2022.
Not surprisingly, studies have shown a strong correlation
between labor outsourcing and high levels of employment law
violations, as well as lower wages, limited or no benefits, and
tremendous job insecurity. Fifty years ago, there would have
been no question that a worker performing conveyor belt or
assembly line work in a plant like Browning-Ferris would be
considered the employee of the company that owned and operated
that plant. Fifty years ago, it was unusual for a company like
Browning-Ferris even to consider contracting out its core
operational functions.
In the Browning-Ferris case, the Board recognized that
although Browning-Ferris had contracted out its in-plant
recycling work, it continued to control crucial terms and
conditions of the plant workers' employment. Browning-Ferris
required Leadpoint's workers to meet its own pre-employment
screening standards. It trained them how to do their jobs. It
reserved the right to reject any worker offered by Leadpoint
for any reason or no reason at all.
Browning-Ferris also set the pace of the conveyor belts
that the workers worked on. It decided when to allow the
workers to take breaks. It established safety and productivity
standards. It decided when overtime would be required and how
many workers would be required to work that overtime, and it
gave job instructions to those workers, both directly and
through their supervisors. It also placed a cap on the hourly
rate that any Leadpoint worker could be paid, and it prohibited
Leadpoint from increasing any worker's wages without its
express approval.
On these facts, it should have come as no surprise that the
Board found that Browning-Ferris and Leadpoint were both
statutory employers of the in-plant workers for purposes of
collective bargaining. It makes sense that a company with the
power to determine or co-determine workplace conditions should
have a corresponding duty to engage in collective bargaining
over those conditions.
The Board's ruling was entirely consistent with the
longstanding collective bargaining policies of the Act and with
decades of common law authority, including the right to control
language in the restatement of the law of agency which has set
forth the common law standard since before the National Labor
Relations Act was enacted. To limit the definition of employer
under the NLRA to accompany whose control is actual, direct,
and immediate, as the proposed Republican bill would do, would
be to impose a harsh standard that would undercut the goal of
encouraging meaningful collective bargaining, and it would be
far more restrictive than the common law standard or other
workplace statutes, like the Fair Labor Standards Act, the
Equal Pay Act, and many State law statutes.
Certainly, the proposed bill's change in the definition of
employer would have seriously negative impacts on workers,
leaving those most in need of statutory protection without any
meaningful remedy, temporary at-will workers. It would also
hurt small business owners, because it would make them solely
responsible for collective bargaining, even when they lack
meaningful authority to fulfill their statutory
responsibilities.
There's no need for such a change, because any company that
wants to avoid responsibility for bargaining can simply give
its supplier companies greater independence in controlling
wages, hours, and working conditions.
We've seen the practical impacts of the modern fissured
workplace in industry after industry, warehouse workers,
garment workers, performing piece rate work for fly by-night
contractors----
The Chairman. Could you wind it up soon, Mr. Rubin?
Mr. Rubin. I will. Thank you--who compete based on low
labor costs. The NLRA's central promise is to promote
collective bargaining as an alternative to labor strife. Before
Browning-Ferris, those workers had no realistic opportunity to
bargain for improved conditions with a company that could
actually co-determine their terms and conditions of employment.
Thank you.
[The prepared statement of Mr. Rubin follows:]
Prepared Statement of Michael Rubin
Let me begin by thanking the committee Chair, Senator Alexander,
Ranking Member Senator Murray, and the other committee members for
giving me this opportunity to testify about the Board's recent
Browning-Ferris decision and its practical impacts in the modern
workplace. Based on my more than 30 years of experience representing
low-wage workers in industries where the use of staffing agencies and
labor services contractors has become pervasive, I will principally
address why the Board's joint employer test under Browning-Ferris is
critical to protecting the rights of workers and to achieving the
stated purposes of the National Labor Relations Act, and why the Board
reached the only proper result given the facts of that case.
I am a lawyer in private practice in San Francisco who frequently
represents low-wage workers in wage-and-hour, discrimination, and other
labor and employment cases. My clients have included warehouse workers,
janitors, security guards, restaurant employees, and concession stand
hawkers, among others. In my experience, especially in recent years, it
has become far easier to prove that low-wage workers' fundamental
statutory rights have been violated than to obtain a meaningful remedy
that will make those workers whole and prevent future violations. Often
this is because the company that ultimately controls their wages,
hours, and working conditions has contracted away (or tried to contract
away) its legal duty to comply with State and Federal employment law.
In the low-wage economy in which many of my clients are employed,
wage-and-hour violations, discrimination, and other unlawful conduct is
rampant, yet the workers whose rights are violated rarely complain or
join together to enforce their rights. There are several reasons why
that is so. Often, the workers' direct employer is an undercapitalized
temp agency or labor services subcontractor. Even when that direct
employer has plainly violated the NLRA or other workplace statute, it
may be judgment-proof or unable to pay a significant back pay award or
other money judgment. An injunction or reinstatement order against such
a company--whether it supplies garment workers in Los Angeles, janitors
in Texas, or warehouse workers in California or Illinois--may be
worthless, because the ``user'' company can simply terminate its
contract, leaving the supplier company and its workers without any work
at all. Labor services contracts are almost always at will, terminable
upon short notice; and user companies can and do terminate their
suppliers' contracts at the first sign of legal claims filing or labor
organizing efforts. The user company then simply re-bids the job to the
next supplier company that promises to keep its labor costs low enough
to win the bid.
If the only company that can be held responsible for back pay or
reinstatement in this increasingly common scenario is a staffing
company whose labor services contract can be terminated at will, the
workers' statutory right to overtime pay, a fair wage, and protection
from discrimination, retaliation, and other unfair labor practices
becomes little more than an empty promise.
The statistics cited in Browning-Ferris and elsewhere dramatically
illustrate how rapidly the composition of the American workplace has
changed. Between 1990 and 2008, the number of workers employed through
temp agencies doubled from 1.1 million to 2.3 million. A year ago, the
number was close to three million workers, or roughly 2 percent of the
American workforce. That number is expected to rise to almost four
million by 2022. It should come as no surprise that in industries in
which such outsourcing is common, studies have shown significantly
higher levels of employment law violations, lower wages, and job
insecurity.
This increasingly fissured nature of the America workplace was the
source of the problem facing the Board in Browning-Ferris. Fifty years
ago, there would have been no question that the workers who perform
conveyor belt or assembly line work were ``employees'' of the plant
owner. But 50 years ago, it was unusual for any company even to
consider contracting out the core job functions required to operate its
business. Just as the Board now has to consider the workplace impacts
of social media and other technology that no one dreamed possible in
the 1930s, so was it required in Browning-Ferris to evaluate the
parties' bargaining obligations in light of their actual workplace
relationships, consistent with its statutory duty to ``adapt the Act to
changing patterns of industrial life,'' as the Supreme Court required
in NLRB v. Weingarten.
Browning-Ferris arose in the context of an election petition filed
by a Teamsters local seeking to represent approximately 240 workers.
The union alleged that those employees were jointly employed by
Browning-Ferris and Leadpoint Business Services, its labor services
contractor. The Board began by tracing the history of the joint-
employer doctrine under Board law. It concluded that although the
standards governing joint employment under the NLRA had been fairly
consistent between at least the Greyhound case in 1964 (which the 5th
Circuit had enforced) and an earlier Browning-Ferris case in 1984
(which the 3d Circuit had enforced), that standard had been
significantly narrowed by a series of Board decisions starting in the
mid-1980s that--without explanation or apparent justification--made it
much harder to prove joint employer status by adding requirements that
were never part of the original common law test. Under those cases,
which the Board overruled in Browning-Ferris, the General Counsel had
been required to prove not only that the user company had the right to
control the affected workers' terms and conditions of employment, but
that it actually exercised that control, and did so in a manner that
was both ``direct'' and ``immediate.'' \1\
---------------------------------------------------------------------------
\1\ See, e.g., TLI, Inc., 271 NLRB 798 (1984), enf 'd mem. 772 F.2d
894 (3d Cir. 1985); Laerco Transportation, 269 NLRB 324 (1984);
Airborne Express, 338 NLRB 597 (2002); AM Property Holding Co., 350
NLRB 998 (2007), enf 'd in relevant part sub nom. SEIU Local 32BJ v.
NLRB, 647 F.3d 435 (2d Cir. 2011).
---------------------------------------------------------------------------
The Board in Browning-Ferris found no basis for those additional
requirements ``in the common law, or in the text or policies of the
Act,'' and it supported that conclusion with citations to more than two
dozen prior cases as well as the First and Second Restatements of
Agency, which set forth the basic common law test that has been in
effect since well before the NLRA was enacted.
Turning to the evidentiary record (as is required in these fact-
specific cases), the Board conducted a detailed review and concluded
that Browning-Ferris and Leadpoint were joint employers of the
recycling plant workers for purposes of collective bargaining. Many
facts supported this conclusion. Although the companies' contract
stated that Leadpoint was the workers' sole employer, Browning-Ferris
in fact dictated many of the terms and conditions of those workers'
employment. Browning-Ferris had the absolute right under its contract
to terminate the entire Leadpoint workforce, without cause. Browning-
Ferris provided training to the workers, required them to undergo
rigorous pre-employment screening, and prohibited Leadpoint from
sending it any worker whom Browning-Ferris declared ineligible for re-
hire. Browning-Ferris also retained the contractual right to reject any
worker sent by Leadpoint ``for any or no reason,'' and twice it told
Leadpoint to remove workers from its plant for violating workplace
rules.
Browning-Ferris also co-determined workplace conditions by
controlling the speed of the conveyer belts, setting productivity
standards for the workers, deciding when to stop the conveyer belts to
permit breaks, and establishing safety standards that the workers had
to satisfy. It was solely responsible for determining when and how many
shift workers would be required to work overtime. It conducted pre-
shift meetings with Leadpoint supervisors every day to tell them what
work was required on each shift, and its managers gave direct
instructions to those workers concerning job tasks and quality control.
Browning Ferris also placed a cap on what those workers could be paid
and required Leadpoint to obtain its express approval before increasing
any worker's wages.
Based on these facts viewed as a whole, the Board concluded that
Browning-Ferris and Leadpoint were both statutory ``employers'' of
those workers for purposes of collective bargaining. Those two
companies ``share[d] or codetermine[d] . . . matters governing the
essential terms and conditions of employment'' and ``possess[d]
sufficient control over employees' essential terms and conditions of
employment to permit meaningful collective bargaining.''
That outcome of Browning-Ferris should have come as no surprise.
Under the Board's former joint-employer test, which required proof that
a company exercised actual control that was both direct and immediate,
Browning-Ferris might have been able to continue dictating the most
crucial terms and conditions of the workers' employment, while avoiding
any obligation to bargain over those terms and conditions by using
Leadpoint as an intermediary. That would not have been the proper
result, given the Board's statutory mandate to protect the right of
employees to engage in concerted activity and to bargain collectively
with their employers--the entities that can meaningfully determine, or
co-determine, terms and conditions of employment. The Board's ruling in
Browning-Ferris ruling was entirely consistent with prior Board law and
considerable Federal appellate authority, and it was completely in line
with the Restatements of Agency--which State the common law standard
and which the Board quoted at length in its ruling--and with prior
rulings of the U.S. Supreme Court under other common law statutes.
A ``joint'' employer, whether under the NLRA or any other State and
Federal workplace statute, is simply an ``employer''--as defined by
applicable statute or common law doctrine--in circumstances where more
than one entity (or individual) satisfies the legal definition of
``employer.'' No person or entity can be a ``joint employer'' without
first being an ``employer.''
The standards for determining who is an employer differ from
statute to statute and from jurisdiction to jurisdiction. For example,
the NLRA, ERISA, and the Internal Revenue Code adopt different variants
of the common law ``right to control'' test, adapted to suit the
purposes of those statutes,\2\ while the FLSA, Family and Medical Leave
Act, and the Agricultural Workers Protection Act adopt the more
protective ``suffer or permit'' standard that was derived from the
State child-labor statutes of the early part of the 20th century.\3\
Because the definition of ``employer'' can vary, it is possible for a
particular labor services contractor to be in a joint-employer
relationship for purposes of providing FMLA leave, but not with respect
to a claim for NLRA retaliation; just as a worker may be an
``employee'' for purposes of minimum wage and overtime protections, but
not for purposes of the right to collectively bargain; or under
California, but not Texas employment law.
