    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                       H.R. 3441, SAVE LOCAL BUSINESS ACT

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

                                 JOINT HEARING

                                   before the

                     SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                                    and the

                            SUBCOMMITTEE ON HEALTH,
                        EMPLOYMENT, LABOR, AND PENSIONS

                                     of the

                             COMMITTEE ON EDUCATION
                               AND THE WORKFORCE
                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

               HEARING HELD IN WASHINGTON, DC, SEPTEMBER 13, 2017

                                   __________

                               Serial No. 115-27

                                   __________

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

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

               Available via the World Wide Web: www.govinfo.gov
                                       or
                Committee address: http://edworkforce.house.gov

                                       ______

                         U.S. GOVERNMENT PUBLISHING OFFICE

    26-736 PDF                WASHINGTON : 2018

                    COMMITTEE ON EDUCATION AND THE WORKFORCE

                   VIRGINIA FOXX, North Carolina, Chairwoman

    Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott,
    Duncan Hunter, California                Virginia
    David P. Roe, Tennessee              Ranking Member
    Glenn ``GT'' Thompson, Pennsylvania  Susan A. Davis, California
    Tim Walberg, Michigan                Raul M. Grijalva, Arizona
    Brett Guthrie, Kentucky              Joe Courtney, Connecticut
    Todd Rokita, Indiana                 Marcia L. Fudge, Ohio
    Lou Barletta, Pennsylvania           Jared Polis, Colorado
    Luke Messer, Indiana                 Gregorio Kilili Camacho Sablan,
    Bradley Byrne, Alabama                 Northern Mariana Islands
    David Brat, Virginia                 Frederica S. Wilson, Florida
    Glenn Grothman, Wisconsin            Suzanne Bonamici, Oregon
    Elise Stefanik, New York             Mark Takano, California
    Rick W. Allen, Georgia               Alma S. Adams, North Carolina
    Jason Lewis, Minnesota               Mark DeSaulnier, California
    Francis Rooney, Florida              Donald Norcross, New Jersey
    Paul Mitchell, Michigan              Lisa Blunt Rochester, Delaware
    Tom Garrett, Jr., Virginia           Raja Krishnamoorthi, Illinois
    Lloyd K. Smucker, Pennsylvania       Carol Shea-Porter, New Hampshire
    A. Drew Ferguson, IV, Georgia        Adriano Espaillat, New York
    Ron Estes, Kansas
    Karen Handel, Georgia

                          Brandon Renz, Staff Director
                     Denise Forte, Minority Staff Director
                                     ------

                     SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                        BRADLEY BYRNE, Alabama, Chairman

    Joe Wilson, South Carolina           Mark Takano, California,
    Duncan Hunter, California              Ranking Member
    David Brat, Virginia                 Raul M. Grijalva, Arizona
    Glenn Grothman, Wisconsin            Alma S. Adams, North Carolina
    Elise Stefanik, New York             Mark DeSaulnier, California
    Francis Rooney, Florida              Donald Norcross, New Jersey
    A. Drew Ferguson, IV, Georgia        Raja Krishnamoorthi, Illinois
                                         Carol Shea-Porter, New Hampshire
            SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS

                        TIM WALBERG, Michigan, Chairman

    Joe Wilson, South Carolina           Gregorio Kilili Camacho Sablan,
    David P. Roe, Tennessee                Northern Mariana Islands
    Todd Rokita, Indiana                   Ranking Member
    Lou Barletta, Pennsylvania           Frederica S. Wilson, Florida
    Rick W. Allen, Georgia               Donald Norcross, New Jersey
    Jason Lewis, Minnesota               Lisa Blunt Rochester, Delaware
    Francis Rooney, Florida              Carol Shea-Porter, New Hampshire
    Paul Mitchell, Michigan              Adriano Espaillat, New York
    Lloyd K. Smucker, Pennsylvania       Joe Courtney, Connecticut
    A. Drew Ferguson, IV, Georgia        Marcia L. Fudge, Ohio
    Ron Estes, Kansas                    Suzanne Bonamici, Oregon

                                C O N T E N T S

                                  ----------
                                                                       Page

    Hearing held on September 13, 2017...............................     1

    Statement of Members:
        Byrne, Hon. Bradley, Chairman, Subcommittee on Workforce
          Protections................................................     1
            Prepared statement of....................................     3
        Norcross, Hon. Donald, Ranking Member, a Representative in
          Congress from the state of New Jersey......................     8
            Prepared statement of....................................    11
        Takano, Hon. Mark, Ranking Member, Subcommittee on Workforce
          Protections................................................     3
            Prepared statement of....................................     5
        Walberg, Hon. Tim, Chairman, Subcommittee on Health,
          Employment, Labor, and Pensions............................     6
            Prepared statement of....................................     7

    Statement of Witnesses:
        Granger, Mr. MacDonald, CEO, MacDonald Companies, Kerrville,
          TX.........................................................    14
            Prepared statement of....................................    16
        Kennedy, Ms. Tamra, President, Twin City T.J.'s Inc.
          Roseville, MN..............................................    22
            Prepared statement of....................................    24
        Rubin, Mr. Michael, Partner, Altshuler Berzon LLP, San
          Francisco, CA..............................................    29
            Prepared statement of....................................    31
        Fasman, Mr. Zachary, Partner, Proskauer Rose LLP, New York,
          NY.........................................................    43
            Prepared statement of....................................    45

    Additional Submissions:
        Chairman Byrne:
            Letter dated September 12, 2017 for House Committee on
              Small Business.........................................    84
        Mr. Norcross:
            Primary case document....................................    10
        Mr. Takano:
            Letter dated July 28, 2017 from the Teamsters, SEIU, UAW,
              UFW, UFCW, AND USW.....................................    95
            Letter dated September 7, 2017 from AFL-CIO..............    93
            Letter dated September 19, 2017 from United Brotherhood
              of Carpenters and Joiners of America...................    98
            Slides...................................................    88

                       H.R. 3441, SAVE LOCAL BUSINESS ACT

                                  ----------

                         Wednesday, September 13, 2017

                           House of Representatives,

                     Subcommittee on Workforce Protections,

                                 joint with the

            Subcommittee on Health, Employment, Labor, and Pensions,

                   Committee on Education and the Workforce,

                                Washington, D.C.

                                  ----------

        The subcommittees met, pursuant to call, at 10:03 a.m., in
    Room 2175, Rayburn House Office Building, Hon. Bradley Byrne
    [chairman of the subcommittee on Workforce Protections]
    presiding.
        Present: Representatives Byrne, Walberg, Wilson, Roe, Brat,
    Grothman, Stefanik, Allen, Lewis, Mitchell, Smucker, Estes,
    Handel, Foxx, Takano, Courtney, Fudge, Bonamici, Adams,
    DeSaulnier, Norcross, Blunt Rochester, Krishnamoorthi, Shea-
    Porter, and Scott.
        Staff Present: Bethany Aronhalt, Press Secretary; Andrew
    Banducci, Workforce Policy Counsel; Courtney Butcher, Director
    of Member Services and Coalitions; Michael Comer, Press
    Secretary; Rob Green, Director of Workforce Policy; Callie
    Harman, Professional Staff Member; Nancy Locke, Chief Clerk;
    Geoffrey Macleay, Professional Staff Member; Kelley McNabb,
    Communications Director; Rachel Mondl, Professional Staff
    Member; James Mullen, Director of Information Technology;
    Krisann Pearce, General Counsel; Molly McLaughlin Salmi, Deputy
    Director of Workforce Policy; Olivia Voslow, Legislative
    Assistant; Joseph Wheeler, Professional Staff Member; Lauren
    Williams, Professional Staff Member; Tylease Alli, Minority
    Clerk/Intern and Fellow Coordinator; Kyle deCant, Minority
    Labor Policy Counsel; Denise Forte, Minority Staff Director;
    Christine Godinez, Minority Staff Assistant; Eunice Ikene,
    Minority Labor Policy Advisor; Stephanie Lalle, Minority Press
    Assistant; Kevin McDermott, Minority Senior Labor Policy
    Advisor; Richard Miller, Minority Senior Labor Policy Advisor;
    Udochi Onwubiko, Minority Labor Policy Counsel; Veronique
    Pluviose, Minority General Counsel; Erin Robinson, Minority
    Policy Fellow; and Kimberly Toots, Minority Labor Policy
    Fellow.
        Chairman Byrne. Good morning. A quorum being present, the
    subcommittees will come to order.
        Let me welcome everybody to a joint subcommittee hearing on
    H.R. 3441, the Save Local Business Act. We look forward to
    hearing from an excellent panel of witnesses who travel led
    from different parts of our country to be here today. We want
    all of you to know, who have come to be here with us, that we
    appreciate the time you have taken away from your jobs and
    businesses to testify.
        To most Americans, the question over who their employer is
    seems to be an obvious answer. It is the person who hired them,
    the one who signs their paycheck. As a former labor attorney, I
    can tell you it used to be very clear in legal terms how you
    become someone's employer. But that is no longer the case since
    the National Labor Relations Board stepped in. Many people
    would be shocked to find out that some company they have had
    zero contact with is also considered their employer in addition
    to the employer that actually hired them and signs a paycheck.
        Now, we all agree there are times when two or more
    employers should be deemed joint employers. Before the NLRB
    stepped in and overstepped, there was a commonsense
    understanding of the circumstances establishing that joint
    employer relationship. Both employers had to have, quote,
    ``actual, direct, and immediate,'' close quote, control, over
    the central terms and conditions of employment.
        That standard made sense. But today, business owners and
    their employees face a standard vastly different and far more
    confusing. They face a situation where a group of unelected
    bureaucrats in Washington are interfering with their
    relationship in a way that has created a lot of problems. The
    NLRB's decision, the Obama administration's actions that
    followed it, in addition to a litany of rulings by activist
    judges, have inserted a great deal of uncertainty and confusion
    into the traditional employer/employee relationship. Two
    completely separate employers can be considered joint employers
    if they made a business agreement that, quote, ``indirectly,''
    close quote, or, quote, ``potentially,'' close quote, impacts
    their employees.
        Indirectly or potentially. What does that even mean? It's
    vague, and it's confusing. Think of it from the employee's
    standpoint. There shouldn't be any room for question on who
    their employer is. As for employers, they should have the
    clarity they need to look out for their employees in the way
    the law requires. Because in order for employees to have strong
    protections in the workplace, it needs to be crystal clear who
    was responsible for providing those protections. If everyone
    is, no one is.
        We are here today because we are determined to provide that
    clarity once and for all and protect jobs and small businesses
    in our communities. I'm proud to say that three of our
    Democratic colleagues, Representatives Chorea, Cellar, and
    Peterson are cosponsors of the Save Local Business Act, and we
    hope to continue to build bipartisan support so we can restore
    commonsense to the joint employer issue.
        This is an issue of great importance to both of our
    workforce subcommittees, which is why this critical legislation
    has been a joint effort with my colleague Mr. Walberg. Chairman
    Foxx has made the Save Local Business Act a top priority for
    the full committee, and this hearing will bring us one step
    closer to moving it through the legislative process.
        I'm going to give Mr. Walberg an opportunity to provide his
    own opening remarks, but before I do, I will yield to,
    Workforce Protections Subcommittee Ranking Member Takano for
    his brief opening remarks.
        Mr. Takano.
        [The statement of Chairman Byrne follows:]

      Prepared Statement of Hon. Bradley Byrne, Chairman, Subcommittee on
                             Workforce Protections