---------------------------------------------------------------------------
\2\ See 29 U.S.C. 152(2) (NLRA); 29 U.S.C. 1002(5) (ERISA).
\3\ See 29 U.S.C. 203(g) (FLSA); 29 U.S.C. 2611(3) (FMLA); 29
U.S.C. 1802(5) (AWPA).
---------------------------------------------------------------------------
If the recycling plant workers in Browning-Ferris had been denied
minimum wage payments or overtime under the FLSA, or had been deprived
of rights under the California Labor Code (which incorporates, in part,
the same suffer-or-permit standard as the FLSA), they would surely have
been able to establish that Browning-
Ferris was their ``employer'' within the meaning of those laws. FLSA
cases going back to at least United States v. Rutherford in 1947 make
that clear.
Even though the common law standard under the NLRA is not as
protective of worker rights as the suffer-and-permit standard under the
FLSA and other Federal labor statutes, the proposed Republican bill
would make the NLRA standard far less protective still, allowing
companies to avoid bargaining over workplace conditions they have the
authority to control, simply by funneling that control indirectly
through an at-will supplier. To limit the definition of ``employer''
under the NLRA to a company whose control over essential terms and
conditions is ``actual, direct, and immediate'' would be to create a
standard that is far less protective than the common law itself, and
that would undermine the right to bargain collectively by imposing
restrictions that are entirely inconsistent with Congress' broad
delegation of authority to the Board to construe the NLRA in light of
evolving workplace conditions.
Enacting the proposed narrow definition of ``employer'' would have
seriously negative impacts not only on workers, but on small business
owners as well. First, of course, it would leave without remedy the
workers most in need of statutory protection, those who are most
susceptible to exploitation because they are temporary at-will
employees without union representation or collective voice. But it
would also leave small business owners in the untenable position of
being solely responsible for labor law compliance and collective
bargaining even when they lack the authority or means to fulfill that
legal responsibility. And such a change is not necessary, because any
user company that does not want to be responsible for bargaining over
the workplace conditions it controls can simply restructure its
relationships to give its suppliers greater independence and leeway in
controlling wages, hours, and working conditions.
The pressure to cut labor costs while meeting productivity quotas
inevitably results in a race to the bottom, where the supplier company
often can only make a decent profit by violating its workers' right to
legally mandated wages and other workplace protections. We have seen
this scenario repeated in low-wage workplaces throughout the country,
and in a broad range of industries--with the resulting heavy burden on
social services and State and Federal tax receipts.
In a recently completed case involving warehouse lumpers in
southern California, for example, where I was one of the attorneys for
the plaintiffs, hundreds of workers were employed in four Walmart
warehouses, unloading and re-loading trucks for deliveries to Walmart
distribution centers throughout the country. Walmart owned the
warehouses and all of the contents of the trucks. A subsidiary of
Schneider Logistics, Inc. operated the warehouses. The workers were
hired by two labor services contractors. By contract, all
responsibility for legal compliance rested solely with the labor
services contractors. Yet the facts set forth in the district court's
joint employer rulings showed that Walmart and Schneider had retained
for themselves--the contractual--the right to control almost every
aspect of those warehouse workers' employment, both directly and
indirectly.
The violations we found in those warehouses were extensive. But the
only reason the workers were eventually able to obtain relief--through
a $22.7 million settlement that resulted in many class members
receiving tens of thousands of dollars each as compensation--was
because of a series of court rulings that found the warehouse workers
had established a likelihood of success in proving that Walmart,
Schneider, and the staffing agencies were the workers' joint employers.
The two staffing agencies were undercapitalized (which is why they
could only afford to pay a combined 7.5 percent of the total settlement
amount). They were pressed past the point of lawfulness by the economic
and operational pressures imposed by Walmart and Schneider. They had no
ability to make the workers whole or to provide any meaningful
injunctive relief. Nor could they push back by forcing Walmart or
Schneider to pay them more money or ease productivity or operational
standards. Only because the Federal courts focused on the actual
working relationships in those warehouses, as the Board did under the
NLRA in Browning-Ferris, were the workers able to be compensated for
past violations, to obtain higher wages and significant benefits, and
hopefully, to have deterred future violations.
We have seen the practical impacts of the modern fissured workplace
in industry after industry: garment workers performing piece rate work
for fly by-night contractors who compete almost solely based on low
labor costs; restaurant workers whose immediate employer declares
bankruptcy after the workers seek back pay for Federal and State
overtime violations; and sports arena hawkers who nominally work for a
staffing agency but are told by the sports arena's managers what to
sell, where to sell it, what they can and cannot say, what they must
wear, and how they can appear. Without a meaningful opportunity to
pursue remedies against all joint employers having a right to control
essential working conditions, many of these workers would be left
remediless, despite their statutory ``right'' to minimum labor
standards protection. And despite the NLRA's central promise of
promoting collective bargaining as an alternative to labor strife those
workers would have no opportunity to bargain for improved conditions
with the company that in fact co-determines the terms and conditions of
their employment.
Judge Frank Easterbrook famously noted in the Seventh Circuit case
of Reyes v. Remington that if the joint employer standards are properly
enforced, the inevitable result (assuming economically rational actors)
will be a significant decrease in workplace violations and a
corresponding increase in worker protection, because companies with the
ability to control workplace conditions will also have the incentive to
ensure legal compliance. Similarly, under the NLRA, the inevitable
result of Browning-Ferris is that the purposes of the NLRA will be
furthered, not undermined, because the companies having the ability to
control workplace conditions will be required to bargain over those
conditions, allowing their employees to act collectively for the
purposes of mutual aid and protection in furtherance of the ultimate
goal of labor peace.
The Chairman. Thank you, Mr. Rubin, and thanks to all of
you. We'll now have a 5-minute round of questions, and I'll
begin.
Mr. Kisicki, 40 years ago when I was a young lawyer, I
represented a company called Ruby Tuesday. They only had 10
stores. I owned a little bit of it. It wasn't worth much then.
I could understand then the issue of what direct control might
be over a Ruby Tuesday franchisee. I'm not involved with it
anymore and haven't been for some time--but the company has now
grown to 800 restaurants. Some are franchises, and some are
owned by the parent company.
I'm trying to figure out how I could advise the
headquarters of Ruby Tuesday or any other restaurant company
how they could not have unexercised potential to control
hiring, firing, wages, all these decisions, or how they could
not have indirect control of all these decisions. It would
cause me to suggest to them that if they wanted to avoid
liability, they should simply own all their stores rather than
allow them to be franchised. What would you advise them?
Mr. Kisicki. I'm afraid that I'm not going to try and
advise Ruby Tuesday. It sounds like you could take care of that
yourself, Senator. I would like to, however, observe that
you're absolutely right, that the lack of clarity in this area
makes it extremely difficult for us as counselors to----
The Chairman. Wouldn't a franchisor have an unexercised
potential to do about anything with a franchisee? Over a period
time, they certainly would.
Mr. Kisicki. They certainly can terminate the franchise
contract, which then----
The Chairman. They could say, ``If you don't do this, I can
terminate the contract.'' That seems to me to be de facto,
unexercised potential to control any franchisee.
Mr. Kisicki. The test that the NLRB has adopted allows for
just that. We just don't know.
The Chairman. Based on your experience and knowledge of
companies, would you not think that as a result of that
liability or that uncertainty that the tendency for a lot of
large companies would be to own their own stores rather than to
allow franchisees to own stores?
Mr. Kisicki. Yes, Senator. Because of potential liabilities
under various other labor and employment laws, in particular,
and concerns about protecting their interest, many companies
would be inclined to try and extend their power and control.
The Chairman. Ms. Stockeland, let me ask you. You started
your company 9 years ago. You've got 11 franchisee
establishments. Would you have been able to grow so quickly
without relying on the franchise model?
Ms. Stockeland. No. The franchise model really gave me the
opportunity to take my brand and to expand it and to create
jobs and give opportunities to other potential entrepreneurs
around the country. I did not want to run a company-owned
business from a remote location in North Dakota and manage
those employees. Franchising really gave me the vehicle to
expand my brand throughout the United States.
The Chairman. How would it change your business if instead
you owned all 11 sites, and what would your employees think
about having you set their schedules, pay, and benefits instead
of the person who hired them?
Ms. Stockeland. It would be really disheartening, both to
the employees of those franchises and to the franchisees
themselves. Those women who own my franchises around the
country got into the MODE business model because they want to
own a business and control both their business and their
employees. To take that away from them and make them virtually
the middle man, middle manager, would be very disheartening to
them.
The Chairman. Mr. Kisicki, the UCLA Labor Center's Victor
Narro stated in an article last month,
``The NLRB has the power to influence the Department
of Labor and other Federal agencies to cover other
areas of worker law. It's very easy to see a possible
scenario where you're using the same joint liability
standard. You could argue that in court and go before a
judge or you could try to get the Department of Labor
to change its definition.''
We've noticed through a leaked document from the
Occupational Health and Safety Administration that it is
beginning to use a similar joint employer definition. Do you
believe the Department of Labor or the EEOC could merely adopt
this much broader joint employer standard without going through
the rulemaking process? Why do you suppose that OSHA is going
around trying to figure out whether some employer is a joint
employer when its job is really worker safety?
Mr. Kisicki. The only answer I have for that, Senator, is
it appears to be part of a concerted effort by labor and its
allies to hold incredible leverage over employers by being able
to use Federal agencies to step outside of the bounds for which
they were created by Congress, to protect, and try and go after
other areas that then give labor leverage in various ways in
our economy.
I don't understand OSHA's reach, and I certainly think it
is possible that other Federal agencies will try the same thing
and try and extend the NLRB's BFI decision, or Browning-Ferris,
to their statutes to try and expand the scope of liability.
The Chairman. Thank you.
Senator Murray.
Senator Murray. Mr. Rubin, let me start with you. We all
know that we have a lot of workers today who are struggling
with stagnant wages, poor working conditions on the job, and
you, as representative, have worked with a lot of them.
Oftentimes, those workers have very little recourse to try and
join together to improve their working conditions, even as some
of the major corporations are making massive profits.
Today we have some colleagues who want to continue to
advocate for a return to a very narrow standard that has
perpetuated some of those problems for the working families.
Could a return to that old standard, as advocated in the
Protecting Local Business Opportunities Act, have a negative
impact on small businesses and their employees?
Mr. Rubin. Absolutely. First of all, the standard that the
Board in Browning-Ferris adopted is the old standard. It's the
common law standard. It's the standard that has been in effect
for the first--quite a few decades after the Board was enacted.
To go back to a standard that requires actual direct and
immediate control in this era, given the large number of
contingent workers, would certainly hurt the workers, but even
more, it would hurt the contractors.
The contractors are caught in vice-like pressure between
the contractors that hire them and their obligation to comply
with the law. They have no real power to meaningfully bargain.
They're often under-capitalized.
In the garment industry and the warehouse industry, where
I've had extensive experience, they have no choice but to keep
the contractor that hires them happy. They need to get the next
job. They're more interested in getting those contracts than in
legal compliance because they know the workers are powerless.
The workers fear retaliation. They know that their entire
contract will be terminated if the workers begin to organize or
complain about working conditions.
A return to the old standard, the addition of actual,
direct, and immediate, would harm small businesses. It would
deprive them of the opportunity to become truly independent, to
become true entrepreneurs, because if the larger companies back
off and let them control their own workforces and bargain for
themselves, then they're much better off.
Senator Murray. In its decision on BFI, the Board noted its
Supreme Court mandated responsibility to adapt the National
Labor Relations Act to the changing patterns of industrial
life. In your testimony, you touched on these, especially the
current fissured nature of the workplace that you're talking
about. In your practice, what real-world issues have you seen
with current work arrangements, and what impact will this
decision have on those arrangements?
Mr. Rubin. This will help a great deal. It would help both
the workers, the local economies, and the contractors that
employ them. The reality is that in the low-wage industries
where my clients often work, the workers are absolutely
powerless. They have to take whatever the temp agencies or
staffing agencies give them.
They know if they complain--this happened in my warehouse
workers case. We had a situation where a Walmart-owned
warehouses. It had another company, Schneider, operate them.
Schneider hired two grossly under-capitalized labor services
contractors. The workers, as soon as they complained, were
terminated by bringing a lawsuit and by making joint employer
allegations, not under the Browning-Ferris standard, but under
the far more protective FLSA and State law standard.
It's important to bear in mind that what the Board has done
here is just bring the NLRA in compliance with common law.
There are plenty of statutes out there passed by this Congress
that are far more protective and establish joint employer
liability much more quickly. In that circumstance, the workers
had no opportunity in these warehouses to complain.
By bringing a joint employer claim under the FLSA and State
law, we were able to ensure that they kept their jobs, they got
raises, they were compensated for the violations. Otherwise,
you've got a very vulnerable workforce subject to exploitation
because they know if they do anything to organize, their jobs
are gone and their co-workers' jobs are gone. There's group
pressure to keep your mouth shut and just take whatever the
employer dishes out.
Senator Murray. The Supreme Court has said the Board has a
responsibility to adopt the Act to the changing patterns of
industrial life. What you're talking about with major
corporations who are actually controlling the franchises,
controlling workers' pay, controlling their working conditions,
is vastly different than what I heard Ms. Stockeland talk about
with her franchisees.
Mr. Rubin. Absolutely. That's not the problem. What she's
doing with her company is great, the way she describes it. The
problem is with the massive use of temp agencies, staffing
agencies, contract workers that compete among each other in a
race to the bottom, based on labor costs alone.
By contracting out this work, the companies are able to
save a tremendous amount in labor costs. We've seen it in case
after--in the warehouse case, there was a jump of $8 per hour
or so between what the direct employees were making and what
the perma-temps were making. In cases around the country, we've
seen that disparity, because all the temp agencies have to
compete on is labor costs, and, therefore, they have a great
incentive to cut it to the bone or below the legally required
minimum.
Senator Murray. Thank you.
The Chairman. Thank you, Senator Murray.
Senator Isakson.
Statement of Senator Isakson
Senator Isakson. Thank you, Mr. Chairman.
Mr. Martin, if I got your numbers right, you've been in
business 83 years, and you have 140 employees. Is that right?
Mr. Martin. Yes.
Senator Isakson. You have 287 contractors with whom you do
business to construct houses?
Mr. Martin. Yes.
Senator Isakson. They average 15 employees or independent
contractors per contractor?
Mr. Martin. Approximately, yes.
Senator Isakson. If the indirect standard were applied, as
has been portended by some of the testimony today, that means
you would go from employer responsibility for 140 people to
4,305. Is that about right?
Mr. Martin. If all of them were considered employees.
Senator Isakson. You'd be doing no more business. You'd be
doing the same business. Could you stay in business adding that
many employees to your responsibilities?
Mr. Martin. The biggest problem--there's all sorts of
problems with it. One of the biggest problems is we schedule
subcontractors to work on our jobs. If we had to schedule
subcontractors and their workers, the logistics of that, doing
it over statewide, would be unsurmountable. The other problem
is I would have to gear up my human resources department to
such a degree it would quadruple it, quadrupling our cost in
trying to manage our employees.
I would be very concerned about staying in business with
doing the same amount of homes with 4,000 or, even if you were
very conservative, 200 to 300, which is still double my size.
It would be very difficult.
Senator Isakson. Which would probably mean you would have
to consider selling your company. Is that not correct?
Mr. Martin. Yes, I'd probably have to sell to a----
Senator Isakson. Somebody like Ryan or Riley or one of the
big----
Mr. Martin. Right, DR Horton, Centex.
Senator Isakson. That had the critical mass to hopefully
absorb that? Is that not correct?
Mr. Martin. Right.
Senator Isakson. The second question--when you get a
subcontractor to do HVAC or grading work or sheet rock or
whatever, you require probably two things of that contractor.
One is a bond, and second is insurance. Is that correct?
Mr. Martin. We require insurance. We don't require a bond,
not typical in residential construction.
Senator Isakson. Beyond that requirement, in residential
construction, the work schedule is determined by the weather,
by other conditions, and not determined by you. You determine
what you need done, but they have to do it within the confines
of that product. Is that not right?
Mr. Martin. That's correct. We have a critical path that we
try to stick to, given the weather and homeowner involvement.
Senator Isakson. You don't pour concrete when it's below 32
degrees, right?
Mr. Martin. No. It doesn't get below 32 degrees too much in
Texas, but you----
Senator Isakson. But you never know.
Mr. Martin [continuing]. Never know.
Senator Isakson. Thank you for--I was in the business for
33 years----
Mr. Martin. I knew you were.
Senator Isakson [continuing]. And I appreciate homebuilders
very much. I couldn't have educated my kids had it not been for
homebuilders building houses to sell, and I appreciate that
very much.
Mr. Martin. Same here.
Senator Isakson. Mr. Rubin, I want to make sure I get this
right, and I certainly don't want to say something that's not
correct in what you said. I was listening to your testimony.
You talked about the economic pressures--you were talking about
staffing companies, first of all, talking about the economic
pressures on those staffing companies because they have the
tightest of margins. That was your quote, if I'm not mistaken.
Mr. Rubin. That's part of it, that plus the quotas, the
productivity requirements, the auditing, the real time. Yes,
it's one of a number of factors--but great economic pressures.
That's correct.
Senator Isakson. If the company that was getting the
staffing company to provide independent contractors all of a
sudden was a co-employer, they might have a deeper pocket. Is
that not correct?
Mr. Rubin. In many cases, they do. As long as they hire a
sufficiently capitalized contractor and ensure that the
contractor doesn't commit any unfair labor practices, they
don't have anything to fear from the Browning-Ferris decision.
It only applies in the narrow circumstances where there could
be a Board proceeding, and there are only two circumstances
where that can happen.
The first is where there are unfair labor practices
committed. If there are no unfair labor practices, then there's
no problem at all, no matter what the standard is. And, second,
it only arises if there is a request for bargaining by a
majority of the employees of the contractor, and there the
question is simply is there going to be meaningful bargaining
without the larger company.
It's not as much a deep pocket problem as it is what's the
point of having collective bargaining unless you can
meaningfully affect the terms and conditions. That's why you
have to include the company that can share or co-determine the
essential terms and conditions of employment.
Senator Isakson. Don't take any offense to this statement,
but as somebody who has been on the other side--and I respect
lawyers, especially my own, so I have nothing against lawyers.
Is a reasonable fear by a lot of franchisors that they might
all of a sudden be the deeper pocket that trial lawyers would
go after because the franchisee had a smaller pocket?
Mr. Rubin. Not because of the NLRA. The concern that
franchisors would have about the deep pocket would be under
statutes like the FLSA or others that have the suffer or permit
test which is going to make them liable as a joint employer far
before the NLRA.
The back pay awards under the National Labor Relations Act
are usually not very large. Discrimination claims, wage and
hour claims--those are the claims where the deep pocket might
be a concern. This decision has nothing to do with that, and
the standard is far less protective of workers' rights than the
standard under those other Acts.
Senator Isakson. Mr. Chairman, could I ask unanimous
consent that a letter from the Asian American Hotel and Owners
Association be entered into the record?
The Chairman. It will be.
[The information referred to may be found in Additional
Material.]
Thank you, Senator Isakson.
Senator Franken.
Statement of Senator Franken
Senator Franken. Thank you, Mr. Chairman.
We've heard a number of claims that the Board's Browning-
Ferris decision would be bad for small businesses, and, in
fact, the title of today's hearing, ``Stealing the American
Dream: The NLRB's Joint Employer Decision.'' It's a pretty--
it's a provocative title, I would say.
Mr. Rubin, how does the joint employer standard under the
NLRB's Browning-Ferris decision differ from the traditional
interpretation of the law which was used prior to 1984, a
period where countless small businesses and businesses
flourished and the middle class expanded?
Mr. Rubin. It does not differ. The new standard goes back
to the common law standard, to what the standard had been as
set forth in numerous Board cases and Court of Appeals cases.
The point I made in my opening statement and my prepared
remarks is it's completely consistent with a restatement of
agency in its comments which set forth that standard. The
Board, at great length, went through that law.
Senator Franken. Mr. Martin, your company has been in
existence for 83 years, 51 years under the standard that we're
talking about now. I don't understand how this would be the
death of small business or of business ownership.
Mr. Rubin, in your testimony, you cite figures showing that
in industries where outsourcing is common, studies have shown
significantly higher levels of employment law violations, lower
wages, and job security. These figures confirm what I've been
hearing in Minnesota from subcontracted janitors across the
Twin Cities area who have been fighting to bargain for better
working conditions.
Can you tell us about what your 30 years of experience
representing struggling low-wage workers have shown you about
the fissured workplace? What do you think has been the effect
of narrowing the definition of joint employer during the
Reagan-Bush era decisions? What effect have these long-term
pressures been on workers' wages and the opportunities for
Americans to work their way to middle-class life?
Mr. Rubin. It's had a significant decreased effect on--
wages were lower, there were fewer benefits. I've experienced
this in case after case. Workers fear complaining, bringing
lawsuits. They can't find attorneys who would pursue claims.
They have no right to bargain. The percentage of bargaining in
these industries is extremely law, and large companies are
encouraged because of the weak laws, the formerly weak laws, to
exert more and more control.
The reason it's hard as a small business person is that the
large companies not only dictate productivity and price and so
many other elements, but because of modern technological
advances, they can audit the workplace more. It's not just GPSs
and bar codes anymore. They know exactly in many industries--
warehousing, in particular, deliveries--where any product is at
any time, what any worker is doing at any time. Workers have to
press bump bars after they finish every particular task.
There is much more detailed control over what the workers
do. The larger companies know about it, and they're pressuring
their subcontractors to cut labor costs to the bone, knowing
that the workers can't complain.
Senator Franken. What we've seen in the last 31 years is
really a flattening of the median wage, if not lowering, and we
hear on the campaign trails, the Presidential campaigns, talk
about the middle class and getting into the middle class, those
who are aspiring to be in the middle class. I hear from workers
that they can't afford to be a good parent.
You have--we talk about the woman who worked as a
housekeeper in a hotel, people in warehouses, janitors. Their
wages make it impossible for them--I hear from them, saying,
``I can't make enough money to be a good parent.''
A single parent who has to take--this isn't their only job.
They do two jobs. They don't make enough money so that their
kid can go to camp in the summer, and they can't be home with
their kid because they're working two jobs. That's because
they're getting such low wages from these subcontractors who
are being controlled by the contractor.
This isn't about your business, Ms. Stockeland. This is
about a different thing. To say that this--we're killing the
American Dream with this--the American Dream worked pretty good
before 1984. We're not trying to kill the American Dream. We're
trying to stir the American Dream.
The Chairman. Thank you, Senator Franken.
Senator Roberts.
Statement of Senator Roberts
Senator Roberts. Thank you, Mr. Chairman. Thank you for
holding this hearing.
Thank you all for being here today. I want to point out
that 96 percent of the businesses in Kansas are small
businesses. That's the answer in terms of economic development
for our State. With those folks being our job creators, we need
to act as partners with businesses and not against them to
ensure high employment and economic growth across our State and
the Nation.
This new standard delivered by the National Labor Relations
Board seems to stand in the way of opportunity and growth.
Millions of franchisors, franchisees, contractors,
subcontractors, temporary staffing firms will be harmed in
addition to those who wish to be employed by one of those
industries.
I've heard from folks all around Kansas asking me what this
means for their business. That means uncertainty, because that
means they can't really predict the future, and that's a pretty
good question. The uncertainty this new standard brings is
open-ended.
In fact, just yesterday, I had a chance to hear from a
woman in Wichita who recently opened her first business as a
franchisee. She opened the doors 10 weeks ago. The endeavor of
this concept began 6 months ago, and the experience she needed
to start began a lifetime ago working with our local businesses
in the community. She got a lot of help.
As a franchisee and a new business owner, she looked for a
strong brand name that would do well in her community. She
enjoyed the franchise model, which included the foundation from
which to launch her business.
When asked if she would still have opened her dream store
if this standard had been in place at that time, she answered,
``You know, I'm not sure. This would have been a huge red flag.
I didn't open a store to have others run it.'' The franchisor
happens to be Ms. Stockeland, and this is a designer outlet,
and it's an outstanding business.
She makes a good point. The standard, when applied,
disincentives young entrepreneurs from startups and would make
franchisors liable for folks they didn't intend to be liable
for.