        To most Americans, the question over who their employer is seems to
    be an obvious answer. It's the person who hired them, the one who signs
    their paycheck.
        As a former labor attorney, I can tell you it used to be very clear
    in legal terms how you become someone's employer. But that's no longer
    the case since the National Labor Relations Board stepped in.
        Many people would be shocked to find out that some company they've
    had zero contact with is also considered their employer, in addition to
    the employer that actually hired them.
        Now, we all agree there are times when two or more employers should
    be deemed ``joint employers.'' Before the NLRB overstepped, there was a
    commonsense understanding of the circumstances establishing that joint
    employer relationship. Both employers had to have ``actual, direct, and
    immediate'' control over essential terms and conditions of employment.
        This standard made sense. But today, business owners and their
    employees face a standard vastly different, and far more confusing.
    They face a situation where a group of unelected bureaucrats in
    Washington are interfering with their relationship in a way that has
    created a lot of problems.
        The NLRB's decision and the Obama administration's actions that
    followed, in addition to a litany of rulings by activist judges, have
    inserted a great deal of uncertainty and confusion into the traditional
    employer-employee relationship. Two completely separate employers can
    be considered joint employers if they made a business agreement that
    ``indirectly'' or ``potentially'' impacts their employees.
        What does that even mean? It's vague and confusing. Think of it
    from the employee's standpoint. There shouldn't be any room for
    question on who their employer is.
        As for employers, they should have the clarity they need to look
    out for their employees in the way the law requires. Because in order
    for employees to have strong protections in the workplace, it needs to
    be crystal clear who is responsible for providing those protections.
        We are here today because we are determined to provide that clarity
    once and for all and protect jobs and small businesses in our
    communities. I'm proud to say three of our Democrat colleagues,
    Representatives Correa, Cuellar, and Peterson, are cosponsors of the
    Save Local Business Act, and we hope to continue to build bipartisan
    support so we can restore commonsense to the joint employer issue.
        This is an issue of great importance to both of our workforce
    subcommittees, which is why this critical legislation has been a joint
    effort with my colleague, Mr. Walberg. Chairwoman Foxx has made the
    Save Local Business Act a top priority for the full committee, and this
    hearing will bring us one step closer to moving it through the
    legislative process.
        I'd like to give Mr. Walberg an opportunity to provide his own
    opening remarks, but before I do, I will yield to Ranking Member
    Takano.
                                     ______

        Mr. Takano. Thank you, Chairman Byrne.
        We are here today to discuss H.R. 3441, the Save Local
    Business Act. But I believe this bill is more accurately
    described as a gift to large corporations that will further rig
    the economy against workers. More and more employees are
    working for a company whose name is not on the front of their
    office building. Instead of hiring employees directly,
    companies are renting employees from staffing agencies and then
    evading responsibility for upholding the rights of those
    workers, even though they profit from their work.
        For decades, joint employment standards have ensured
    workers can hold employers accountable for violating wage and
    hour laws or refusing to collectively bargain. This bill
    represents a significant and dangerous break from that
    precedent. It denies millions of workers the right to hold
    their employers accountable for wage theft and undermines their
    ability to have the responsible parties at the table in order
    to collectively bargain for better wages.
        This bill amends the FLSA and the NLRA to set a very narrow
    standard for who can be considered a joint employer. By setting
    a standard that is far more restrictive than the existing
    economic realities test used under the FLSA, this bill would
    seriously undermine worker protections.
        We'll hear today about a case involving workers at a
    Walmart warehouse that underscores the importance of the FLSA's
    joint employment standards. In this case Walmart contracted out
    the operations of the warehouse to one company, and that
    company, in turn, contracted out the staffing of the warehouse.
    The contractors violated wage and hour laws. And because of the
    joint employment standard under the FLSA, 1700 workers were
    able to bring Walmart and both contractors to the table to
    collect the pay that they had earned. The joint employer
    standard plays an important role in protecting the rights of
    American workers and combating the extreme and crippling
    inequality in our economy, which should be the central focus
    and top priority of this committee. Unfortunately, our focus
    and our priorities have been elsewhere.
        Studies have shown that for every dollar invested in high-
    quality early learning programs, there are $7 in economic
    returns. As a teacher, I know that improving early learning --
    early learning provides more children the opportunity to reach
    their full potential and puts more communities on the path to a
    better future. Yet, this committee has only held four hearings
    or markups on early childhood education since the 112th
    Congress.
        In comparison, as the chart shows, during that same time we
    have had 35 hearings and markups attacking labor unions and
    workers' rights to collectively bargain for better wages and
    working conditions.
        Now, there's a fine line between streamlining the economy
    and targeting workers' rights, and I believe this committee has
    moved well past that line several hearings ago. Even when we
    debate federal wage and hour standards, we're debating policies
    that would put financial stability even further out of reach
    for many workers.
        At no point since 2011, including in the 19 hearings and
    markups we've held on the subject, has this committee
    considered a single policy to raise workers' pay or create a
    fair playing field for millions of hard-working people who are
    struggling to make ends meet. Workers do not have the leverage
    in the workforce. The joint employment standard offers them the
    basic ability to hold both their employer and the joint
    employer liable for wage theft claims.
        This bill would strip workers of one of the few areas of
    leverage they have left. Victims of our two-tiered economy need
    this committee to realign its priorities. As this chart shows,
    a recent study found that wages for the bottom half of earners
    were stagnant from 1980 to 2014. In this same time, income for
    the top 1 percent grew by 205 percent. I'm going to say that
    again, 205 percent.
        So I challenge my colleagues, what are we going to do for
    the bottom half of income earners? I have great respect for
    small businesses, and I know the business owners here today
    will say that joint employer standards cause them uncertainty.
    And I'm not indifferent to your concerns. But I, too, am
    worried about uncertainty. And it's the uncertainty felt by
    millions of American workers who do not know if they'll be able
    to meet their basic expenses and provide for their children.
    This is the type of uncertainty that no one should have to live
    with, and it's the uncertainty that this committee is obligated
    to address.
        Thank you all for being here today, and I look forward to
    your testimony.
        [The statement of Mr. Takano follows:]

    Prepared Statement of Hon. Mark Takano, Ranking Member, Subcommittee on
                             Workforce Protections

        We are here today to discuss H.R. 3441, the Save Local Business
    Act. But I believe this bill is more accurately described as a gift to
    large corporations that will further rig the economy against workers.
        More and more employees are working for a company whose name is not
    on the front of their office building. Instead of hiring employees
    directly, companies are renting employees from staffing agencies...and
    then evading responsibility for upholding the rights of those workers,
    even though they profit from their work.
        For decades, joint employment standards have ensured workers can
    hold employers accountable for violating wage and hour laws or refusing
    to collectively bargain.
        This bill represents a significant and dangerous break from that
    precedent.
        It denies millions of workers the right to hold their employers
    accountable for wage theft and undermines their ability to have the
    responsible parties at the table in order to collectively bargain for
    better wages.
        This bill amends the F-L-S-A and N-L-R-A to set a very narrow
    standard for who can be considered a joint employer. By setting a
    standard that is far more restrictive than the existing economic
    realities test used under the F-L-S-A, this bill would seriously
    undermine worker protections.
        We'll hear today about a case involving workers at a Walmart
    warehouse that underscores the importance of the FLSA's joint
    employment standards. In this case, Walmart contracted out the
    operations of the warehouse to one company, and that company in turn
    contracted out the staffing of the warehouse. The contractors violated
    wage and hour laws.
        And because of the joint employment standard under the FLSA, 17
    hundred workers were able to bring Walmart and both contractors to the
    table to collect the pay they had earned.
        The joint employer standard plays an important role in protecting
    the rights of American workers and combating the extreme and crippling
    inequality in our economy, which should be the central focus and top
    priority of this committee.
        Unfortunately, our focus and our priorities have been elsewhere.
        Studies have shown that for every dollar invested in high-quality
    early learning programs...there are seven dollars in economic returns.
    As a teacher, I know that improving early learning provides more
    children the opportunity to reach their full potential, and puts more
    communities on the path to a better future. Yet, this Committee has
    only held four hearings or markups on Early Childhood Education since
    the 112th Congress.
        In comparison, as the chart shows, during that same time we've had
    35 hearings and markups attacking labor unions and workers' rights to
    collectively bargain for better wages and working conditions.
        There is a fine line between streamlining the economy and targeting
    workers' rights. I believe this committee moved well past that line
    several hearings ago.
        Even when we debate federal wage and hour standards, we're debating
    policies that would put financial stability even further out of reach
    for many workers. At no point since 2011, including in the 19 hearings
    and markups we've held on the subject, has this committee considered a
    single policy to raise workers' pay or create a fair playing field for
    millions of hardworking people who are struggling to make ends meet.
        Workers do not have enough leverage in the workforce. The joint
    employment standard offers them the basic ability to hold both their
    employer and the joint employer liable for wage theft claims. This bill
    would strip workers of one of the few areas of leverage they have left.
        Victims of our two-tiered economy need this Committee to realign
    its priorities.
        As this chart shows, a recent study found that wages for the bottom
    half of earners were stagnant from 1980 to 2014. In this same time,
    income for the top 1 percent grew by 205 percent. I'll say that again--
    205 percent.
        So I challenge my colleagues: What are we going to do for the
    bottom half of income earners?
        I have great respect for small businesses and I know the business
    owners here today will say that the joint employer standard causes them
    uncertainty. I am not indifferent to your concerns.
        But I, too, am worried about uncertainty. It's the uncertainty felt
    by millions of American workers who do not know if they will be able to
    meet their basic expenses or provide for their children.
        That is the type of uncertainty that no one should have to live
    with. And it's the uncertainty that this committee is obligated to
    address. Thank you all for being here today, and I look forward to your
    testimony.
                                     ______

        Chairman Byrne. Thank you, Mr. Takano.
        I will now yield to my distinguished colleague from
    Michigan, Health, Employment, Labor, and Pensions Subcommittee
    Chairman Walberg for his brief opening remarks.
        Mr. Walberg.
        Chairman Walberg. Thank you, Mr. Chairman. And good morning
    to everyone. I, too, would like to extend a warm welcome to our
    witnesses who have traveled from out of state to join us today.
    We appreciate you being here, and have had hearings on this
    issue in the past, and I am excited for this again.
        I listen to my friends and colleagues on the other side
    talk about the things that we should be doing that weren't done
    when they were fully in control with the White House and both
    houses as well. So it is our time now to deal with things that
    I think make a difference in the real world of the American
    dream. This committee has been fighting to roll back the
    extreme joint employer scheme since it first took effect and
    for good reason. It's a threat to jobs, entrepreneurship, and
    local employers across the country.
        We know this new joint employer standard has led to a whole
    host of real world consequences. Because that's exactly what
    we've heard from business owners and their employees in each of
    our districts before this committee. We've all heard the voices
    of local job traders who fear they could lose control of their
    business to larger companies. One small business owner who
    described himself as, and I quote, ``the living definition of
    the American dream,'' warned the committee that he would --
    and, again, quote, ``virtually overnight become a manager of a
    large company.''
        We've also heard how this new standard has made it harder
    for small businesses to grow and create jobs in their
    communities. Kristie Arslan, the owner of a small gourmet
    popcorn shop, said she was considering opening five new
    locations through franchising but the joint employer threat
    made her expansion plans too risky. She decided she could only
    open one new store instead of five. This is just one concerning
    example of lost jobs and opportunity.
        So many hard-working entrepreneurs who took a risk to start
    their own business now find themselves in the sea of
    uncertainty. And it's not just those in the franchising
    industry. Many small businesses and local vendors rely on
    contracts with larger companies, and they are concerned those
    contracts could soon be harder to come by.
        According to the American Action Forum, the joint employer
    scheme threatens 1.7 million jobs. To protect those jobs, we
    have to restore a commonsense definition of what it means to be
    an employer.
        I'd like to remind some of our critics that the Save Local
    Business Act reflects the same straightforward joint employer
    test that workers and job creators relied on for decades. To be
    someone's employer it makes perfect sense that you need to have
    actual, direct, and immediate control over terms and conditions
    of employment. This clear test does nothing to let employers
    off the hook for their obligations to their employees. What it
    does ensure -- what it does is ensure the actual employer is
    the one held responsible. And that's the way it should be.
        It's time to settle, once and for all, what constitutes a
    joint employer, not through arbitrary and misguided NLRB
    decisions and rulings by activist judges, but through
    legislation. This is obviously an area of labor law that is in
    desperate need of clarity as recognized by at least three of
    our colleagues on the other side of the aisle. This isn't a
    Democrat verse Republican issue.
        The Save Local Business Act is about providing certainty
    for job creators in each and every one of our districts. It's
    about keeping the American dream within reach. I look forward
    to today's discussion.
        And, Mr. Chairman, I yield back.
        [The statement of Mr. Walberg follows:]

       Prepared Statement of Hon. Tim Walberg, Chairman, Subcommittee on
                     Health, Employment, Labor and Pensions

        This committee has been fighting to roll back the extreme joint
    employer scheme since it first took effect, and for good reason. It's a
    threat to jobs, entrepreneurship, and local employers across the
    country.
        We know this new joint employer standard has led to a whole host of
    real-world consequences, because that's exactly what we've heard from
    business owners and their employees in each of our districts and before
    this committee.
        We've all heard the voices of local job creators who fear they
    could lose control of their businesses to larger companies. One small
    business owner, who described himself as the ``living definition of the
    American Dream,'' warned the committee that he would ``virtually
    overnight become a manager for a large company.''
        We've also heard how this new standard has made it harder for small
    businesses to grow and create jobs in their communities. Kristie
    Arslan, the owner of a small gourmet popcorn shop, said she was
    considering opening five new locations through franchising, but the
    joint employer threat made her expansion plans too risky. She decided
    she could only open one new store instead of five.
        This is just one concerning example of lost jobs and opportunity.
    So many hardworking entrepreneurs, who took a risk to start their own
    business, now find themselves in a sea of uncertainty. And it's not
    just those in the franchising industry. Many small businesses and local
    vendors rely on contracts with larger companies, and they are concerned
    those contracts could soon be harder to come by.
        According to the American Action Forum, the joint employer scheme
    threatens 1.7 million jobs. To protect those jobs, we have to restore a
    commonsense definition of what it means to be an employer.
        I'd like to remind some of our critics that the Save Local Business
    Act reflects the same straightforward joint employer test that workers
    and job creators relied on for decades.
        To be someone's employer, it makes perfect sense that you need to
    have ``actual, direct, and immediate control'' over terms and
    conditions of employment. This clear test does nothing to let employers
    off the hook for their obligations to their employees. What it does is
    ensure the actual employer is the one held responsible. And that's the
    way it should be.
        It's time to settle once and for all what constitutes a joint
    employer--not through arbitrary and misguided NLRB decisions and
    rulings by activist judges--but through legislation. This is obviously
    an area of labor law that is in desperate need of clarity.
        As recognized by at least three of our colleagues on the other side
    of the aisle, this isn't a Democrat versus Republican issue. The Save
    Local Business Act is about providing certainty for job creators in
    each and every one of our districts. It's about keeping the American
    Dream within reach.
                                     ______

        Chairman Byrne. Thank you, Chairman Walberg.
        I now yield to my distinguished colleague from New Jersey,
    Congressman Norcross, the ranking member pro tempore on the
    Health, Employment, Labor, and Pensions Subcommittee for his
    brief opening remarks.
        Mr. Norcross. Thank you, Chairmen Byrne and Walberg for
    holding this meeting today. And I would like to thank my,
    Ranking Member Mark Takano for what you do each and every day
    for working families, and certainly to the witnesses who you
    will be bringing your experiences to this issue.
        I'd like to start by offering my thoughts and prayers to
    the people of Texas and Florida and all those who have been
    impacted by the devastating storms over the last two weeks.
    There are 60,000 what they call storm break workers in those
    two states restoring power, one of the most dangerous jobs that
    you can imagine.
        But today we're here to consider a bill that attacks
    workers' rights to fight for better wages and conditions.
    Employers have increasingly moved away from direct hiring,
    relying on leased employees, subcontractors, permatemps.
    There's approximately 3 million Americans that are now employed
    by temporary staffing agencies, and one-fifth of all new jobs
    since 2009 have been through those temp agencies.
        Labor and employment laws have long held that there are
    multiple joint employers, when more than one entity controls
    the terms and conditions of employment. This bill would rig the
    National Labor Relations Act and the Fair Labor Standards Act
    to make it nearly impossible for workers to hold joint
    employers responsible for unfair labor practices, wage theft or
    others.
        Research shows that the fissuring of the workforce to
    increase outsourcing is already contributing to wage
    stagnation, and this bill would make that problem even worse.
        The joint employer standard that exists today started out
    in the common law standard as existed for hundreds of years. In
    America, that standard has existed through most of the 20th
    Century and exactly intended to do what it is doing. But when
    the NLRB narrowed that joint employer standard back in 1984, it
    made it easier for companies to evade this joint employer. So
    from 1935 to 1984 it was the same standard. Hundreds of
    decisions were made based on that. And it wasn't until 1984
    that changed.
        In 2015, the NLRB considered a case where workers at
    Browning-Ferris, BFI, Recycling Plant wanted to organize a
    union. These workers were hired by the staffing agency
    Leadpoint to sort recycling materials at the BFI facility. But
    BFI capped their wages and assigned their workers' shifts. BFI
    claimed it wasn't the employer. But here's the problem. If a
    worker had joined the union with Leadpoint as the only
    employer, then Leadpoint wouldn't be able to bargain over
    anything without BFI's permission. Workers wouldn't even be
    able to bargain for better wages because the amount Leadpoint
    could pay was capped by BFI. The NLRB finding: that BFI was a
    joint employer. And this is critical to help raise wages.
        So let's look what happened at the table behind you and on
    the walls showing the disparity in those wages since the
    Leadpoint came into this equation. The wages of workers in
    nearly all the plants that have unions were from $19 to $30 an
    hour, plus healthcare, retirement savings. Leadpoint only made
    $12.50 an hour total package. Without being able to bargain
    with both of their employers, Leadpoint BFI workers and
    hundreds of thousands like them will never see their wages rise
    again. And this isn't the only example. And we've seen these
    trends continue.
        Mr. Chairman, I'd ask for unanimous consent to introduce
    this document which lists three primary cases that the
    carpenters' union has dealt with into the record.
        Chairman Byrne. Without objection, so ordered.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Norcross. Thank you.
        The right to join a union and collectively bargain helps
    workers raise wages. I've lived this. I've fought on behalf of
    workers to raise wages for almost two decades. This bill
    enables corporations to keep wages low by subcontracting out
    the work. They're subcontracting their conscience to put
    profits over people.
        This bill even goes further. It amends the FLSA, the Fair
    Labor Standards Act, to prevent workers from holding employers
    accountable for wage theft, overtime violations or others. It
    immunizes the employers from child labor violations. Under this
    bill, all a company has to do is outsource control of just one
    essential term of employment, just one essential term of
    employment to its subcontracting. You could be -- scheduling.
    This bill relieves that company from any liability of wage
    theft for which it would be responsible.
        This is where I think the crux of what we're discussing
    today comes down to. This bill is pushing for a solution in
    search of a problem when it claims this bill would help
    franchisees. The current joint employer standards do not hurt,
    do not hurt, franchisees in any way. There are approximately
    800,000 franchisees in this country. The NLRB has never found
    one of them was a joint employer, 800,000, and not one decision
    to create a joint employer. It's a remarkable fact. But it's an
    important fact when we're talking about what we're trying to do
    here today.
        That's because the board carefully draws a line between
    what a franchisor maintains its brand, like requiring training
    on how to prepare hamburgers, hot dogs or whatever else that
    the company produces. But they also do something now, the terms
    and conditions, wages, benefits, and hold that subcontractor to
    their exact standards.
        Mr. Chairman, I'm happy to work on legislation that would
    help small businesses and raise wages. This bill does neither.
    It empowers massive corporations and stagnant wages at a time
    when working families need relief.
        I'll remind everybody it's been a decade since a vote was
    taken on the minimum wage. It's been eight years since they
    have received a raise. We should be lifting people up, not
    pushing wages down.
        While we disagree on the merits of the bill, I want to
    thank the chairman for following regular order, and I want to
    thank each of witnesses for traveling to Washington and look
    forward to your testimony.
        Thank you.
        [The statement of Mr. Norcross follows:]

        Prepared Statement of Hon. Donald Norcross, a Representative in
                     Congress from the state of New Jersey

        Thank you Chairmen Byrne and Walberg for holding this hearing
    today. And I would like to thank my colleague, Ranking Member Mark
    Takano for all you do on behalf of working families.
        I would like to start by offering my thoughts and prayers to the
    people of Texas, Florida, and all the states impacted, particularly
    those who lost loved ones as well as those who remain displaced. I know
    I speak for my Democratic colleagues in stating that we stand ready to
    work with you to ensure that the affected states have the resources
    they need to recover and rebuild.
        Today we consider a bill that attacks workers' rights to fight for
    better wages and conditions. Employers have increasingly moved away
    from direct hiring, relying on leased employees, subcontractors, and
    perma-temps. Approximately 3 million Americans are now employed by
    temporary staffing agencies, and one fifth of all new jobs since 2009
    have been through temp agencies.
        Labor and employment laws have long held workers have multiple,
    ``joint employers'' when more than one entity controls the terms and
    conditions of employment. This bill would rig the National Labor
    Relations Act and the Fair Labor Standards Act to make it nearly
    impossible for workers to hold joint employers responsible for unfair
    labor practices or wage theft. Research shows that the fissuring of the
    workforce through increased outsourcing is already contributing to wage
    stagnation, and this bill would make the problem even worse.
        The joint employer standard that exists today is based on a common
    law standard that has existed for hundreds of years. In America, the
    standard that existed through most of the twentieth century did exactly
    what it was intended to. But when the NLRB narrowed the joint employer
    standard under the NLRA in 1984 it made it easier for companies to
    evade joint employer status.
        In 2015, the National Labor Relations Board considered a case where
    workers at the Browning Ferris (BFI) recycling plant wanted to organize
    a union. These workers were hired by the staffing agency Leadpoint to
    sort recyclable materials at BFI's facility, but BFI capped their wages
    and assigned the workers' shifts. BFI claimed it wasn't an employer,
    but here's the problem: if the workers joined a union with Leadpoint as
    the only employer, then Leadpoint wouldn't be able to bargain over
    anything without BFI's permission. The workers wouldn't even be able to
    bargain for better wages, because the amount Leadpoint could pay was
    capped by BFI. The NLRB's finding that BFI was a joint employer is
    critical for these workers to raise their wages.
        [Referencing the chart:] Let's look at what actually happened. This
    table compares what the subcontracted Leadpoint workers were making
    with the wages of workers at nearby plants that have unions. The union
    workers nearby make anywhere from $19 to $30 an hour, plus healthcare
    and retirement savings. The Leadpoint workers only make $12.50 an hour
    with no wages and benefits. Without being able to bargain with both of
    their employers, the Leadpoint/BFI workers, and hundreds of thousands
    like them, will never see their wages rise. And this isn't the only
    example - we have seen similar trends in the telecom and construction
    industries.
        Mr. Chairman, I ask unanimous consent to introduce this document
    into the record.
        The right to join a union and collectively bargain helps workers
    raise wages. I've lived this--I fought on behalf of workers to raise
    wages for over two decades. This bill enables corporations to keep
    wages low by subcontracting out their work. They are subcontracting
    their consciences to put profits over people.
        This bill goes even further. It amends the Fair Labor Standards Act
    to prevent workers from holding employers accountable for wage theft or
    overtime violations. It even immunizes employers from child labor
    violations. Under this bill, all a company has to do is outsource
    control over just one essential term of employment to its
    subcontractors--say scheduling. The bill then relieves the company of
    any liability for any wage theft for which it may be responsible.
    Workers and businesses want stability and predictability. Instead we
    are giving them chaos.
        The Majority [alternative: This bill] is pushing a solution in
    search of a problem when it claims that this bill would help
    franchises. The current joint employment standards do not hurt
    franchises in any way. There are around 800,000 franchisees in America
    and the NLRB has never found that one of them was a joint employer.1
    That's because the Board carefully draws a line between when a
    franchisor maintains its brand--like requiring training on how to
    prepare burgers--and when a franchisor governs terms of employment,
    like wages. This bill would leave countless hardworking Americans
    without a voice in their workplace at a time when Congress should be
    helping to lift up workers by raising wages and improving workplace
    conditions.
        Mr. Chairman, I'm happy to work on legislation that would help
    small businesses and raise wages. This bill does neither: it empowers
    massive corporations and stagnates wages at a time when working
    families need relief. We should be lifting people up, not pushing wages
    down.
        While we disagree about the merits of this bill, I want to thank
    the Chairman for following regular order. I also want to thank each of
    the witnesses for traveling to Washington, DC, and taking the time to
    appear here today.
        I yield back.
         https://www.cnbc.com/2016/01/20/us-franchises-set-to-grow-in-2016-
    report.html
                                     ______