Ms. Stockeland, you remarked in your testimony when you
enter into an agreement with a franchisee, they believe they
are signing up to own and operate their own business. Is that
correct?
Ms. Stockeland. That is correct.
Senator Roberts. Are you exploiting anybody?
Ms. Stockeland. I am not.
Senator Roberts. I didn't think so. You do this because you
have confidence in them to use your trademark, your business
model, and the reputation of the franchise you have strongly
built. I see that you hope to open 75 stores by 2024. Is that
correct?
Ms. Stockeland. That is correct.
Senator Roberts. That's a wonderful goal, and I wish you
the best of luck in this opportunity. It's not a matter of
luck. It's a matter of expertise. Do you think the possibility
of this standard applying to your new franchisees will impact
the number of entrepreneurs that contact you and, therefore,
negatively impact the road that you're trying to take?
Ms. Stockeland. Absolutely, and it will also impact the
interest to take those phone calls by me.
Senator Roberts. I appreciate that very much.
Finally, a store owner in Overland Park--which is the
fastest growing community we have in the State of Kansas, full
of small business people and exactly the people that were
described by the distinguished Senator when he was in business
himself. He told me, ``Look, I bought a business model, not a
business manager.'' I fear when potential franchisees hear of
this standard, they will choose not to invest into business in
their community or in what could turn out to be a family-run
business.
I don't know why we continue with all of the Federal
agencies involved with this regulatory overkill that makes it
almost impossible to progress. I just had an old boy call me
out in western Kansas, who said, ``I don't feel governed. I
feel ruled.'' And that's the problem. I don't care if it's
energy, education, small business, farming and ranching, or
whatever, the regulatory overkill is just unbelievable. I just
don't know why we continue down this road.
Ms. Stockeland, thank you for your example, and I hope
you're able to continue with the way you want to run your
business.
Ms. Stockeland. Thank you.
Senator Roberts. Thank you all for your time.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Roberts.
Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
Historically, if an employer violated the rights of its
workers through, for example, an illegal firing, the employer
would be on the hook for damages. Today, though, some giant
companies have figured out that they can hide behind complex
arrangements like subcontracts or franchises to dodge their
legal responsibilities toward their workers.
I just want to pull this together about how this works. A
big parent company controls every tiny detail of what the
workers do, including how much they get paid, how they're
trained, and when they have bathroom breaks.
When, for example, an employee doesn't get paid their
guaranteed overtime or when the employees want to exercise
their legal right to collective bargaining, the big company
steps back and dumps all the legal responsibilities and all the
costs on the subcontractors. That way, the big company get all
the benefits of having a bunch of employees with none of the
responsibilities that go with it. Small companies can't do
that. They're still on the hook to their employees, but not the
big guys.
Mr. Rubin, you've spent a long time representing workers
who get hurt when their legal rights are violated, and the big
parent companies that are making the money throw up their hands
and say, ``Don't look at me. The problems are for the
subcontractor.'' How do we get to a point where little
companies have a whole bunch of legal obligations to their
employees, but big companies can duck out on these basic
obligations for their workers?
Mr. Rubin. The laws had softened--and that's one of the
things that this new Board decision strengthens again--to give
large companies the opportunity not only to contract out the
work, but to contract out their legal responsibility when
things go wrong, when the law is violated. That's precisely
what has happened with contingent workers in the modern
economy.
Senator Warren. What's happened is the NLRB has changed the
standard through a series of case-by-case decisions. What's
been the consequence of narrowing the definition of an employer
over the last 30 years?
Mr. Rubin. It's meant that there is far less meaningful
bargaining, because companies that control terms and conditions
aren't brought to the bargaining table. There is far less
responsibility. What happens in practice is that at the first
sign of complaint on the workplace floor, the larger companies
simply terminate--all of these are at-will contracts. They
terminate the subcontractor. They terminate the workers.
That's why in our warehouse workers case, getting an
injunction that required--to preserve the workers' jobs
resulted in better wages and benefits for the first time and
made a huge difference for these workers getting up to the
middle class.
Senator Warren. For these giant corporations, what I'm
hearing you say is that, basically, this change in the rule--
the earlier change in the rule at the NLRB--has just triggered
a race to the bottom that has squeezed workers.
Mr. Rubin. Absolutely. It's squeezed workers, and it's also
squeezed the small companies that employ the workers. The only
companies that benefit from this new arrangement, from the race
to the bottom, are the ones who can get the work done for the
large corporations without having any legal responsibility for
the consequences.
Senator Warren. Into this comes the NLRB last August.
Mr. Rubin. Right.
Senator Warren. The NLRB finally acknowledged the problem
that it had created back in the 1980s, and it began closing
this loophole by broadening the definition of who is an
employer so that workers' rights would be protected under those
circumstances. My Republican colleagues didn't seem to have a
problem when the NLRB narrowed the definition, but now that the
NLRB is going back to the original approach that it had used
for many decades, they want to pass legislation to stop the
NLRB. How would that affect workers?
Mr. Rubin. It would be devastating to the workers. It would
result in a greater race to the bottom than we are already
experiencing. With a bill that passes that makes us even more
public, more companies, more large companies, would be inspired
to do precisely what these other companies have done to the
great disadvantage of the types of workers I represent.
Senator Warren. All right. Thank you, Mr. Rubin.
This is pretty simple. The law says that an employer has
certain legal obligations to its employees, like collective
bargaining or responsibility when an employee gets hurt, and
small employers have to abide by those rules. Some big
corporations dodge the law by pretending that they are not
employers. They don't fool the NLRB or much of anyone else, and
now the NLRB has called them out on this.
It is no surprise that giant corporations that use this
scheme and their Republican friends don't like what the NLRB is
doing. Let's be clear. The NLRB is following the law and
standing up for American workers, which is exactly what the
NLRB, by law, is supposed to do.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Warren.
Senator Hatch.
Statement of Senator Hatch
Senator Hatch. Thank you, Mr. Chairman.
Mr. Kisicki, actually, the assertion that this is a return
to an old standard--it isn't, is it?
Mr. Kisicki. No, Senator. In fact, it's quite a bit of an
overstatement by the Board majority in this decision, because
there was, in fact, no standard that the NLRB applied
consistently at any time. In fact, it did not start even
adjudicating cases where there was a dispute about what was and
was not a joint employer until the 1960s.
This idea that somehow this standard existed is incorrect.
In fact, the NLRB was so confused itself at times that it at
times referred to entities as single employers when it, in
fact, was intending to refer to a joint employer relationship.
A single employer was essentially where one company is not
truly independent of another, and they operate together. It's
almost an alter ego theory under the law.
Senator Hatch. Let me ask you this. In 2014, the NLRB
finally issued a decision in a case that had been pending at
the Board for over 10 years called CNN America. The Board found
CNN to be a joint employer of employees provided by a
contractor, TVS. Despite the fact that the Board had certified
TVS as, ``the employer,'' some 20 years earlier, as the Board
now found that CNN was a, ``joint employer,'' CNN then owed
back pay to hundreds of highly compensated employees.
If the NLRB's own certification of employer status can be
overturned and significant liability imposed, how can any
employer in America feel confident that this liability isn't
looming over them as well? And just to add another question to
it, how many employers have the resources to engage in 10 years
of litigation before the NLRB?
Mr. Kisicki. Senator, let me take your second question
first, which is how many employers can afford this. I don't
know, but I don't think it's many, certainly not small
businesses that are the engine of growth in this economy and
have been for decades now. Those companies cannot afford the
hundreds of thousands of dollars--it's not cheap to try and
litigate a case with the NLRB, because the NLRB is the Federal
Government, and they do the work. The unions don't have to
spend the money on this. It is done by Federal taxpayer
dollars.
I also want to correct a comment that my colleague, Mr.
Rubin, made, that there's no issue if there's not an unfair
labor practice violation. That's absolutely untrue. The fact is
the NLRB files complaints routinely against employers--this is
its practice--if there is a dispute of fact that, if they
accept the employee or the union's version of the facts, would
constitute a ULP, not that they, in fact, have concluded that
it's likely that the employer actually violated the law.
Let's go then to the issue that you raised with CNN, and
that's certainty that's provided by the NLRB in labor
relations. That's why this Act exists. Again, with all due
respect to my colleague, Mr. Rubin, we've heard a lot about
other situations. I haven't heard anything about how those
other situations actually involved employees exercising their
rights under the NLRA.
It is a different law. It has a different standard for
determining who is an employer, and that's absolutely necessary
if the NLRB is to give effect to the purpose that motivated the
statute in the first place. That purpose is to protect the
stability of labor relations in America. Stability has been
tossed to the wind in this last term by the NLRB, and this case
is just one of them. The CNN case that you just mentioned,
Senator, is another.
If employers cannot rely upon the Federal Government
agency's determination that the employer of a group of
employees--that is their obligation. The NLRB has to define the
employer, not an employer, but the employer. If they cannot
rely upon that, and 10 years later, the NLRB can come along and
just decide, ``We're going to change our mind,'' and now you're
liable for millions of dollars of back pay.
Senator Hatch. Not very consistent.
Mr. Martin, I appreciate your testimony today. I heard you
make the point that the, ``big guys will get bigger,'' and the,
``small guys will go out of business,'' under the NLRB's
redefinition of joint employers. Exposure to joint employer
liability under the NLRB's new standard stifles many small
business models. They're successful business models, and I know
many small business owners who got their start and were able to
grow their businesses from contracts with local family-owned
businesses.
How will this new rule impact local business creation, and
how will this ruling stifle opportunities for our Nation's
plumbers, electricians, and tradesmen, one of which I was at
one time?
Mr. Martin. Like I said, this new indirect----
Senator Hatch. I was a member of the AFL-CIO, too.
Mr. Martin [continuing]. This indirect test just provides
so much instability that it is hard to go forward, and it's
just--to repeat, you cannot--companies like ours do not have
the legal resources to fight the NLRB if they come to me and
say, ``Because you're in direct control, you're a joint
employer.'' I can't fight that. I don't have the funds to do
that, which means I go out of business, as do subcontractors.
They have the same problem.
Senator Hatch. Thank you, Mr. Chairman. Sorry I went over a
little bit.
The Chairman. Thank you, Senator Hatch.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you, Mr. Chairman, and I want to
thank the witnesses today.
It's important to briefly mention the underlying statute
that we're discussing today. In 1935, Congress enacted the
National Labor Relations Act to protect the rights both of
employees and businesses, to encourage collective bargaining,
and to curtail practices that harm workers, businesses, and the
economy at large. Congress gave the authority to the National
Labor Relations Board to revise administrative decisions and to
adjust for changing workplace realities, and the Supreme Court
has reaffirmed that authority of the NLRB. In my view, that's
exactly what the Board has done in this recent decision.
I have such great respect for small business owners in
America, and this hearing gets to the heart of the very matter
of what it means to be a small business owner. More
specifically, does that small business owner actually have the
ability to manage their workforce, or is that autonomy an
illusion? The small business owners that I speak to from the
State of Wisconsin are a very proud and independent lot, and
they are risk takers and innovators. They provide livelihoods
for millions across the Nation.
I recently met with a group of Wisconsin small business
owners, both franchisors and franchisees, and they have been
following this decision, and they're concerned about the impact
of the joint employer decision and what sort of impact it would
have on their businesses. I want to get into some of the
specifics today.
We've heard a lot of discussion about stability, bright
line clarity, sort of all or none. It seems to me that one
would want to have the ability to look at, say, each franchise
agreement as unique and look at these issues on a case-by-case
basis.
Mr. Rubin, is the new joint employer standard a blanket
ruling that says in all cases, these will be considered joint
employers, a franchisor and a franchisee, or an independent
contractor or none, or is this a case-by-case analysis
depending upon the relationship between the two?
Mr. Rubin. Right. It's a case-by-case analysis, which is
how the Board adjudicates, which is how the Board accommodates
the law to evolving conditions in the workplace. The reason
stability is furthered by this ruling is simply--and in
responding to my colleague--because if you require every
company that can meaningfully affect terms and conditions to be
at the bargaining table, you can have a meaningful collective
bargaining agreement, and that's what furthers the goal of
achieving labor peace.
Yes, case by case is the way the Board has always done it,
the way it's done it in the past, and, obviously, is the way
courts do it as well.