        Chairman Byrne. Thank you, Mr. Norcross.
        Pursuant to committee Rule 7(c), all subcommittee members
    will be permitted to submit written statements to be included
    in the permanent hearing record. Without objection, the hearing
    record will remain open for 14 days to allow statements,
    questions for the record, and other extraneous material
    referenced during the hearing to be submitted in the official
    hearing record.
        Now, it's my pleasure to introduce our distinguished panel
    of witnesses.
        Our first witness is Mr. Granger MacDonald. He is the CEO
    of MacDonald Companies, a group of companies specializing in
    developing, building, and managing multi-family neighborhoods
    in Texas, and is testifying on behalf of the National
    Association of Home Builders.
        And, Mr. MacDonald, let me just say on behalf of all of us,
    we're all praying for the state of Texas. We appreciate you
    being here.
        Now I recognize Representative Lewis to introduce our next
    witness.
        Mr. Lewis. Thank you, Mr. Chairman, for holding this
    hearing and for introducing this very important piece of
    legislation to provide clarity and relief to local businesses
    and job creators across this country who are threatened by this
    joint employer scheme.
        It is my pleasure to introduce a local business owner from
    my state of Minnesota, Ms. Tamara Kennedy who will be
    testifying on behalf of the International Franchise
    Association. She began her career as a secretary and worked her
    way up to owner by working nights in the restaurants while
    studying accounting and managing the books for a previous
    owner.
        Ms. Kennedy now owns and operates nine Taco John's
    franchises, eight of them in the Twin Cities area. She
    epitomizes the American dream of work, investment, and risk.
    But America's economy's tolerance for risk is not unlimited.
    You know, her favorite part of the job is getting to teach
    young people how to be good employees and good teammates, an
    important role franchises play across this nation.
        Ms. Kennedy is serving her second year as a member of the
    International Franchise Association's convention committee and
    will be soon be taking a seat on the IFA board of directors. I
    look forward to hearing about her experiences, and I thank her
    for joining us today.
        Chairman Byrne. Thank you, Mr. Lewis. I will now continue
    with this mornings' introductions.
        Mr. Michael Rubin is a partner at Altshuler Berzon LLP, in
    San Francisco, California. Welcome sir.
        Mr. Zachary Fasman is a partner in the labor and employment
    law department at Proskauer Rose LLP, in New York City.
    Distinguished panel.
        I now ask our witnesses to raise your right hand.
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        Let the record reflect the witnesses answered in the
    affirmative.
        Before I recognize each of you to provide your testimony,
    let me briefly explain our lighting testimony. You will each
    have five minutes to present your testimony. When you begin,
    the light in front of you will turn green.
        When one minute is left, the light will turn yellow. When
    your time has expired, the light will turn red.
        At that point, I will ask to you wrap up your remarks as
    best as you are able.
        After everyone has testified, members will each have five
    minutes to ask questions of the panel.
        Now, I am not, like, really harsh about the lights. But
    sometimes people go a little bit over. We have a lot of members
    here that want to ask questions. And only so much time for you
    and for them. So if I push you a little bit, please don't take
    it personally. It's because we're trying to keep everything
    moving.
        So when that light turns yellow please start getting to the
    point where you're winding up. Okay. Are we all clear on that?
    Good.
        Also, before you testify, just as Mr. MacDonald is doing,
    press the button for your microphone or we won't hear you good
    Mr. MacDonald thank you look forward to your testimony.

       STATEMENT OF GRANGER MACDONALD, CEO, MACDONALD COMPANIES,
        KERRVILLE, TEXAS, TESTIFYING ON BEHALF OF THE NATIONAL
                      ASSOCIATION OF HOME BUILDERS

        Mr. MacDonald. Thank you, Mr. Chairman appreciate being
    here today.
        My business, MacDonald Companies, specializes in developing
    affordable multi-family housing across Texas. We currently own
    and manage 4571 units in 41 different apartment communities in
    25 cities. We directly employ 131 workers from construction
    supervisors, to property managers, to maintenance and repair
    staff, many of whom are full-time, salaried individuals.
        Beyond our regular staff, MacDonald Companies contracts
    with 80 other companies and specialty trades to perform a range
    of services across all of our properties including HVAC work,
    piling, drywall, et cetera. This type of arrangement is not
    unique to the entire construction industry. It's made up of a
    system of building contractors and subcontractors who have been
    this together. For the most builders they don't have enough
    work to hire someone full time to just do tile work for
    example. I might only need a drywaller for a few weeks each
    year.
        These numerous specialized task require a complete project
    we contract with other small companies out of necessity. This
    is why I'm very concerned about the ongoing ambiguity over what
    constitutes a joint employer. A builder can now be considered a
    joint employer if he has indirect or potentially ability to
    exercise control over the workers' subcontractors the question
    of what can deemed indirect control and when it legally
    constitutes joint employment has been left to an open ended
    situation by the NLRB. This threatens to upend the foundation
    of the entire industry.
        For example, we'll schedule a painter or an electrician to
    come to a jobsite at a certain time. Does that trigger a
    finding of joint employment? Do I have indirect control if I
    ask a contractor to bring on extra staff to make up for delays?
    One might think that an indirect or potential control over just
    one factor like scheduling would not justify a finding of joint
    employment. But because of the indirect test, it's so vague,
    the NLRB has not ruled on that possibility. And there is
    nothing stopping the courts from ruling on the basis of just
    one factor.
        Over the last three weeks, I've been overseeing cleanup and
    reconstruction efforts at some of our buildings in the wake of
    Hurricane Harvey's historic devastation. The process of
    rebuilding from a natural disaster is chaotic and time lines
    are anything about predictable.
        I have contractors and subcontractors coming in and out of
    our properties round the clock right now. I may ask a
    contractor to bring on more staff to finish up drywalling that
    has fallen behind so that the next stage of workers can get
    started or tell the cabinet installer that he can't come as
    planned because the replacement floor tiles have not been set
    because of lingering humidity because of the storm damage. Can
    these acts meet the test for indirect control? The expanded
    joint employer test provides no clarity.
        My focus is on getting families back to their homes. We
    have endured and rebuilt from bad storms before, and we're
    doing it again. But this time is with the added worry of
    whether my company will be held liable for the practices of
    contractors, third-party vendors, and suppliers that we've
    hired to help with this important job over whom we have no
    direct control.
        The reality is that the line that once clearly separated
    two employers is so blurry that neither I nor others in the
    industry can see where it lies. The scope of the liability will
    only grow for builders as courts explore and expand the limits
    of the new standard. Exposed to unlimited and unpredictable
    joint employment liability, small businesses will find it
    increasingly challenging to comply and, therefore, compete.
    This is true for residential building firms, the majority of
    which have less than ten employees, as well as specialty
    trades.
        With less competition among small firms, construction
    costs, and subsequently home prices, will rise, particularly
    troubling for those of us who are in the business of providing
    affordable housing.
        The bipartisan Save Local Business Act offers a commonsense
    solution to the ambiguity created by the Browning-Ferris
    decision by affirming that a company may be considered a joint
    employer of a worker only if it directly, actually, and
    immediately exercises significant control over the primary
    elements of employment.
        This is reasonable. I should be held accountable for my
    employees but not for those of another company. Codifying the
    definition will provide the legal certainty every business
    owner needs. I urge the Committee to take swift action to
    advance the Save Local Business Act.
        Thank you.
        [The statement of Mr. MacDonald follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Byrne. Thank you, Mr. MacDonald.
        Ms. Kennedy, you are recognized for five minutes.

     STATEMENT OF TAMRA KENNEDY, PRESIDENT, TWIN CITY T.J.'S, INC.
       ROSEVILLE, MN, TESTIFYING ON BEHALF OF THE INTERNATIONAL
                         FRANCHISE ASSOCIATION

        Ms. Kennedy. Chairman Byrne, Chairman Walberg, Ranking
    Member Takano, Ranking Member Norcross, and distinguished
    members of the subcommittees, good morning. My name is Tamara
    Kennedy, and I'm the president of Twin Cities' Taco John's,
    multi-unit franchisee based in Minnesota. I'm honored here
    today to speak here on behalf of small businesses throughout
    the nation, and I thank you for your invitation.
        I want to start by recognizing that all of our prayers and
    thoughts are with the people of Florida, Alabama, Georgia,
    South Carolina, Texas, Louisiana, all of whom have been
    affected by the hurricanes of Irma and Harvey.
        Today I'm representing the Coalition to Save Local
    Businesses and its thousands of members who are supportive of
    the Save Local Business Act. I'm appearing before you today
    with over 400 franchise brand leaders coming around Capitol
    Hill urging their Representatives and Senators to take close
    look at this legislation. We consider H.R. 3441 the most
    important federal legislation in franchising in over a
    generation.
        Mr. Chairman, I got my start working as a secretary for a
    Taco John's franchisee. It took me 17 years to realize my dream
    of owning my own business, and in 1999, when my employer
    retired, I bought the restaurants. Today my organization
    operates nine locations, eight in Minnesota and one in central
    Iowa. My business has overcome many challenges, including the
    recession, but we have stayed the course because I believe our
    company has the potential for growth, should the regulatory
    environment allow us the certainty and the flexibility to do
    so.
        Countless people in the franchisee industry start out in
    entry-level positions like mine, as busboys, line cooks or
    cashiers, or as secretaries, working towards their dream of
    someday owning their own business and being their own business
    and being their own boss. The franchise structure has created
    that path.
        As a local business owner, I am very fortunate to have the
    privilege of providing jobs in our neighborhoods. My company's
    values really are about giving people a place to earning a
    living and learn skills at the same time. It's the greatest
    honor a local business can have to pay forward the opportunity
    to learn how to be good employees, good teammates, and
    eventually great leaders in their own right. I'm here today to
    encourage this committee and this Congress to act on the
    legislative solution to address the joint employer problem
    pending before the subcommittees.
        It is important that you know how much I love my brand and
    that partnership that I have with Taco John's. If you've ever
    heard the phrase or used the phrase taco Tuesday, I'm proud to
    say you're using a Taco John's trademark. But now, after two
    years operated under the expanded joint employer standard, the
    impact of my business is clear.
        Joint employee means I must pay more to run my business and
    earn less in return. Franchisors, including mine, have been
    compelled to consider the potential liability risk of the new
    joint employer standard that the National Labor Relations Board
    has imposed. Changing the rules' language with less clear, more
    widely interpreted definitions of joint employer by adding
    words like indirect and even reserved or unexercised control,
    opens up very real concerns.
        Some examples: My franchisor used to provide employee
    management products as options for franchisees. Basic but
    essential tools like job descriptions, performance reviews, and
    employee handbooks, and recruiting tools like banners, fliers,
    and ad copy, used to be available. But due to expanded joint
    employment liability, the company no longer provides most of
    these tools.
        Now I must hire an outside attorney to write an employee
    handbook. That employee handbook cost me $9,000. Just this year
    we no longer have access to a branded job application form from
    the franchisor. I must create my own application or use an off-
    the-shelf, non-branded form.
        The reality is that joint employer is impacting my ability
    to recruit employees. Quite simply, we want and need employees
    to consider our business when they're searching for a job. It
    could not be more important today to have a powerful, creative,
    systemwide set of employment tools. I don't blame our brand for
    some of these changes, because I know they're watching what's
    at stake for everyone.
        Our brands are coming under attack for involvement in the
    hiring process which some believe indicates a direct
    relationship with my employees. Those of us running our
    businesses know that's simply not the case. My view and my
    brand's view is that my employees are my employees alone. My
    brand's role is to provide me with tools and never to exert
    control over my employees.
        In its August 2015 decision to expand the joint employer,
    the NLRB removed the clear understanding from a business
    relationship and the now the industry is justifiably struggling
    with this new legal landscape.
        Chairman Byrne, Chairman Walberg, on behalf of the
    Coalition to Save Local Businesses, thank you so much for
    introducing the Save Local Business Act. The expanded joint
    employer standard is simply not working. It's time we provide
    some security to local business owners. Thank you.
        [The statement of Ms. Kennedy follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Byrne. Thank you, Ms. Kennedy.
        Mr. Rubin, you're recognized for five minutes.