Senator Baldwin. Under the NLRB ruling, the Board states,
and I'm going to quote,
``Moreover, as a rule, a joint employer will be
required to bargain only with respect to such terms and
conditions which it possesses the authority to
control.''
If I am a franchisor, and I do not possess the authority to
control wages, hours, hiring, firing, or disciplining, can I be
forced to bargain over those terms and conditions?
Mr. Rubin. No, and the Freshii decided by the General
Counsel's Division of Advice just last April, both under the
old standard and the new standard, concluded that a franchisor
was not responsible for an unfair labor practice retaliation by
a franchisee precisely, Senator Baldwin, because the franchisor
did not maintain those elements of control over terms and
conditions.
Senator Baldwin. In looking at the Freshii case that you
just referred to, as you said, it was a determination--or the
General Counsel issued a memorandum of advice.
Mr. Rubin. Advisement. That's right.
Senator Baldwin. Can you tell the committee a little bit
more about how the Freshii situation was different than the
situation in Browning-Ferris'?
Mr. Rubin. Sure. In Freshii, the franchisor had nothing to
do with personnel policies. All of its guidance was entirely
optional. The franchisee used its own employee handbook. It
didn't use the Freshii handbook. Freshii controlled only
aspects or had input only to aspects pertaining to the product
itself. There was no auditing. The franchisee trained its own
staff. There was no consultation before the individuals were
fired by the franchisee.
By contrast, in Browning-Ferris, Browning-Ferris retained
the right itself to terminate any employee. It set a cap on
wages. It determined when the workers could work. It told them
where to work. It decided when they could have breaks. It
decided what the speed of the line was. There's a world of
difference between those cases.
As you point out, in case-by-case adjudication, every one
of these differences matters, and that's why you need an
experienced administrative agency that is familiar with the
modern workplace to evaluate the facts and decide on which side
of the line a particular case falls.
Senator Baldwin. Thank you.
Mr. Rubin. Thank you.
The Chairman. Thank you, Senator Baldwin.
Senator Casey.
Statement of Senator Casey
Senator Casey. Thank you, Mr. Chairman. I wanted to, first
of all, note that the title of the hearing is, I think,
misleading. I won't go into the analysis of that. Stealing is a
crime, and it's even a violation of the Ten Commandments. We're
nowhere near that in this hearing.
I wanted to go back to the fundamentals, not just of the
decision and the implications of it, but also the reality of
what we see in the real world.
Mr. Rubin, you had maybe the best summation of what the
reality is for workers. Looking at page 2 of your testimony,
you say,
``In the low-wage economy in which many of my clients
are employed, wage and hour violations, discrimination,
and other unlawful conduct is rampant. Yet the workers,
whose rights are violated, rarely complain or join
together to enforce their rights.''
Then you go on to say later in terms of the advantage that
the prior cases allowed, and I'm quoting here,
``that the employer was able to kind of have it both
ways, that they were able to have the advantage of
dictating the terms and conditions while avoiding the
bargaining about those same terms and conditions.''
That's just the way I see it.
I also think it's not--this traditional standard that we're
going back to now made a lot of sense. It spoke directly to
this question of the control you have of the work and how much
control you have.
Then the conditions set forth that had to be met, direct or
indirect control over significant terms and conditions--that's
a reasonable inquiry when you're a fact-based analysis. No. 2,
the joint employer would have the ability to control. You have
to make a determination about that. And third, that that joint
employer was necessary for meaningful collective bargaining.
It makes sense in terms of the reality of the workplace
today, the reality of the economy today, with--gosh, I guess
it's doubled in terms of the number of temp workers. Also it's
not such a--it's not a test that is so constraining that it
doesn't reflect some flexibility that comes with making a fact-
based determination. It makes a lot of sense.
I wanted to ask you, Mr. Rubin, one particular question on
the question of control. It's always difficult to pose a
hypothetical, but could you kind of walk through the lengths to
which a company like Browning-Ferris or companies like it would
go to control subcontractors?
Mr. Rubin. Sure. First of all, under the old standard, it's
so easy for a company to circumvent the direct, actual,
immediate standard. All you have to do is set up a company,
hire a company, and instruct that company to tell the workers
what to do.
Browning-Ferris did far more than that. Browning-Ferris was
so involved--there were 240 workers inside this plant, sorting,
cleaning the recycling line. They were working on a conveyor
belt. What Browning-Ferris did is it controlled them by setting
the speed, the productivity levels, deciding when to stop the
line so they could take breaks. The mandatory terms and
subjects of bargaining were almost all controlled directly and
indirectly by Browning-Ferris.
The reality of the situation was that if Browning-Ferris
was dissatisfied with a worker, even if that worker had passed
the Browning-Ferris screening criteria, Browning-Ferris could
get rid of him. If the workers began to organize, Browning-
Ferris could get rid of the contractor all together. The old
standard was susceptible to manipulation and abuse, and the
ones that were hurt were the contractors squeezed in the middle
and certainly the workers.
Senator Casey. My time is up. Thank you very much.
Mr. Rubin. Thank you.
The Chairman. Senator Isakson has questions, so I would say
to Senator Baldwin and Senator Casey--I've consulted with
Senator Murray--we'll go to a second round if any of you have
further questions.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman.
I have a question I want to ask Mr. Martin. Before I do, I
also wanted to engage Senator Warren with regard to her
statements regarding big businesses. I listened to her
testimony. I looked around at Senator Baldwin, who has Kohler
in her State, and we have Hershey in Pennsylvania and Boeing in
Washington State and TVA in Tennessee and Coca-Cola in Georgia.
Big business is not necessarily a bad thing in America.
We have to be very careful about castigating people
generically. Rather we ought to call out people because they
actually violated the law or violated the intent of it.
My question is this, Mr. Martin, have you ever heard of a
lady named Ebby Halliday?
Mr. Martin. No, sir.
Senator Isakson. Do you do any business in Dallas?
Mr. Martin. I do some small business in Dallas.
Senator Isakson. Some construction. Ebby Halliday is
probably the most famous woman real estate broker in the United
States of America. She's 93 years old. She started out as an
independent contractor in Dallas and built one of the most
successful businesses in the United States of America based on
the model of incentive, compensation through sales and
commissions, and the independent contractor model.
One of the things I have concern about is if you construe
the indirect responsibility or indirect control too liberally
to business, you'll do away with most all small business. Would
you agree with that?
Mr. Martin. Yes, sir.
Senator Isakson. If you do away with most small businesses,
the title of this hearing comes into play, because stealing the
American Dream of business ownership is exactly an appropriate
title. Ebby Halliday could not have done in Dallas what she did
if that law was in place in its application today, and there
are thousands of others in sales businesses, construction
businesses, and agricultural businesses that operate as
independent contractors and things like that who could not as
well.
I just wanted for the record--there is an application about
stealing the opportunity for ownership that pays attention to
exactly what we talked about today. I appreciate the time, Mr.
Chairman. I yield back.
The Chairman. Thank you, Senator Isakson.
I'll go to Senator Murray and then Senator Baldwin and then
Senator Casey.
Senator Murray. Mr. Chairman, I'll just make a remark, that
I think all of us understand, that big businesses--there are
good big businesses and no one is denigrating them. There are
great small businesses. We all want them to survive.
What the important point about this ruling is that we do
have some corporations who are completely disconnected from the
workers that they control. They don't have to hold any
liability before this hearing on any kind of poor working
conditions or poor standards or anything, because they had a
franchise owner that was carrying all the liability.
This is not fair to franchise owners themselves, who can't
control their labor market, because somebody else is telling
them how to do it, and they're taking all the liability for it.
I just want to make that point, because it's really important
to this ruling and how we go forward.
I do want to thank all of our witnesses today for your
testimony, and I appreciate you being here today.
The Chairman. Thank you, Senator Murray.
Senator Baldwin, do you have any further questions?
Senator Baldwin. One more, and I appreciate the opportunity
to get to it.
I indicated that I had met with a group of franchisors and
franchisees recently, specifically about this case. One of the
concerns I heard from them was in regard to the ability of the
franchisor to provide training to help their franchisees be
successful, but also to protect their brand. There was a
concern that the new standard might limit this ability.
We had a back and forth about the Freshii case and the
memorandum of advice on Freshii. We see in that case that the
franchisor provided an operations manual with mandatory and
some suggested specifications, standards, operating procedures
and rules that were prescriptive.
In addition, all franchise owners and managers were
required to undergo a 4-week training period before a new
franchise could open. The franchise agreement also stated that
Freshii could terminate the franchise agreement for 20
different iterated reasons, including franchisee's failure to
comply with the operations manual.
Based on this information, do you believe that the
franchisors that I met with in the State of Wisconsin should be
concerned that their training programs could lead to being held
as joint employers in and of themselves?
Mr. Rubin. I don't think that should be a concern, no. I
don't think that that would be a problem, the training by
itself. In my experience in dealing with employees of
franchisees, the only time we get into a joint employer issue
is when the franchisor exercises far more control than in the
Freshii example or the example that we heard from my fellow
witness this morning.
Many franchisors control every detail of what goes on in
the workplace, including not only how the product is presented
to the customer, but what the employees do, how they do it,
when they do it, and a range of activities that they closely
monitor in real time.
Senator Baldwin. Thank you.
Ms. Stockeland. Senator Baldwin, may I speak?
Senator Baldwin. Please feel free.
The Chairman. Sure.
Ms. Stockeland. Thank you. I'm new to this. I just want to
say that there's been some discussion about how--I feel Senator
Franken brought it up, and I think Senator Murray also, that
you are applauding small business and are excited and don't
feel that this applies to me.
I would say that what Mr. Rubin just said is case in point.
He said that he doesn't think that an operations manual should,
would--excuse me, I'm nervous. He said that he doesn't think
that they should have concern over that, and that's just the
point. There's no definition here, and so who decides if a
franchisor is big or small? Where does that line come? Who
decides that, and when is that decided?
That uncertainty is what really gives me cause to pause and
look at further expanding my business, because I don't want
that liability of having to run and operate employees and those
labor standards across the franchise systems that I have.
Thank you very much.
Mr. Rubin. I would like to respond. I believe the Senator
asked for my opinion, so I prefaced it with I think. The way we
analyze issues as they arise on a case-by-case basis is we look
to precedent, and we look to things like advice memos. Where we
have an analysis in a case like Freshii, that guides us. I can
say with confidence that that would not be a problem for you
and your franchisees.
Senator Baldwin. Thank you.
The Chairman. Senator Casey.
Senator Casey. Thank you, Mr. Chairman.
Just one point on this question of franchises. I don't
think this decision is directed that way--directed at
franchises in any way. In fact, if you look at--the NLRB
majority decision even explicitly speaks to this question when
it says the decision is not on franchises.
I'm reading now--this is page 20, footnote 120 of the
decision--
``None of those situations''--meaning franchise
situations--``are before us today, and we decline the
dissent's implied invitation to address the facts in
every hypothetical situation in which the Board might
be called on to make a joint employer determination.''
I think even the decision itself is explicit on the
question of franchises.
The Chairman. Thanks to all of you. I don't have a
question. I'll just make a closing comment. I thank all four of
you for coming. We appreciate your comments, and if you have
anything else you would like to say, we'd be glad to receive it
if you'll give it to us in the next few days.
My thought about this is I think Stealing the American
Dream is pretty accurate, and this is why I think so. There are
780,000 franchise operations in the country. The new joint
employer standard, according to observers like Victor Narro of
the UCLA Labor Center, no longer requires direct control over
the essential terms and conditions of employment. If you have a
franchise agreement or a contractual relationship, depending on
the industry, that's enough to show you have influence over
working conditions.
It's hard for me to see how there could be any franchise in
the country over which the franchisor would not have some
indirect or unexercised potential to control. If that is the
case, it seems to me the inevitable consequence of a decision
like this is to greatly reduce the number of franchise
opportunities in America. People like Ms. Stockeland will think
twice before opening a new franchise. That will reduce the
growth of new jobs in America. That will reduce, in my opinion,
the growth of opportunities to move up the economic ladder.
We obviously have some strong differences of opinion on
this committee about it. We have 45 Senators who like to
restore the law to the way it was before the Browning-Ferris
decision, and I hope other Senators will join.
I thank the witnesses once more. 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.
The committee will stand adjourned.
[Additional Material follows.]