    STATEMENT OF MICHAEL RUBIN, PARTNER, ALTSHULER BERZON LLP, SAN
                             FRANCISCO, CA

        Mr. Rubin. Thank you. Let me begin by thanking Chairmen
    Byrne and Walberg, and Ranking Members Norcross and Takano for
    this opportunity to testify about the impacts of the Save Local
    Business Act.
        I've been representing low-wage workers for more than 35
    years. My clients include janitors; security guards; warehouse,
    garment, fast food workers; and others. For these workers, and
    for many small businesses operating in a low-wage economy, H.R.
    3441 will have disastrous consequences.
        The bill purports to redefine the term joint employer under
    the NLRA and FLSA. But its practical effect would be to
    completely eliminate joint employer responsibility under those
    statutes. The proposed definition narrows the NLRA's common law
    standard and the FLSA's direct or indirect suffer or permit
    standard so dramatically that no company could meet the
    definition of joint employer once it contracts out any direct
    control over its workers' employment.
        The bill exempts from joint employer responsibility any
    company that does not exercise direct and significant control
    over all essential terms and conditions of its workers'
    employment. That means once an employer has delegated any
    significant control over any terms and conditions of its
    workers' employment, it has ceased exercising direct control
    over those terms and conditions and is no longer a potential
    joint employer.
        Why does that matter? In a low-wage economy, wage and hour
    violations, discrimination, and other unlawful conduct are
    rampant. All too often, though, the injured workers have no
    real ability to enforce their rights, even in the face of
    flagrant violations, especially when their direct employer is
    an under-capitalized labor services subcontractor.
        Mr. Rubin. In case after case, we have seen law-violating
    subcontractors, whether they supply garment workers in Los
    Angeles, janitors in Texas, or warehouse workers in California
    or Illinois, simply declare bankruptcy in the face of a court
    judgment for backpay or other relief, while their owners or
    their owners' relatives or business partners later incorporate
    under another name to carry on the company's same business,
    leaving the judgments unsatisfied.
        The proposed definition of joint employer would leave
    without remedy the workers most in need of statutory
    protection, the at-will, nonunion employees who are most
    susceptible to exploitation.
        It would also leave small business owners in the difficult
    position of being solely responsible for labor law compliance
    and collective bargaining even when they lack sufficient
    authority and control to meet that responsibility. The problem
    faced by small businesses is not that a court might impose
    joint employer liability on the company that shares their
    control over the workforce.
        The problem is the small businesses' economic dependence on
    that larger company may leave it no choice but to accept that
    shared control without correspondingly shared responsibility.
        The proposed bill radically redefines joint employment
    under the FLSA and NLRA, abandoning the statutory directly or
    indirectly suffer-or-permit standard that has been key to
    effective FLSA enforcement since 1935, and rejecting the common
    law of agency-based NLRA standard. Under the proposed bill, it
    would be easier to prove a company's responsibility for
    wrongful acts committed by an employee against a stranger under
    the traditional common law master-servant standard than to
    prove that company's own responsibility for wage and hour
    violations committed against its own employees. This turns the
    purposes of the FLSA and the common law standard on its head.
        There's no need for these changes. Any lead company that
    does not want to be responsible for bargaining over workplace
    conditions it controls can simply restructure its relationships
    to give its suppliers greater independence in controlling
    wages, hours, and working conditions.
        In my law practice, I've seen the destructive impacts of
    the fissured economy and the critical need for meaningful labor
    enforcement in many industries. Let me briefly share one
    example as mentioned by Representative Takano.
        In a case we settled a few years ago in southern
    California, hundreds of warehouse workers were employed in four
    warehouses, loading and unloading trucks for deliveries to
    Walmart distribution centers. Walmart owned the warehouses and
    their contents. It contracted with a subsidiary of Snyder
    Logistics to operate the warehouses, and Snyder, in turn,
    retained two labor services contractors to hire the workers. By
    contract, all responsibility for legal compliance rested with
    the contractors, yet Walmart and Snyder retained and exercised
    control over almost every aspect of those workers' employment.
        We ended up settling that case for $22.7 million. Class
    members got tens of thousands of dollars in recovery and
    significant injunctive relief that stopped those violations,
    that increased the wages and allowed health benefits for the
    first time for those workers only because the courts made
    preliminary findings of --
        Chairman Byrne. Mr. Rubin, you're beginning to run over.
    Can you wind up, please?
        Mr. Rubin. Absolutely.
        The proposed bill would have required a completely
    different result in that case. None of those defendants would
    have been a joint employer under H.R. 3441. The new narrow
    definition would have left those workers and millions like them
    almost completely without recourse.
        I'd be pleased to answer your questions.
        [The statement of Mr. Rubin follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Byrne. Thank you, Mr. Rubin.
        Mr. Fasman, you're recognized for five minutes.