ADDITIONAL MATERIAL
Prepared Statement of the Independent Electrical Contractors (IEC)
Chairman Alexander, Ranking Member Murray and members of the
committee, Independent Electrical Contractors (IEC) would like to
express its concern with the recent interpretation of the joint
employer rule by the National Labor Relations Board (NLRB) in the case
commonly referred to as ``Browning-Ferris.'' IEC opposes this new,
broad interpretation and urges the U.S. Congress to pass the Protecting
Local Business Opportunity Act (S. 2015/H.R. 3459), which would codify
the previous standard that has stood for over 30 years.
The Independent Electrical Contractors is an association of over 50
affiliates and training centers, representing over 2,100 electrical
contractors nationwide. While IEC membership includes many of the top
20 largest firms in the country, most of our members are considered
small businesses. Our purpose is to establish a competitive environment
for the merit shop--a philosophy that promotes free enterprise, open
competition and economic opportunity for all. IEC and its training
centers conduct apprenticeship training programs under standards
approved by the U.S. Department of Labor's (DOL) Office of
Apprenticeship. Collectively, in the 2015 school year, IEC will train
more than 8,000 electrical apprentices.
IEC is deeply concerned about the NLRB's new joint employer
standard and the impact it could have on the electrical contracting
industry. The new standard presents a litany of potential problems and
complications for doing business by making contractors potentially
liable for individuals they do not even employ. Moving forward, almost
any contractual relationship our members enter into may trigger a
finding of joint employer status that would make them liable for the
employment and labor actions of their subcontractors, vendors,
suppliers and staffing firms. In addition, as we understand it, the new
standard would also expose one company to another company's collective
bargaining obligations and economic protest activity, to include
strikes, boycotts, and picketing.
It's clear to see just how this broad and ambiguous new standard
increases the cost of doing business. It makes it more difficult for
companies to continue to do great work within the community and provide
well-paying jobs to more electricians. It's unclear if our members
could put language into any contracts that would insulate them from
being considered a joint employer, nor do we know just how much their
insurance costs will go up in an attempt to shield them from this
increased liability.
This new standard also prevents electrical contractors from working
with certain startups or new small businesses that may have a limited
track record. For example, one IEC member will sometimes take on
certain small businesses as subcontractors, which will often times be
owned by minorities or women, and help mentor them on certain projects.
With this new standard, they are now less likely to take on that risk.
Many of our members that do contracting work with the Federal
Government may now be less likely to bid on Federal contracts over $1.5
million, under which the Federal Acquisition Regulation (FAR) system
mandates they contract with small businesses.
In conclusion, IEC urges Congress to consider the negative
consequences this new standard has on businesses and the communities
they serve, and pass the Protecting Local Business Opportunity Act.
Thank you.
______
Associated Builders and Contractors
(ABC), Inc.,
September 15, 2015.
Dear Chairman Alexander, Senators Kline, Isakson, and Roe: On
behalf of Associated Builders and Contractors (ABC), a national
construction industry trade association with 70 chapters representing
nearly 21,000 chapter members, I write to thank you for introducing the
Protecting Local Business Opportunity Act (S. 2015/H.R. 3549), which
will help restore the ``joint employer'' standard that has been in
place for over 30 years and bring stability back into the economy for
contractors and subcontractors across the country.
On August 27, 2015, the National Labor Relations Board (Board or
NLRB) issued its decision in Browning-Ferris Industries altering the
``joint employer'' standard under the National Labor Relations Act. The
standard is used to determine when two separate companies are
considered one employer with respect to a group of employees for
purposes of liability and bargaining obligations under the National
Labor Relations Act. Prior to this decision, companies were only deemed
joint employers when they both exercised ``direct and immediate''
control over the ``essential terms and conditions of employment.'' In
Browning-Ferris, however, the Board overturned 30 years of precedent to
impose a new standard expanding the definition to include those
employers who have 'indirect'' control and ``unexercised potential''
control. The two Republican members who dissented in the case explained
the potential consequences of such a change, stating that the rule
will,
``'subject countless entities to unprecedented new joint-
bargaining obligations that most do not even know they have, to
potential liability for unfair labor practices and breaches of
collective bargaining agreements, and to economic protest
activity, including what have heretofore been unlawful
secondary strikes, boycotts and picketing.''
The Board's decision will disrupt hundreds of thousands of business
operations throughout the country and threaten the ability of
hardworking Americans to achieve the American dream of owning their own
business. Thank you again for introducing this much-needed legislation,
and we urge Congress to quickly pass it.
Sincerely,
Geoffrey Burr,
Vice President, Government Affairs.
American Hotel & Lodging
Association (AH&LA),
Washington, DC 20005,
October 5, 2015.
U.S. Senate,
Washington, DC 20510.
Dear Senator: 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, I urge you to cosponsor and support
S. 2015, the ``Protecting Local Business Opportunity Act'' sponsored by
Senator Lamar Alexander (R-TN). This commonsense legislation would
address decisions made by the National Labor Relations Board (NLRB),
which undermine the National Labor Relations Act (NLRA) and create
unnecessary uncertainty within the employer community.
The lodging industry is one of the Nation's largest employers. With
1.9 million employees in cities and towns across the country, the hotel
industry generates $176 billion in annual sales from more than 5
million guestrooms at 53,432 properties. It's particularly important to
note that this industry is comprised largely of small businesses, with
more than 55 percent of hotels made up of 75 rooms or less.
For more than three decades, the joint employer standard has been
one of the cornerstones of labor law, protecting small businesses from
undue liability involving employees over which they do not have actual
or direct control.
Unfortunately, through its Browning-Ferris Industries decision, the
NLRB has completely re-written the joint employer standard by including
``indirect'' and ``potential'' control into its decision. In doing so,
the NLRB has ignored years of legal precedence and has created an
environment of uncertainty that will put pressure on primary companies
to assert more authority over small businesses to limit new potential
liabilities under Federal labor law.
As the minority members of the NLRB correctly state in their
dissenting opinion,
``The number of contractual relationships now potentially
encompassed within the majority's new standard appears to be
virtually unlimited'' . . . ``creates uncertainty where
certainty is needed . . . and provides no real standard for
determining in advance when entities in a business relationship
will be viewed as independent and when they will be viewed as
joint employers.''
The ``Protecting Local Business Opportunity Act'' will bring much-
needed certainty back into labor law, reversing the new ambiguous and
senseless joint employer standard included in the NLRB's Browning-
Ferris Industries decision. Thank you for your consideration of this
critical legislation.
Sincerely,
Brian C. Crawford,
Vice President, Government &
Political Affairs.
Asian American Hotel Owners
Association (AAHOA),
October 6, 2015.
Hon. Johnny Isakson,
U.S. Senator,
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
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 over 600,000 workers, accounting for nearly $10 billion in
annual payroll. As small business owners, our members consistently
contribute to the economy through job creation, tourism promotion, real
estate development, and community investment.
We understand that the Senate Committee on Health, Education,
Labor, and Pensions will soon hold a hearing entitled, ``Stealing the
American Dream of Business Ownership: The NLRB's Joint Employer
Decision.'' We strongly urge you and your colleagues to overturn the
regime recently manufactured by the National Labor Relations Board,
which upended the previous three-decade long legal standard.
Nearly 70 percent of the over 2 million guest rooms owned by AAHOA
members are located in franchised hotels. 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 will be limited significantly
if the traditional franchising model becomes fatally altered by
government intervention.
As hoteliers, we have come to depend on the franchise model as the
most favorable means to small business ownership. For many markets in
the lodging industry, associating with a nationally recognized brand
determines whether or not a hotel can survive.
Consequently, we are deeply concerned that the NLRB's intrusion
into business relationships will cause franchisees to lose control of
our businesses. Under the expanded definition of joint employer status
concocted by the NLRB, franchisors may be coerced to undertake
additional liability; thus, compelled to exert more control over the
daily operations of franchisees' businesses to avoid legal action.
Franchisees, like the vast majority of AAHOA members, would lose
independence in decisionmaking and may effectively become employees of
franchisors.
Further, an added role for franchisors may also cause increases in
royalties and licensing fees, or lead to demands to share in the net
profits of the business. These outcomes are unsustainable for the
lodging industry and frankly threaten to undo the entrepreneurial
success of AAHOA members. Ultimately, under this new joint employer
standard, AAHOA members may be discouraged to grow our businesses,
create new jobs or invest in our local communities.
The expansion of joint employer status may collapse the franchising
model and extinguish aspirations of business ownership. Consequently,
many good American jobs may be lost, or never created, because as
entrepreneurs, we do not want to simply manage someone else's hotel.
We strongly urge you to consider the tremendously adverse impacts
on franchisees and workers when deliberating policy proposals
associated with the NRLB's new definition of ``joint employer.''
Respectfully,
Jimmy Patel,
2015 Chairman.
Bruce Patel,
Vice Chairman.
Bhavesh Patel,
Treasurer.
Hitesh Patel,
Secretary.
Chip Rogers,
President & CEO.
Chamber of Commerce of the
United States of America,
Washington, DC 20062,
October 20, 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 3 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 October 6, 2015 hearing entitled, ``Stealing the American
Dream of Business Ownership: The NLRB's Joint Employer Decision.'' The
Chamber supports S. 2015, ``Protecting Local Business Opportunity Act''
(S. 2015 or PLBOA) as a commonsense solution to restore the
longstanding and unambiguous ``joint employer'' standard under the
National Labor Relations Act, which has allowed employers to develop
business models that have led to increased flexibility,
competitiveness, and growth. We look forward to working with you and
your colleagues to pass this critical legislation.
i. the browning-ferris decision
A. The Joint Employer Standard Existing Prior to BFI Provided Clarity
and Certainty
PLBOA is, of course, necessary because of the National Labor
Relations Board's (NLRB or Board) controversial 3-2 ruling in Browning-
Ferris Industries (BFI) on August 27, 2015. In BFI, the NLRB upended
decades of precedent to change its standard for determining whether two
businesses are ``joint employers'' of certain workers. For over 30
years prior to BFI, the Board maintained a clear test for determining
whether two separate companies were joint employers: does the alleged
joint employer exercise direct and immediate control over the workers
at issue? This direct control was generally understood to include the
ability to hire, fire, discipline, supervise and direct. TLI, Inc. 271
NLRB 798 (1984), enforced 772 F.2d 894 (3d Cir. 1985).
This test made perfect sense. It ensured that the putative joint
employer was actually involved in matters that fall within the Board's
purview, to wit, the employment relationship. It also ensured that such
companies would not be embroiled in labor negotiations or disputes
involving employees and workplaces over which they had little or no
control. This was particularly important because a large company may
have contractual relationships with hundreds or thousands of
franchisees, vendors and subcontractors. Indeed, it made sense to
impute liability--as the now-previous standard did--only in those cases
in which an employer was in a position to investigate and remedy
unlawful actions. It is no surprise that prior to the decision in BFI
this standard had been in existence for over 30 years and had been
endorsed by reviewing Federal courts of appeal.\1\
---------------------------------------------------------------------------
\1\ TLI and AM Prop. Holding Corp., 350 NLRB 998 (2007) were
affirmed by the Third Circuit and Second Circuit, respectively.
---------------------------------------------------------------------------
B. BFI's Joint Employer Standard is Ambiguous, Uncertain and Provides
no Guidance for Employers
In BFI, the Board overturned this clear bright-line test in favor
of an amorphous, ill-defined test which will find joint employment even
where one company only has the right to exert indirect or potential
control over the terms and conditions of another company's employees.
This confusing, multi-factor test provides absolutely no guidance to
employers on how to structure their relationships so as to avoid joint
employer liability. Quite clearly, this new test is both uncertain and
seemingly easy to meet, and will therefore ``subject countless entities
to unprecedented new joint-bargaining obligations that most do not even
know they have.'' Browning-Ferris Industries of California, 362 NLRB
No. 186, slip op. at 21 (2015).
The new BFI standard is unmoored from the realities of the modern
workplace, as the very nature of a contractual relationship presupposes
at least some type of control over the services, results or product
agreed to. Surely a company (or perhaps the U.S. House of
Representatives\2\) that contracts with a food service business to
provide cafeteria services will retain a modicum of indirect control to
ensure that food quality, prices and speed of delivery are what it
bargained for in the contract for services. Under BFI, this type of
reserved and indirect control may be sufficient to establish a joint
employer relationship between the two parties to the contract. See id.,
at 25-26. As one can easily imagine, these types of contractual
relationships are myriad and commonplace. According to the dissent,
``the number of contractual relationships now potentially encompassed
within the majority's new standard appears to be virtually unlimited.''