     STATEMENT OF ZACHARY D. FASMAN, PARTNER, PROSKAUER ROSE LLP,
                              NEW YORK, NY

        Mr. Fasman. Chairman Byrne, Chairman Walberg, Ranking
    Member Takano, Ranking Member Norcross, and members of the
    committee, thank you for inviting me to testify today. I'd like
    to address my remarks to the legal issues that are before this
    committee.
        As this committee knows, beginning in 1984, the National
    Labor Relations Board and the courts instituted a standard in
    which the courts determined whether two separate entities were
    joint employers by applying exactly the standard set forth in
    this bill. The accepted test was, and should be, whether the
    alleged joint employers' control over employment issues was
    direct and immediate. The NLRB and the courts properly
    distinguished direct and immediate control from situations
    where the alleged joint employers' supervision was limited and
    routine.
        And I want to emphasize for the committee this is not a new
    standard. This is the traditional standard that was followed by
    the NLRB and the courts in hundreds of cases for more than 30
    years. This bill will simply restore the law to where it was
    before the NLRB's decision in Browning-Ferris. Now, why is this
    important? The key for me is that the traditional standard is
    based upon facts, the actual conduct of the parties, as opposed
    to hypothetical, after-the-fact legal conclusions about
    indirect or potential but unused authority. The traditional
    standard affords stability and predictability by asking a
    factual question: Who actually makes employment decisions?
        I want to emphasize that this standard does not prevent
    collective bargaining. It allows collective bargaining between
    unions and the employer that actually hires, fires,
    disciplines, supervises, and directs the employees. In
    Browning-Ferris, the NLRB abandoned the facts and actual
    conduct and created a new test based upon whether the alleged
    joint employer has the potential to control aspects of the
    workplace either directly or indirectly, whatever that means,
    even though it's never exercised that authority.
        In other words, the Browning-Ferris test is not based upon
    the parties' actual conduct but turns on after-the-fact legal
    conclusions about who has what potential authority. That test
    is not based upon the common law. Indeed, in my view, it is no
    test at all.
        As the dissent in Browning-Ferris observed, virtually every
    business that subcontracts part of its operations falls into
    this category. Contracting parties will always have the
    potential economic control over the relationship, even though
    they've never exercised it. And that's the key problem with
    Browning-Ferris. It makes virtually every business that
    subcontracts any of its operations into a joint employer.
        This standards negates freedom of contract and allows
    imposition of joint employer liability after the fact through
    administrative determinations about the level of potential or
    indirect control retained but never exercised by the joint
    employer. It destroys any level of predictability on thousands
    of vital commercial relationships.
        For me, as someone who's negotiated many contracts, the
    justification of this standard, because it is allegedly
    necessary for meaningful collective bargaining, makes no sense.
    In fact, to me, it's just the opposite. Adding in an employer
    that has potentially conflicting interests that is a third
    employer or second employer into the bargaining sessions will
    make it much more difficult to reach agreements, not easier.
    And I can tell you from experience it's difficult to reach
    agreements between one union and one employer, let alone
    multiple employers who have conflicting interests.
        Applying such a broad definition of joint employer also
    undermines the Taft-Hartley Act where Congress confined labor
    disputes to a dispute between the primary employer and outlawed
    secondary boycotts, outlawed secondary picketing and
    involvement of a broader series of employers. A joint employer
    could easily be -- under this standard, under the Browning-
    Ferris standard, might easily be considered sufficiently
    related to the primary employer to allow picketing at the joint
    employer's facilities. And that's contrary to Taft-Hartley.
        A slightly different question is raised under the Fair
    Labor Standards Act which does have different definitions. But
    under that act there's a crying need for a definition of joint
    employer. As I've said in my written comments, there were 9,000
    Fair Labor Standards Act lawsuits filed in 2016 alone. That's
    not 9,000 total in the courts. That's 9,000 new lawsuits. And
    there has never been a clear definition of joint employment
    under that act.
        There is a crying need for a clear definition. And my
    colleague on the panel has cited a case called Salinas v.
    Commercial Interiors where the Fourth Circuit, in 2017, goes
    through all the different standards, itemizes them, comes up
    with a clearly unworkable new test. That goes on all the time.
    And it's time for Congress to --
        Chairman Byrne. Mr. Fasman, you're going to have to wind up
    too.
        Mr. Fasman. Let's get a definition that works. And, in my
    view, this one would work under that act.
        [The statement of Mr. Fasman follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Byrne. Thank you, Mr. Fasman. I'm a lawyer. We
    just can't help ourselves. We can't stick to the timeframe. I
    understand it. But I do appreciate all your testimony. That was
    excellent for all of us.
        Now we get to the time period where it's question-and-
    answer time from the members of the committee. Let me remind
    the members of the subcommittees and the witnesses, each member
    gets five minutes. So however many people he asks, it's just
    five minutes for that one member. And we're going to try to
    stick to that as close as we can, because we have a lot of
    members here today.
        We'll start off our questioning from the distinguished
    chairwoman of the committee, Dr. Foxx from the great state of
    North Carolina.
        Dr. Foxx, five minutes.
        Mrs. Foxx. Thank you, very much, Mr. Chairman. I want to
    thank all of our members for being here and certainly thank our
    panelists for being here today. Their testimony has been great.
        Mr. Fasman, I want to start with you, because I think you
    gave such a wonderful statement at the beginning about the
    traditional standard being based on facts. You know, I think
    that's so important that we continue to talk about that, and
    that the Browning-Ferris decision based on potential authority
    and on intent, not action. I think too many times in our
    culture these days there is this decision to judge people on
    intent and not action. And I thank you so much for making this
    so succinct.
        It's been suggested that the BFI standard is not as broad
    as some claim and that business owners should not worry about
    it. Do you agree?
        Mr. Fasman. Chairwoman Foxx, thank you for your comments. I
    don't agree. I think that the potential in this standard, to
    use the standard's own terms, is amazingly broad. The potential
    to control a relationship, I think basing a decision upon that,
    sweeps everything into the standard. So I would not agree with
    that.
        Mrs. Foxx. So your concern is that the potential
    application of this expanded standard is far reaching. Is there
    anything in BFI that serves to limit its application so
    business owners we have here today should not be concerned?
    And, on the other hand, would the joint employer standard in
    Save Local Business Act be limited in such a way as to assuage
    business owners' concerns?
        Mr. Fasman. Well, I think there is nothing in BFI that
    suggests a limitation. And that, indeed, is the problem, as the
    dissent observed in BFI. And the standard in this bill restores
    the law to what it was and the law that we've lived under for
    30-plus years. So I think that people should take some comfort
    in that. There are many, many decisions applying the standard
    that's in this bill.
        Mrs. Foxx. Thank you very much.
        Mr. MacDonald, my husband and I were in the construction
    business for many years several times in our lives. And we did
    a lot of subcontracting with people. So I understand a little
    bit about your business.
        Does your company have any way to control all the actions
    of your vendors or subcontractors that you could be held liable
    for under expanding joint employer definitions?
        Mr. MacDonald. Well, thank you very much. And I'm glad that
    you got out of the business and found good work. It was a good
    move.
        You know, under Browning-Ferris, it's so overly broad, and
    it doesn't provide employers with clarity so we know where
    we're headed. We all agree that there needs to be some common
    sense guidelines. And that's what we're not seeing currently.
    Essentially, we're working under a scenario where you'll know
    it when you see it if it's bad. I mean, which doesn't give
    anyone any certainty as to what's going forward or where we're
    headed with all this.
        And we don't have the opportunity to direct every single
    task with our subcontractors. We don't set the price. We don't
    do anything like that. And we certainly don't do any more than
    just scheduling our folks when we need a task done, which is --
    you know, this morning at breakfast I got a menu. I selected
    something. The gentleman brought it to me. I asked him to
    hurry. You know, was I scheduling him? He didn't bring me what
    he wanted to bring me for breakfast. You know, it seems
    facetious, but it's really the same thing.
        Mrs. Foxx. Right.
        Well, Ms. Kennedy, I would like to know if you would have
    been able to have gained the same level of experience as an
    employer without the franchise help? And would you have been as
    eager to have become a franchise owner yourself if you knew the
    franchiser would have had such a level of control over your
    business?
        Ms. Kennedy. Thank you. No. There's no way that I could
    have gained that experience without following the path that I
    did through the course of franchising. It is one of the true
    quintessential American products, franchising is. It gives us
    the opportunity to learn all of the many important parts of
    running a business but gives us the security of knowing that
    we're working with a proven process. So it limits the risk that
    we take when we go into business for yourself.
        It's important to remember that same path that I followed,
    I hope more people can. And that's what we're risking here if
    we don't get this fixed.
        Mrs. Foxx. Thank you, Mr. Chairman.
        Thank you, lady and gentlemen.
        Chairman Byrne. Thank you, Madam Chairwoman. The chair now
    recognizes the ranking member of the full committee, the
    gentleman from Virginia, Mr. Scott, for five minutes.
        Mr. Scott. Thank you, Mr. Chairman.
        Mr. Rubin, you have a copy of the bill in front of you?
        Mr. Rubin. Yes.
        Mr. Scott. On page 2, line 8, it says a person may be
    considered a joint employer ``only if such person directly,''
    then goes down to exercises essential control over the central
    terms of employment, including hiring/firing, determining rates
    of pay and benefits, day-to-day supervision, assigning work
    schedules, positions and tasks and administering discipline. To
    be called a joint employer, you would have to do all of those.
        Mr. Rubin. Under the language of the bill, you have to do
    all of those, which is why --
        Mr. Scott. So if you do everything, if you hire, fire,
    determine rates of pay, but you don't assign individual work
    schedules, you would not be a joint employer under this
    definition. Is that right?
        Mr. Rubin. That is right.
        Mr. Scott. Now, exactly how would your right to negotiate
    wages as a union work if the person who hires, fires, and
    determines rates of pay and benefits is not at the table?
        Mr. Rubin. You can't. And contrary to Mr. Fasman's
    testimony, and as the Board made clear in Browning-Ferris, and
    later in Miller and Anderson, it's only if the companies that
    can actually control the essential terms and conditions are at
    the table that you can have meaningful bargaining.
        Mr. Scott. Now, in Ms. Kennedy's testimony, she said that
    the franchisor used to have employee handbooks, a job
    application form, and helping recruiting employees. Would
    anybody doing that ever be considered a joint employer?
        Mr. Rubin. Well, in the Freshii case, the advice memorandum
    by the Boards' general counsel made clear that a franchisor
    would not be liable for making available handbooks and other
    materials as long as they're optional. The circumstances that
    Ms. Kennedy described would not, under the Board's current
    view, trigger joint employer liability, which is why, of the
    800,000 franchisees, none have ever been found in a joint
    employer relationship.
        Mr. Scott. Ms. Kennedy, in light of the fact that of
    800,000 franchisees, none of the franchisors have ever been
    held joint employment. And I'm trying to find out what the
    problem is that you are articulating. Did lawyers help prepare
    your testimony and interpret the laws, give you advice on that?
        Ms. Kennedy. No.
        Mr. Scott. Who prepared your testimony?
        Ms. Kennedy. I did.
        Mr. Scott. Now, why did you think that -- where did you get
    the idea that a franchisor might become a joint employer?
        Ms. Kennedy. We are taking a look at all of the many
    written articles that are out there in not only the franchise
    space but in all the business magazines, and trying to
    understand how our relationship is changing right now with our
    franchisor, and trying to determine where we're going to head
    as a partnership.
        Mr. Scott. But are lawyers helping you get through that?
        Ms. Kennedy. No.
        Mr. Scott. Okay. Well, I think that most of the lawyers are
    suggesting, as Mr. Rubin said, that there's 800,000
    franchisees, and not a single franchisor has ever been declared
    a joint employer. And so we're trying to find out what the fear
    is. If they are joint employers, they will be responsible for
    what they did. If they are controlling the wages, then they
    would have to be subject to the NLRB.
        Mr. Rubin, if there is an OSHA violation created by the
    franchisor, would the franchisor be a joint employer under
    present law or under the bill?
        Mr. Rubin. Under the present law governing OSHA, yes. Under
    the bill, absolutely not. Because under the bill there is no
    joint employer anymore.
        Mr. Scott. And if there is a wage -- if there's a failure
    to pay overtime directed by the franchisor, under present law
    would they be a joint employer for that purpose?
        Mr. Rubin. Yes. And there are many examples of that. But
    under the current bill, they would not be a joint employer
    because there are no more joint employers who control every
    single term and condition directly and actually.
        Mr. Scott. And how does the bill return us to the
    traditional definition of employer?
        Mr. Rubin. It doesn't at all. The traditional definition of
    employer, under the FLSA, is directly or indirectly suffers or
    permit. It's a completely different standard, the most worker-
    protective standard ever enacted by this Congress.
        And under the National Labor Relations Act, the Supreme
    Court said you return to the common law standard. So if you
    actually read the Browning-Ferris opinion, you see them
    extensively quote from the Restatement of Agency, 1933, 1958,
    which states the legal standard, which the Board adhered to.
        And the test in Browning-Ferris, despite what I'm hearing
    about perspective, and indirect, is very clearly stated in the
    context of collective bargaining. If they are -- they have to
    be employers within the meaning of the common law, which
    includes direct and indirect and if they share or codetermine
    those matters governing the essential terms and conditions of
    employment.
        That is the standard that has always been applied. That
    goes back to the beginning of the National Labor Relations Act.
    That is the standard that should continue. And, of course,
    these are fact-based inquiries.
        Chairman Byrne. Mr. Rubin, we're going to have to wind up.
        Mr. Rubin. I'll end it there.
        Chairman Byrne. Thank you, Mr. Scott.
        Mr. Byrne. Thank you, Mr. Scott. The chair now recognizes
    the chair of the Subcommittee on Health, Employment, Labor, and
    Pensions, Mr. Walberg, for five minutes.
        Mr. Walberg. Thank you, Mr. Chairman, and thanks again to
    the witnesses.
        Ms. Kennedy, thanks for grabbing the whiplash by the tail
    of franchisee and going for the American dream, as you have.
    And we applaud you and congratulate you.
        You spoke about receiving less assistance and help from
    your franchisor due the expanding joint employer standards and
    the fear that these programs will create unintended joint
    employer liability.
        Could you further explain why this type of assistance is so
    critical to the franchisee and to all business owners, and
    especially, first time business owners who are in the franchise
    system?
        Ms. Kennedy. Thank you. I'll be glad to.
        What's important to remember is that at the heart of
    franchising is someone's idea, I make really good tacos. But
    that doesn't make me an expert in legal matters. It doesn't
    make me an expert in construction. It doesn't make me an expert
    in all of the things that it takes to run a business.
        When you join a franchise, when you choose to partner with
    a franchise, you get some of the support in those areas that
    you're looking to learn more about. It lessens the risks and it
    creates the opportunity to grow faster, become more profitable,
    and put more people to work.
        It is, for me, probably one of the most important parts of
    this is to try to understand that my employees are my
    employees. And I get to pick them. I get to watch them grow and
    move on and, through our company, on to better things. And my
    employer doesn't have any role in that employment process other
    than to supply me with what I desperately need right now, which
    is really good recruiting tools and training tools to keep
    people growing into what they're going to become.
        And where we're at now is, does that make them potentially
    indirectly responsible for part of the employment process.
        Mr. Walberg. We'll go on with that. What problems may
    develop and be created in an expanding joint employer standard
    that isn't reined in? What additional problems would you see?
        Ms. Kennedy. Goodness. Trying to wait to see whether or not
    we want to use the court system to decide whether or not there
    was indirect control, whether or not there is reserved and
    unexercised control, means that I'm not going to be able to
    open restaurants as often as I'd like to and at a speed that I
    think that I could, because I'm not sure whether or not I'm
    eventually not really going to be an owner.
        If I'm in some way just a middle manager because my
    franchisor is somehow indirectly responsible for my employees.
    And that's, that's concerning.
        Mr. Walberg. Thank you. Mr. Fasman, your written testimony
    noted that bringing two or more alleged joint employers to the
    bargaining table in a union contract negotiation may result in
    conflicts of interest between the two employers.
        Do you think this would result in better deals for
    employees, and would it promote labor peace?
        Mr. Fasman. Chairman Walberg, I don't think it would
    promote labor peace at all, and I don't think it would promote
    better deals for employees. I don't think it would promote
    deals. Because you would have two employers with differing view
    points pointing fingers at each other saying, ``It's your
    responsibility. No, it's your responsibility.'' And nothing is
    likely to get done in those circumstances.
        So, no, I don't think it's a better deal at all.
        Mr. Walberg. Okay. Mr. MacDonald, you spoke about shortages
    of workers in especially construction trades. And we hear about
    that all over our districts, all across the country.
        It seems to me that one of the driving forces to get
    workers into specialty trades would be the potential to own
    their own business some day after they learn the process.
        Do you think the expanding joint employment standard could
    take away that incentive and how might this impact the
    construction industry?
        Mr. MacDonald. Well, it would be an extreme negative
    impact. You know, most of our smaller subcontractors now are
    the ones that do the majority of the work. They are people that
    have under 15 employees total in their shop. They are the great
    American dream. They are the guys who started off as a
    journeyman and made their way to a master status and then
    started their own companies. And with their own sweat and
    blood, have gotten it done.
        And they're not out trying to do anything but a good job.
    Most of the people in the construction industry, the homeowners
    that I represent are just like myself. I started off in a
    pickup truck with a toolbox. And we've built a very good
    company. We've been blessed and we've gotten a lot done. And
    we've made a lot of good, safe affordable housing for Americans
    because of it.
        With the storm that we've had in Texas and it's occurred in
    Florida, we're going to be short in Texas alone, somewhere
    between 10 and 20,000 construction workers just to put people
    back in the home where they were, not to accelerate to a new
    level, just to bring us back to where we were.
        And anything that we do that stymies the effort to keep
    people in business, to keep people going is just going to make
    it more and more impossible to put people back at home and back
    at work.
        Mr. Walberg. Thank you. My time has expired. I yield back.
        Mr. Byrne. Thank you, Chairman Walberg. The chair now
    recognizes the ranking member of the subcommittee on Workforce
    Protections, Mr. Takano, for five minutes.
        Mr. Takano. Thank you, Mr. Chairman. Mr. Rubin, in your
    testimony you mentioned a case you litigated involving
    warehouse workers in a Walmart-Schneider facility.
        That case hits close to home. In fact, the facilities in
    question are in my congressional district.
        The case of these workers takes what, to many, seems like a
    technical, legal debate, and puts a face to the workers who are
    protected by our joint employer laws. I want to give you a
    chance to share a little more about the facts of the case.
        Mr. Rubin. Sure, 1700 workers, many earn far less than the
    minimum wage, they earned money based on a bogus piece rate,
    where because the company up the ladder paid the labor services
    contractor on a piece rate for truck loaded or unloaded, the
    contractor in turn paid the workers, depending on how many
    trucks were loaded or unloaded, on a shift among the four
    warehouses at the same time.
        So no worker had any idea what any other worker was doing
    in terms of loading or unloading, whether those numbers were
    accurate.
        Many of the workers had to sign their pay stubs when they
    went to work in the morning and the supervisors filled those in
    later with whatever hours the supervisors claimed should be in
    there. The workers had to show up hours before the work began.
    They weren't paid for those hours. The workers were often sent
    home early when there weren't enough trucks to unload. They
    weren't paid for those hours. There was a whole series of
    egregious labor violations that went on for decades in those
    warehouses and that was the basis of the lawsuit.
        And the control was exercised by Walmart and by its
    operator by dictating the terms and conditions of employment,
    acting indirectly through the next level down. Indirect simply
    means you're using someone else as your agent. You're telling
    that next company down what to do, how to do it. Your
    instructions are carrying through to the workers. So the
    ultimate responsibility was held to be shared by all of the
    companies.
        Mr. Takano. So that's a horrible situation for those
    workers, terrible working conditions, being cheated out of
    their pay.
        What remedy would they have had if this bill were to pass?
        Mr. Rubin. They would have no remedy at all. Their only
    recourse would be against the labor services contractor, who as
    we found out when we finally entered into settlement
    negotiations, had only enough money to pay, I think, it was
    about seven percent of the total settlement combined over a
    period of years.
        What happens in real life, when you're talking about the
    facts, is that as soon as there's a threat of labor organizing,
    as soon as there's a threat of a wage-and-hour lawsuit, the
    company up the ladder terminates its contract with the small
    business. If small businesses are concerned, the concern should
    be based on the fact that they have no job security.
        What happens is they lose their contracts and the workers
    lose their jobs as soon as one worker complains. So if a worker
    complains, not only is that worker out of a job, but all of his
    or her coworkers are out of jobs, too, because the labor
    services contract is terminated.
        Mr. Takano. So let me get this right. So right now, I mean
    the law gives some protection to these workers, but if we pass
    this new bill, remedies go away for those workers, and you're
    telling me that even the small business, that the contractor,
    the contractor with the big business becomes even more
    vulnerable under this law?
        Mr. Rubin. That's why I don't understand why this is called
    the Save the Small Business Act. The small businesses are the
    ones who are caught in the squeeze. They're the ones who are
    hurt by this language because they will bear full
    responsibility even if they don't have full responsibility.
        Mr. Takano. So this really should be called the Screw
    Workers and Screw Small Businesses Act.
        Mr. Rubin. Not for me to say.
        Mr. Takano. I'm sorry for using such a word.
        Mr. Rubin. That's the effective impact.
        Mr. Takano. So I'm curious about as to whether this bill
    creates perverse incentives that could harm franchisees or
    smaller businesses that operate as subcontractors for larger
    firms. Under this bill could franchisors or warehouse owners
    exercise exceptionally broad control over the labor relations
    of its franchisees or subcontractors but enjoy immunity from
    liability for employment law violations associated with that
    control?
        Mr. Rubin. Yes, that's exactly what can and would happen.
        Mr. Takano. Ms. Kennedy, did any of your, did you -- you
    didn't ever recall consulting any lawyers, but did you ever
    read any articles about this possibility that your franchisor
    could exercise far more control over your operations but yet
    put all the liability for violations onto you?
        Ms. Kennedy. I have read information about that. But I
    would, I'm always --
        Mr. Takano. Did you ever talk to your own attorney, not the
    franchisor's attorneys?
        Ms. Kennedy. I do have counsel --
        Mr. Byrne. Let me just interrupt for a second.
        Mr. Takano. Wait, wait, Mr. Chairman, this is my time.
        Mr. Byrne. Well, I'm going to just -- I'm going to give you
    your time. The communication between an attorney and client is
    privileged and, I don't think you mean to insert yourself into
    that privilege and get her to divulge --
        Mr. Takano. No, Mr. Chairman, I'm not. I just want to know
    if she's --
        Mr. Byrne. I don't think she should be asked --
        Mr. Takano. -- consulted her own attorney or the company's
    attorney --
        Mr. Byrne. We should not be asking her about what her
    attorney told her. That's inappropriate.
        Mr. Takano. But, Mr. Chairman, this is my time.
        Mr. Byrne. I'm going to let you have your time, I'm just
    saying --
        Mr. Takano. But it is my time, Mr. Chairman.
        Mr. Byrne. -- she has a recognized privilege and we cannot
    invade that privilege here.
        Mr. Takano. Okay. Well, Ms. Kennedy, have you consulted
    your own attorney about this -- not, not -- the franchisor's
    attorney?
        Ms. Kennedy. Yes.
        Mr. Takano. Okay. Well, I'd be interested to know just
    whether or not, whether you have any advice on whether the
    company's control, the franchisor's control would leave you in
    a more vulnerable situation, more liable?
        Ms. Kennedy. I don't know that I have any information or
    advice that I want to share about that today. I don't think
    that that's really what I'm here to talk about. It hasn't
    happened. I can't speak to what has happened.
        What I am most concerned about is, is that it could happen.
    If we don't find a way to bring this language back into what is
    my reality, which is defining what is direct, immediate control
    over employees. It's the language that we've always worked
    under. Those employees that I have, I'm proud of, and they work
    for me. And when we open -- when we use these words like
    indirect or reserved, unexercised control, that's where the
    danger is.
        Mr. Takano. Thank you for your response, Ms. Kennedy. Thank
    you.
        Mr. MacDonald. Mr. Chairman, if I might --
        Mr. Byrne. We got to follow the protocol here.
        Let me make sure I say this for everybody here who is not
    an attorney. It is not appropriate to ask somebody to tell us
    what an attorney has -- their attorney has told them. They have
    an attorney-client privilege, and it's not appropriate for the
    House of Representatives to try to invade that privilege.
        Ms. Fudge. Then they can say no.
        Mr. Byrne. Well, they are not lawyers and they don't have
    their lawyers here with them to give them that advice. And I
    think it would not be responsible for those --
        Ms. Fudge. And you cannot be their lawyer.
        Mr. Byrne. I'm not trying to be their lawyer.
        Mr. Takano. Mr. Chairman --
        Mr. Byrne. But I --
        Mr. Takano. Mr. Chairman --
        Mr. Byrne. Let me finish, let me finish what I'm saying.
        Now, those of us that are lawyers understand this is a very
    serious thing. And some of us are officers of the court,
    whether we're these folks lawyers or not. And we've got to be
    careful -- and I don't think it's the intention of anybody on
    this panel to try to invade the attorney-client privilege. But
    it is a privilege. It is recognized by the courts. And we
    should not be invading that privilege.
        If they want to consult their attorneys to come back to us
    and give us an answer, that's a different thing. But to ask
    them without their attorneys being present to give us
    information about what their attorneys have told them, I don't
    think is appropriate.
        Mr. Takano. Well, Mr. Chairman, I was merely trying to
    clarify whether such communication had taken place, whether she
    had her own attorney, whether she had consulted her own
    attorney or whether she was being guided by the franchisor's
    attorney.
        I wanted to make sure that her interest as a small business
    owner was being represented, as opposed to receiving guidance
    from the franchisor's interest. And because the law, the way
    this law is written is so perversely against both workers and
    small business people.
        Mr. Byrne. Mr. Takano, you are welcome to ask the questions
    that you want to ask, and they can give you the answers. But
    when we're wandering into a situation where we might be asking
    a non-lawyer to make a decision about whether or not they're
    going to give up a privilege that is recognized by the courts,
    I think it is appropriate for us to--
        Mr. Takano. Well, I have no intention of asking for any
    privilege to be waived, merely whether or not the
    communication, whether she had consulted her own attorney
    versus the franchisor's attorney.
        Mr. Byrne. Thank you.
        The Chair now recognizes the gentleman from South Carolina,
    Mr. Wilson, for five minutes.
        Mr. Wilson. Thank you, Chairman Byrne. And thank you all
    for being here today, particularly Ms. Kennedy. I appreciate
    the opportunities you provide.
        The International Franchise Association gives such
    opportunities, and then from that, you help develop -- and the
    members help develop -- small businesses that provide entry-
    level jobs for people to have first time employment and prove
    themselves and succeed. In fact, in South Carolina we
    particularly recognize this. U.S. Senator Tim Scott had his
    first job at a Chick-fil-a franchise in North Charleston. And
    so how wonderful it was that he had that opportunity. And so I
    want to thank you for what you do.
        In regard to that, in your testimony you provided several
    examples how the joint employer standard has increased the cost
    for you to run your business.
        You mentioned that you now provide job application forms,
    employee handbooks and recruitment materials that were
    previously provided by the franchisor.
        Could you elaborate as to how the cost of the joint
    employer standard is reducing job creation and growth?
        Ms. Kennedy. Thank you very much. I'd be glad to.
        The one thing that I can tell you for sure is we keep track
    in the restaurant business, my restaurant business, of every
    penny and how it is spent, and we find that the most valuable
    way to spend our resources on something that I'm passionate
    about, which is education and helping our young people get
    started in their work life.
        In order to do that we need good tools. We need to provide
    them with training documents, standard structures that help
    them learn different parts and different skills of the
    restaurant business. It's not as simple as just becoming a
    cashier and running a cash register. It's about food safety.
    It's about understanding how to direct employees and manage
    money and manage inventory. And those skills, given the
    opportunity to learn them, can help them run any business in
    the world.
        The costs for me to do that have gone up substantially. I
    have to source, find, pay for, and produce many of the items
    that I used to get from my franchisor. Simple things like ``Now
    Hiring'' banners, flyers that go on bags and on trays, all of
    those pieces and products that I use to let people know that I
    am looking for really great people, cost me more money to go
    produce.