Id., at 37.
---------------------------------------------------------------------------
\2\ Washington Post, June 9, 2015 ``Capitol Hill to Run on Dunkin .
. . at Least on the House Side'' available at http://
www.washingtonpost.com/blogs/in-the-loop/wp/2015/06/09/capitol-hill-to-
run-on-dunkin-at-least-on-the-house-side/.
---------------------------------------------------------------------------
The NLRB claims that the application of BFI is limited in scope--
that it is to be applied on a case-by-case basis and ``does not govern
joint-employer determinations'' under other labor and employment
statutes. But this is mere lip service to an employer community which
finds itself at the mercy of one of the most controversial and
politically motivated Boards in history. For example:
This is an NLRB which lacked a constitutional quorum, yet
continued to issue decisions until being stopped by the Supreme Court
in a 9-0 decision. National Labor Relations Board v. Noel Canning, 573
U.S._(2014).\3\
---------------------------------------------------------------------------
\3\ 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.
---------------------------------------------------------------------------
This is an NLRB that has promulgated regulations to speed
up the union election process, unfairly limiting employers' abilities
to communicate with employees about the pros and cons of unionization.
The Board issued this regulation despite the fact that prior to
issuance, 94 percent of all elections were conducted in 56 days and
unions won about two-thirds of all elections.\4\
---------------------------------------------------------------------------
\4\ See U.S. Chamber comments, April 7, 2014, available at https://
www.uschamber.com/sites/default/files/documents/files/
NLRB%202011%200002%20US%20Chamber%20of%20Commerce
.pdf.
---------------------------------------------------------------------------
This is an NLRB which blatantly attempted to force
employers to post biased workplace notices about unionization, despite
having no statutory authority to do so. See Chamber of Commerce of the
United States v. NLRB, 721 F.3d 152 (4th Cir. 2013).
This is an NLRB which is willing to overturn decades of
precedent in significant cases in order to, among other things: limit
employees' abilities to decertify an unwanted union; require employers
to remit employees' union dues to unions even upon expiration of a
collective bargaining agreement, thereby providing unions with greater
leverage at the bargaining table; permit union organizing on employer-
owned email systems; award itself a second bite at the apple when it
does not like the decision of an arbitrator; and require employers to
disclose to union officials confidential witness statements made during
the course of workplace investigations.\5\
---------------------------------------------------------------------------
\5\ See, respectively, Lamons Gasket Co., 357 NLRB No. 72 (2011);
WKYC-TV, Inc., 359 NLRB No. 30 (2012); Purple Communications, Inc., 361
NLRB No. 126 (2014); Babcock & Wilcox Construction Co., 361 NLRB No.
132 (2014); American Baptist Homes of the West d/b/a Piedmont Gardens
(``Piedmont Gardens''), 362 NLRB 139 (2015).
This is a Board whose Specialty Healthcare decision--
another case overturning Board precedent--purportedly only made
``modest'' changes to the law, but has been applied to, among other
workplaces, dog training facilities and department stores.\6\
---------------------------------------------------------------------------
\6\ Guide Dogs for the Blind, 359 NLRB No. 151 (2013); Macy's,
Inc., 361 NLRB No. 4 (2014).
---------------------------------------------------------------------------
Time and time again, the Board has stretched its legal authority in
order to advance policy goals that are simply driven by the agenda of
organized labor. Why should this time be any different? Clearly, the
time has come to enact legislation that will reign in an out-of-control
Board, and PLBOA is a vital first step.
ii. bfi's impact on employers
By changing its joint employer standard in BFI, the Board has
opened up a Pandora's Box of problems that may now potentially befall
almost any employer who enters into a contract for services with
another business. Indeed, this new standard is really about expanding
the universe of potential employers who can be targeted by the NLRB,
unions, and plaintiffs' bar. Many of these problems were set forth in
our letter to you dated February 12, 2015, as well as in the Chamber's
Workforce Freedom Initiative's report ``Opportunity at Risk.'' \7\
However, it is worth reiterating that some negative results of this new
decision include the following:
---------------------------------------------------------------------------
\7\ The WFI report is available here: http://
www.workforcefreedom.com/sites/default/files/
Joint%20Employer%20Standard%20Final_0.pdf. In conjunction with this
report, on March 20, 2015, the Chamber hosted a conference entitled,
``The NLRB and the Joint-Employer Standard.'' The conference featured
commentary from two former NLRB members, Andy Puzder (CEO of CKE
Restaurants, Inc.), and several small business owners. Additionally,
after BFI was issued the Chamber hosted a briefing call on September 9,
2015. Approximately 150 Chamber members dialed-in, which is indicative
of the significance of this issue.
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.
2. Liability under the National Labor Relations Act. Because joint
employers are liable for each other's acts and omissions, expanding the
pool of joint employers will result in increased labor law liability
for employers, even in cases in which they exert little or no control
over the workers involved.
3. Collective Bargaining. If the direct employer is organized, the
``indirect employer'' would have to participate in collective
bargaining. Depending on the circumstances, the ``indirect employer''
could be dragged into bargaining relationships with hundreds of
entities over whose day-to-day operations they have no control.
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 will likely be eviscerated under
BFI 's new standard, allowing unions to picket and demonstrate against
both entities.
Worse, the plaintiffs' bar and other enforcement agencies may
attempt to import the new BFI standard into other areas of employment
law\8\ such as:
---------------------------------------------------------------------------
\8\ Note that most employment laws have damages, enforced through
both agency action and private court action, which exceed those under
the National Labor Relations Act, some including punitive and
compensatory damages with jury trials. Hence, there is a built-in
incentive for the plaintiffs bar to push the envelope in this area of
the law, relying on the reasoning in BFI.
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. This would
essentially eliminate carefully negotiated small business exceptions in
these Federal statutes.
2. Discrimination law. BFI's new joint-employer standard will
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.\9\ 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.
---------------------------------------------------------------------------
\9\ See, e.g., Little v. TMI Hospitality, Inc., et al. 2:15-cv-
02204 (C.D. Ill., September 18, 2015)(in a complaint claiming sexual
harassment and race discrimination, the plaintiff cites to BFI and has
alleged that the hotel owner and the corporate brand are joint
employers).
---------------------------------------------------------------------------
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. The Wage & Hour
Division and the plaintiffs' bar will likely look to see how they may
take advantage of BFI. It is no secret that the current Wage and Hour
Administrator, David Weil, has a strong distaste for alternative
workplace arrangements.
4. Occupational Safety and Health Administration (OSHA) issues. BFI
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. Moreover, a recently
released internal OSHA memorandum reveals that the agency is looking at
the potential for a joint-employment relationship between franchisors
and franchisees when investigating workplace safety.
5. Affordable Care Act Issues. Under BFI, individual companies
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. 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.
iii. correcting the record of the october 6th hearing
A. BFI Does Not Return to Any Pre-Existing Standard Because Prior to
1984, There Was No Standard At All
There was some discussion at the hearing that BFI is simply a
return to the NLRB's joint employer standard that existed prior to the
decisions in TLI and Laerco Transportation, 269 NLRB 324 (1984). In
reality though, there was no consistent NLRB joint employer standard
prior to these two decisions. It is notable that in his written
testimony, Mr. Rubin does not cite to a Board case which established
this alleged prior standard.\10\ He cannot because there is no such
case. In fact, a brief examination of NLRB decisions prior to TLI and
Laerco reveals that the Board had no joint employer standard at all.
---------------------------------------------------------------------------
\10\ Mr. Rubin cites to Boire v. Greyhound Corp., 376 U.S. 473
(1964) and NLRB v. Browning-Ferris Industries of Pennsylvania, Inc.,
691 F.2d 1117 (3d. Cir. 1982), as ``fairly consistent'' precedents that
existed prior to TLI and Laerco, but neither of these cases sets forth
a two-part multifactor test--which relies on indirect or potential
control--to which BFI supposedly returns. Moreover, use of the modifier
``fairly'' indicates that the law at the time was unsettled.
---------------------------------------------------------------------------
One need look no further than the Teamsters Local 350s (the union)
initial Request for Review in BFI for evidence that the Board did not
maintain a consistent joint employer standard prior to 1984. In its
brief, the union argued to the Board that it could find BFI to be a
joint employer under the then-existing standard, and also under
multiple ``broader formations'' of the standard. Tellingly, the Union
did not encourage the Board to return to an allegedly consistent, rock-
steady formulation of the joint employer test announced in some
prominent Board decision. Instead, the union's brief reads like a
smorgasbord of various NLRB joint employer standards espoused over the
years from which the Board could choose. Thus, the union urged the
Board to adopt any of these joint employer tests with supporting cases:
``Indirect control.'' Hoskins Ready-Mix Concrete, 161 NLRB
1492 (1966).
``Unexercised'' or potential control. Jewel Tea Co., 162
NLRB 508 (1966).
``Industrial realities.'' Jewell Smokeless Coal, 170 NLRB
392 (1968), enfd. 435 F.2d 1270 (4th Cir. 1970).
In addition to these formulations, the Board also employed the
``direct control'' test in some cases. See O'Sullivan, Muckle, Kron
Mortuary, 246 NLRB 164, 165 (1979) (funeral home was not joint employer
with company who provided it with driving services, because service
provider was ``solely responsible for hiring, disciplining, and
discharging its drivers''). Moreover, other pre-1984 cases expressly
denounced the ``indirect control'' standard. See Walter B. Cooke, 262
NLRB 626, 641 (1982)(finding ``such indirect control over wages and
hours to be insufficient to establish a joint employer
relationship.''). Adding to the confusion, prior to 1984, the Board
sometimes conflated its ``joint employer'' test with its test for
``single employer.'' See Parklane Hosiery Co., 203 NLRB 597, amended
207 NLRB 991 (1973).\11\
---------------------------------------------------------------------------
\11\ ``Single employer'' is 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).
---------------------------------------------------------------------------
In sum, prior to 1984, the Board did not have a consistently
applied joint employer test. It examined cases under the direct control
test, the indirect control test, the unexercised control test, the
industrial realties test and other tests. Sometimes, the Board applied
the wrong test altogether. It was not until TLI and Laerco that a
consistent and cogent joint employer test emerged. Enactment of PLBOA
is necessary to return to this consistent and coherent standard.
B. The Freshii Memorandum Carries No Legal Weight
On April 28, 2015, the NLRB's Division of Advice issued a
memorandum to Region 13 regarding whether Freshii (a franchisor) should
be responsible as a joint employer for the alleged unfair labor
practice committed by Nutritionality (its franchisee). The memorandum
concluded that Freshii and Nutritionality were not joint employers.
While this was likely welcomed news for both Freshii and
Nutritionality, the memorandum has no broad application to the employer
community in general. This is because the Board makes policy through
its jurisprudence, not through internal advice memoranda. Simply put,
``advice memoranda do not constitute Board law.'' Kysor/Cadillac, 307
NLRB 598, 603 (1992). Thus, attempts during the hearing to elevate the
significance of the Freshii memorandum and downplay the significance of
BFI were misplaced.
C. BFI Provides No Guidance to Employers
There was some patronizing comments made during the hearing that
employers should not be so concerned about BFI because: (1) the ruling
will only be applied on a case-by-case basis; and (2) it only involved
``contracting'', so franchisors and franchisees should have nothing to
worry about. First, ``case-by-case'' applications of rules are
inherently unpredictable. This very uncertainty of how the new criteria
could be applied will raise serious concerns in the business community
about how future workplace contractual relationships between two or
more employers should be structured. And no employer is going to risk
energy, time and capitol to volunteer as the Board's next guinea
pig.\12\
---------------------------------------------------------------------------
\12\ The Board does not issue advisory opinions or letters, so
there is no way for an employer to inquire in good-faith as to whether
a certain contract or relationship makes it a joint employer.
---------------------------------------------------------------------------
Second, both Senator Franken and Senator Casey mistakenly claimed
that the franchising industry is not impacted by BFI. Specifically,
Senator Casey stated, ``I don't think this decision is directed at
franchises in any way.'' One would think that it should go without
saying, but evidently it must be said: the franchise relationship is a
contractual relationship. Therefore, franchisors and franchisees--just
like any employer entities that enter into service agreements--have a
great deal to be concerned about the uncertainty raised in BFI. See BFI
slip op., at 45 (``Of the thousands of business entities with different
contracting arrangements that may suddenly find themselves to be joint
employers, franchisors stand out.'').
iv. the bfi decision is the latest attack on alternative workplace
arrangements
The need for PLBOA becomes even more apparent when one considers
other simultaneous efforts by the Board, Department of Labor (DOL) and
State and local regulators to attack employers whose workforce
structures do not fit into their ideal world view. Some of these
efforts include:
The NLRB has ignored instructions from Federal courts of
appeals in an attempt to expand its jurisdiction over independent
contractors.\13\
---------------------------------------------------------------------------
\13\ 361 NLRB No. 55 (September 30, 2014); 362 NLRB No. 29 (March
16, 2015).
---------------------------------------------------------------------------
DOL's proposed changes to regulations regarding
eligibility for overtime (RIN 1235-AA11).
DOL's Administrator's Interpretation (No. 2015-1, July 15,
2015) regarding Independent Contractor classification, which downplays
the ``control'' factor.
Proposed legislation in Seattle that would permit labor
unions to organize independent contractors in certain transportation
industries.\14\
---------------------------------------------------------------------------
\14\ http://seattle.legistar.com/
ViewReport.ashx?M=R&N=Text&GID=393&ID=2296991&GUID=
A1841B13-CF4F-4E5A-9409-A613DC6B2B15&Title=Legislation+Text.
Rather than adapting the law to keep pace with modern competitive
workplaces, these regulators are trying to force companies to change
their business models and strategies in order to make workplaces look
the way they did in the 1930s: every worker is an employee who punches
in at 9 a.m. and punches out at 5 p.m. and never checks their email
outside of work. This model--which ultimately increases employer
costs--will undoubtedly stifle competitiveness and result in stagnant
economic growth. It also ignores the benefits of such structures for
the parties involved. In particular, the independent contractor model
can result in workers who ``have more control over their economic
destiny.'' \15\ While PLBOA obviously does not address these other
efforts, it would be a positive step forward for employers whose
successful business models are under constant regulatory threat.
---------------------------------------------------------------------------
\15\ Steven Cohen and William B. Eimicke, Independent Contracting
Policy and Management Analysis, Columbia School of International
Affairs, at 16 (August 2013).
---------------------------------------------------------------------------
v. conclusion
For the foregoing reasons, the U.S. Chamber supports PLBOA as a
modest and reasonable solution to the problems created by the NLRB's
BFI decision. As noted above, plaintiffs' attorneys and other
enforcement agencies, such as OSHA, are already looking to take
advantage of the new, broader joint employer standard. And there is no
doubt that the Board's General Counsel will attempt to apply this new
standard to the franchising industry in pending litigation.
We wish to thank you for taking the time to hold this important
hearing on PLBOA. 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
______
Response by Ciara Stockeland to Questions of Senator Collins
and Senator Scott
senator collins
Question 1. I have spoken to various small employers in Maine
regarding this issue. They cross-cut different industries. In Maine,
for example, many of our hotels and motels are locally owned
franchises. I am concerned about the disincentive that this ruling
would create for expansion and the addition of new jobs. Ms.
Stockeland, you are a business owner who could be significantly
affected by this new rule. How do you believe this ruling will affect
plans to expand a franchise business and create jobs?
Answer 1. This new ruling would greatly effect my expansion plans
and growth strategies for my business. We have had a very distinct and
methodical growth strategy in place since our inception. With the goal
of 75 stores by 2024, I am thrilled that through my small North Dakota
business I continue to have the opportunity to give other entrepreneurs
the opportunity to also own their own business and thus create jobs in
their communities. When I think of the implications that this bill
could have on us as a company, it gives me pause to consider whether or
not I can afford the risk that 75 units would bring to me and my
family. The reason I choose the franchise model was so that individual
business owners in their own communities would have the privilege and
the responsibility of hiring and managing their own employees. As a
small franchisor, I cannot afford the liability that could come with
the responsibility of managing employees that are in businesses miles
away.
senator scott
Question 1a. For more than 30 years, the business community has
adhered to a certain set of principles for what constitutes a joint-
employer. During that time, you have been able to achieve substantial
growth and franchise 11 different locations including one in my home
State of South Carolina. This rule has the potential to reduce
profitability for franchisees while at the same time limiting their
growth. Where does that leave the South Carolinian hoping to get a job
at one of your franchises?
Answer 1a. We had the privilege of opening MODE Mt. Pleasant in
July 2015. Through that opening, that local entrepreneur was able to
hire two women from her community. We hope to continue to grow our
brand in the State of South Carolina and with each store opening more
jobs are created. If I decide, because of the liability that this issue
affords me, that I will no longer franchise MODE, job opportunities
will be lost in both the State of South Carolina and other States
across the country.
Question 1b. Who manages the employees at those 11 franchise
locations--you or the franchisee?
Answer 1b. The franchisee hires the employees in her franchise
location and manages every single aspect of their duties as employees.
Question 1c. What affect does the decision in Browning-Ferris have
on the franchisee's ability to independently manage those employees?
Answer 1c. This decision greatly effects both me as a small
franchisor and also each individual franchisee because it essentially
makes each franchisee a middle manager between myself and their
employees and creates extensive liability for me as a small franchisor
in that now I need to anticipate, know and fully control all employee
relations in the individual MODE stores. It effects the franchisee's
ability to independently manage their employees because they may no
longer have direct control over the actions, growth and accountability
of their own staff.
Question 2a. It seems like the less independent franchisees become,
the less likely someone in Charleston, SC would want to open a small
business and hire employees. It seems to me like the additional
liability and uncertainty our small businesses will be taking on will
most certainly dip into their profits, and make it a less attractive
investment for a lot of people. Do you find that to be the case?
Answer 2a. I absolutely agree that the additional liability and
uncertainty we face will make investment in the franchise model much
less attractive. My franchisees went into business to run their own
operation and to directly control their business success outcome. Small
business people creating local jobs and being the direct employer of
their hires.
Question 2b. If so, how will that affect the growth potential for
franchises?
Answer 2b. This liability and uncertainty will affect the growth
penitential for franchisees because they will no longer want to open
their own small businesses, knowing that they are essentially middle
managers while still taking on the risk of a small business owner.
Question 3. As any business owner can tell you, one of the worst
things in the world for your business is uncertainty. Unfortunately for
many businesses across South Carolina, in particular small business
owners, the NLRB's actions in redefining the definition and application
of ``joint employer'' has failed to provide any real clarity and in
fact, has just provided more uncertainty and questions for employers.
It might seem obvious, but how do we actually expect businesses to be
able to prepare for potential litigation, potential increased health
insurance costs, or any of the other variety of financial challenges
this rule places on them?
Answer 3. There is absolutely no way that small business owners
such as myself and my individual franchisees can prepare for the
liability that we may incur with this legislation. There are no clear
definitions and no clear directives. This decision has created a blurry
line between direct and indirect control and leaves every circumstance
open to the determination of lawyers. As a small business owner, there
is a multitude of risk (such as no customers, weather you cannot
control, inflation, product supply, etc.) that we can never control.
Why would the government feel it fitting to inflict another unnecessary
uncertainty onto small business owners? I cannot be emphatic enough
that this will stunt small business growth in America and small
business is the driving engine of job creation in the United States.
Question 4. It's nearly impossible to run a successful operation
when you have no idea what your costs will be or what you might legally
be on the hook for. Won't this uncertainty have a direct impact on
employees as well?
Answer 4. When my franchisees and I have no idea what costs or
legal implications will be imposed on our businesses, it absolutely
slows our growth and job creation.
Response by Edward Martin to Questions of Senator Collins
and Senator Scott
senator collins
Question 1. I have spoken to various small employers in Maine
regarding this issue. They cross-cut different industries. In Maine,
for example, many of our hotels and motels are locally owned
franchises. I am concerned about the disincentive that this ruling
would create for expansion and the addition of new jobs. Mr. Martin,
you are a business owner who could be significantly affected by this
new rule. How do you believe this ruling will affect plans to expand a
franchise business and create jobs?
Answer 1. It is with appreciation that I received your question
following the Senate Committee on Health, Education, Labor, and
Pensions hearing entitled, ``Stealing the American Dream of Business
Ownership: The NLRB's Joint Employer Decision'' on October 6, 2015. I
agree that the National Labor Relations Board's (NLRB) decision in
Browning-Ferris will negatively impact the home building industry,
dampen job creation, and discourage business expansion.
The Browning-Ferris decision calls into question the very basic
idea of what it means to be a business. If any basic business act, like
scheduling, can trigger a finding of joint employment, employers will
be ill-prepared to determine the appropriate scope of their workforce,
and consequently, their legal responsibilities to that workforce.
Because the new ``indirect or potential control'' standard affects
employers' responsibilities not only at the NLRB, but with other
Federal agencies such as the Internal Revenue Service, the U.S.
Department of Labor, or for the purposes of the Affordable Care Act,
businesses will be forced to re-examine their entire business model if
the new joint employer standard is left unchecked by Congress.
I am equally concerned about the new standard's impact on job
creation. Without the human resources departments typical of large
firms, small firms will find it challenging to compete under this new
standard. The broadening of joint employment will lead to a
centralization of the housing industry, with less competition among
small firms, higher home prices, and fewer locally based businesses in
Maine and around the country. If Congress codifies the traditional
``direct control'' standard, this will lead to more competition among
firms of all sizes, providing more affordable housing options for
consumers.
Thank you for your question. I look forward to working with you as
S. 2015 moves forward in the legislative process.
senator scott
Question 1. As any business owner can tell you, one of the worst
things in the world for your business is uncertainty. Unfortunately for
many businesses across South Carolina, in particular small business
owners, the NLRB's actions in redefining the definition and application
of ``joint employer'' has failed to provide any real clarity and in
fact, has just provided more uncertainty and questions for employers.
It might seem obvious, but how do we actually expect businesses to be
able to prepare for potential litigation, potential increased health
insurance costs, or any of the other variety of financial challenges
this rule places on them?
Answer 1. It is with appreciation that I received your questions
following the Senate Committee on Health, Education, Labor, and
Pensions hearing entitled, ``Stealing the American Dream of Business
Ownership: The NLRB's Joint Employer Decision'' on October 6, 2015. I
agree that the National Labor Relations Board's (NLRB) decision in
Browning-Ferris creates more uncertainty for employers and will be
especially challenging for home builders who may be found to be
employers of other company's workers.
For example, under the new test adopted in the Browning-Ferris
decision, Tilson Homes could be considered a joint employer by merely
scheduling a subcontractor to complete a roofing project at one of our
job sites. The new ``indirect or potential control'' test is so
ambiguous that employers, like myself, have an incredibly difficult
time assessing where our liability ends and where another company's
begins. Employers in South Carolina and around the country will find it
difficult to properly prepare for potential litigation and the legal
responsibilities that come with an expanded workforce. As you note, a
finding of joint employment could trigger responsibilities under the
Affordable Care Act, the Fair Labor Standards Act, and other labor
laws. I strongly believe the new joint employer test will lead to
centralization of the housing industry, which will negatively affect
small businesses and housing prices.
Question 2. It's nearly impossible to run a successful operation
when you have no idea what your costs will be or what you might legally
be on the hook for. Won't this uncertainty have a direct impact on
employees as well?
Answer 2. I strongly agree the new joint employer standard will
have a negative impact on employees and job creation. The new limitless
joint employer standard will not serve to better employees, but create
such legal uncertainty that employers will scale back and hesitate to
take on such great risk.
As you note above, a finding of joint employment could trigger
responsibilities under the Affordable Care Act, the Fair Labor
Standards Act, and other labor laws. Because small businesses will be
ill-equipped to handle such expanded legal liabilities, large
businesses with sophisticated human resources departments will be in a
better position to gain market share at the expense of local firms.
Firms of all sizes, however, will find it challenging to take on such
an expanded workforce, which could lead to fewer projects completed,
less job creation, and certainly less competition among firms for
projects, which is bad for the economy and housing.
[Whereupon, at 11:38 a.m., the hearing was adjourned.]
[all]