        My handbook, the $9,000 was just a start. Every time
    there's a change in the work environment, I have to update that
    handbook. That's expensive, and it's definitely not something
    that I'm an expert at. And so I have to pay to get the legal
    representation that I feel I need to make sure that I'm
    complying with all of the many pieces of legislation and work
    rules that I'm responsible for.
        Mr. Wilson. Well, again, thank you so much. I know
    personally the opportunities you provided -- my third son
    Julian began at Ruby Tuesday, and did great work. And then my
    youngest son started at Atlanta Bread Company serving. So, what
    great opportunities you provide.
        Equally, Mr. MacDonald, I appreciate the National
    Association of Home Builders.
        In fact, I, in my real estate practice, was a member of the
    Columbia Area of Home Builders Association, and I still pay my
    dues.
        Mr. MacDonald. Thank you.
        Mr. Wilson. I know -- well, they are very persistent.
        But I appreciate the jobs created. And it's family-run
    businesses that span generations such as yours.
        You discussed in your testimony how small local businesses
    are negatively impacted by the expanded joint employer rule,
    and that without having the resources of larger companies
    resulting in higher home prices for consumers.
        Can you explain how the housing market would be negatively
    impacted by the expanded joint employer mandate?
        Mr. MacDonald. Absolutely. And thank you for the question.
    It is exactly where you were headed there, that we have small
    companies, small companies don't have the access to in-house
    lawyers, to in-house H.R. personnel, and all that it takes to
    be in business. So we have to rely upon what we can glean from
    the street or what we have to do in the way of hiring outside
    counsel on our own.
        And frankly, and all due respect to Mr. Rubin, he's the
    first attorney that I've heard that's willing to opine as to
    what's going to happen in labor law after Browning-Ferris. I
    can't find an attorney who says, ``you need to do this, this
    and this.''
        The attorneys that I have consulted have said, ``I can't
    answer the question yet until there's more case law.'' We all
    know that case law means much more legal expense, many more
    problems for small business owners.
        So who's going to succeed here? It's only going to be the
    big builders, the larger people who have larger volume and can
    afford to have staffs of attorneys to deal with these issues.
        The smaller subcontractors, the smaller contractors are
    just not prepared. And can't be.
        Mr. Wilson. And final, again, home builders are great
    citizens and corporate citizens and business leaders of our
    America. We appreciate the home builders association. Thank
    you.
        Mr. MacDonald. Thank you, sir.
        Mr. Byrne. Thank you, Mr. Wilson.
        The Chair now recognizes the gentleman from New Jersey, Mr.
    Norcross, for five minutes.
        Mr. Norcross. Thank you, Chairman.
        Common law to 1935 when the NLRA was passed. From 1935 to
    1984, 46 years working off the same decision, getting decisions
    from the Board, clarifying where it was. Then we had 1984 to
    2015, only 31 years. And here we are from 2015 to 2017, or as I
    call it, ``back to the future.'' Because what has happened is
    we went back to where we were for 46 years of decisions, 46
    years. 800,000 franchisees, not one has been considered a joint
    employer.
        So I listened to the testimony and I'm trying to make sense
    how is it that we can work together to address the issues that
    we're here hearing from you.
        And the first thing that comes to mind is, Mr. MacDonald,
    you mentioned that the franchisees or -- excuse me -- the joint
    employer decision is hurting the construction industry.
        How would you reflect on that in the last two years,
    companies have grown, those who are starting? There's an
    increase of construction companies. Isn't that the exact
    opposite of what you suggested?
        Mr. MacDonald. Well, it's the indecision that's going to
    put an end to it. We're only seeing an --
        Mr. Norcross. Well, you mentioned that this would keep
    people from going into business.
        Mr. MacDonald. Yes, sir. And it will keep people --
        Mr. Norcross. But it increased.
        Mr. MacDonald. Would you like for me to answer the
    question?
        Mr. Norcross. No, but you --
        Mr. MacDonald. The answer to the question is that we went
    through an extreme period of negative growth in the
    construction industry in 2008, 2009, and 2010 and we've seen a
    rebirth of housing starts. Housing starts have almost doubled
    in that period of time, and that's what -- it is a simple
    supply and demand issue.
        I will also say that the protection of workers and labor in
    our industry is really based on supply and demand. I will tell
    you right now --
        Mr. Norcross. Well, thank you. I don't --
        Mr. MacDonald. -- because of the shortage of labor that
    we're having --
        Mr. Norcross. I want to keep --
        Mr. MacDonald. -- nobody wants to treat an employee poorly.
        Mr. Norcross. Excuse me. My time. I would like to keep a
    narrow focus of what I was asking you, because the employee is
    not going to be impacted by the joint decision whether or not
    he is going to go to work for somebody, and that's the problem
    that we're having.
        The fact of the matter is, particularly in construction,
    the job site safety, it's everybody working together. You're
    not going to throw that on another employee. That's where all
    the liability comes in. And that's, quite frankly, the reason
    why the deaths on the job has been decreasing, because
    everybody works together.
        I just want to make sure that when we looked at what's
    going on here, instead of going back to the decisions of 46
    years, we're going all the way back beyond what it used to be.
    So the idea of having precedents and predictability, you're
    going beyond that.
        And I just want to follow-up with my last question. When I
    looked at AT&T now, the retail stores, almost 60 percent of
    their stores are operated by one of two very, very large
    subcontractors. Completely contradicting what you're telling us
    today.
        Mr. Rubin, I was wondering if you could talk about, in a
    broad sense, the different tactics that are used to erode the
    employer's obligations to employees and how they might vary
    depending on the industry.
        Mr. Rubin. Varies depending on the industry and the
    creativity of the dominant company. There are lots of ways to
    do it. The AT&T example is one. We know through the
    Communication Workers how they're able to structure the
    relationships so that they maintain their control.
        Mr. Norcross. Because in the construction industry, the
    fact of the matter is joint employers is not happening all that
    often.
        Mr. Rubin. Very rarely. Of the 9,036 cases identified by
    Mr. Fasman that were filed under the FLSA in that one year, I
    bet no more than two or three included a joint employer
    allegation. It is a rarely advanced theory but a critically
    important theory, which is why we need to preserve it.
        It's not just that the law went through a 46-year period.
    Under the Fair Labor Standards Act this would change law going
    back 81 years since the FLSA was enacted. Even with the NLRA,
    this notion of direct and immediate didn't come into play until
    2002 in the Airborne Express footnote. So in fact, it's not
    even 1984.
        The standard that was rejected in Browning-Ferris was, in
    fact, the 2002 standard, it's a period of only 13 years.
        Mr. Norcross. Thank you.
        We need to sit down and work together because these facts
    are completely opposite of each other. We don't need to go all
    the way back. We need to sit down and have a reasonable
    discussion and work this out. I yield back.
        Mr. Byrne. Thank you, Mr. Norcross.
        The Chair now recognizes the gentleman from Tennessee, Dr.
    Roe, for five minutes.
        Mr. Roe. Thank you, Mr. Chairman. And I want to thank the
    minority staff for their well wishes and flowers you sent me
    during my recent surgery and continued recovery. So thank you
    for that. I appreciate that very much.
        You know, uncertainty, when you have an uncertainty, that
    creates a situation where people react. And Ms. Kennedy pointed
    out clearly that the uncertainty of this particular definition
    of the NLRB, what is the joint employer status, created a chain
    of effect where she then had to go and create her own book,
    which cost $9,000 and a continuing recurring cost. That cost
    could go in -- that money could go into expanding your
    franchise, increasing wages, growing your business where it is,
    de novo where it is. So the uncertainty is done. And the fact
    that something hadn't happened doesn't mean it won't.
        And so I know exactly -- in my business -- I'm a small
    business person. And I know I've reacted when ERISA law
    changed. We would do certain things. The fact that it hadn't
    happened didn't mean that it wouldn't happen.
        So I'd like to ask you, Ms. Kennedy -- and thank you all,
    all of you, for being here -- how much involvement does your
    franchisor have in your daily affairs of your business and
    employees? For example, does your franchisor sign the paychecks
    or hire employees or decide what hourly -- what hours someone
    would work?
        Ms. Kennedy. They do not have any involvement in any of the
    day-to-day interactions with my employees.
        Mr. Roe. And yet this uncertainty has caused them to change
    the relationship they had with you. Am I correct on that?
        Ms. Kennedy. I believe you are correct.
        Mr. Roe. And that change created, what, an added expense
    for both you and the franchisor?
        Ms. Kennedy. Absolutely.
        Mr. Roe. Am I correct on that?
        Ms. Kennedy. You are.
        Mr. Roe. I think the uncertainty is important. And, look,
    this is great for employment of attorneys who have differences
    of opinion. And everything is arguable, I've found out. Not
    matter how it's said.
        So, Mr. Fasman, we've seen an age of e-commerce and the
    importance of an expedited delivery. What limitations does the
    new joint employer standard put on companies who may be
    exploring innovative delivery services or new partnerships with
    other businesses to satisfy growing consumer demand for rapid
    product delivery?
        Mr. Fasman. Well, that's a very good question. And I think
    it goes back to exactly what you were, what you were saying,
    Congressman, and that is, that it's very difficult to
    understand exactly what a contractor can do and cannot do under
    this standard because it's not based upon the facts of the
    relationship. It's based upon potential or indirect control
    that's a question that's only answered in retrospect. That is,
    I don't know what potential control could be. And as you said,
    Mr. Rubin and I can argue about potential control in any
    relationship. And that's properly how we made our living for a
    long period of time.
        But I mean, those things are not, they're just not clear.
    And structuring a relationship, a commercial relationship is
    vital in the areas that you've spoken about. And that's why
    basically saying, ``let's go by the facts, let's not go by
    potential and unreserved or unexercised control'' is so
    important.
        Mr. Roe. I want to thank Mr. Byrne for this, to try to put
    some clarity to this.
        I had -- not a franchise business, but I was in my business
    myself the entire time before I came to Congress, over 30
    years. And we contracted -- a medical practice. And we
    contracted cleaning services. And we didn't do that ourselves.
    We contracted that. I expected certain standards to be met in
    cleaning the office so it would be presentable the next day. I
    didn't exercise direct control over that. If we had been a
    franchise I would have been caught in that uncertainty. What do
    I do.
        And I think that uncertainty is clear and it's costing
    millions, if not billions of dollars to comply with this
    uncertainty. And if you've got that many people, 700 and
    something thousand franchises, 9 million employees, it is a
    gigantic number.
        Mr. Rubin, just a question. Yes or no. Was that $22.7
    million dollar settlement a class action lawsuit or just not?
        Mr. Rubin. It was a class and collective action under state
    and Federal law.
        Mr. Roe. So what was your fee out of that $22.7 million?
    How much of that did the workers not get?
        Mr. Rubin. The workers got up to $80 thousand --
        Mr. Roe. No, I didn't ask that.
        Mr. Rubin. -- based on the amount of --
        Mr. Roe. I said what percent of that $22.7 million went to
    you and your firm, not to the affected workers.
        Mr. Rubin. In order to litigate that -- I don't know
    exactly how much our firm made but there were 5 different --
        Mr. Roe. Twenty-five percent?
        Mr. Rubin. -- there were five different firms who had to
    work on it, who put in more time than we were paid, if you do
    it on an hourly basis.
        Mr. Roe. Twenty to thirty percent? Forty percent? How much?
        Mr. Rubin. No, no, no, no, no. I think it was probably in
    the low 20's. But we were paid less than our hourly -- had we
    been billing on an hourly rate, our fee would have been more
    than twice the amount we ultimately received.
        Mr. Roe. I yield back.
        Mr. Byrne. Thank you, Dr. Roe.
        The Chair now calls on the gentlewoman from Ohio, Ms.
    Fudge, for questioning for five minutes.
        Ms. Fudge. Thank you very much, Mr. Chairman.
        Thank you all for being here today.
        Mr. Rubin, before I give you the balance of my time to
    respond to Mr. MacDonald, who just shared with us a
    communication between he and his lawyers that has now said that
    you're an outlier in your thought process, and to address the
    question that was just asked by my colleague: Of course, we
    know lawyers get paid. I mean, this is ridiculous. But let me
    just make a couple of comments and then I'm going to turn over
    my time to you, sir.
        First, we have heard ad nauseam about the decision in
    Browning-Ferris. As my colleague said, we've had 35 hearings
    about this. It is interesting that every time my colleagues
    across the aisle don't like a law, they call it uncertain,
    ambiguous, unsustainable. Just because you don't like it
    doesn't mean you don't understand it. And they clearly
    understand it.
        And I just want to remind our Chairwoman Foxx that intent
    is a standard that has been accepted in American jurisprudence
    for generations. It did not start here.
        And lastly, I just have to say this: I am trying to figure
    out for the life of me what Tim Scott has to do with what we
    are talking about today. So he worked at Chick-fil-a. So what?
    I mean, did he bring it up because he's black? Did he bring it
    up because he thinks Tim Scott might support his position?
        I take great offense to using a U.S. Senator, who happens
    to be my friend, in something so ridiculous.
        My time is now yours, Mr. Rubin.
        Mr. Rubin. Thank you. In response to the questions about
    uncertainty, first a bit of background.
        I try to be well versed in the law. Before I started
    practicing I was a clerk for a Supreme Court justice. I try to
    be well versed in the facts because my job as a litigator is to
    discover and know the facts and apply the facts. And I try to
    understand cases like the Browning-Ferris decision and the
    Freshii advice memorandum by actually looking to see what's
    written in those opinions, what standards are applied.
        You start with the Browning-Ferris decision. It actually
    simply reiterates the standard that I quoted before about
    sharing the essential terms and control over the terms and
    conditions. The standard itself is not objectionable.
        What people seem to be complaining about, Mr. MacDonald and
    others, Ms. Kennedy, is that they have been advised that
    there's some uncertainty. But in each of the instances they've
    described to me there's no way a litigator would pursue their
    case on a joint employer basis, which is why of the 9,000 FLSA
    cases only a handful were ever pursued under joint employer
    basis.
        What were the facts in BFI? We have to focus on them. BFI
    owned the plant. It set the shifts. It told the employees where
    to work. It capped their wages. It decided when they would have
    to work overtime. It decided how many workers would be working
    overtime. It decided when to stop the assembly line for breaks.
    It controlled the line speed. It had the right to veto any wage
    hike or wage change the lead point offered. It trained the
    workers. It had the power to fire and, in fact, it did
    terminate two workers that it didn't want, and it had the power
    to fire the entire work force.
        Those are the facts of Browning-Ferris. And any lawyer
    looking objectively at those facts under the standard that has
    been part of the National Labor Relations Act would conclude
    that party should participate in collective bargaining,
    Browning-Ferris that is, because it had the right to affect
    terms and conditions of employment.
        And certainly we haven't talked a whole lot about the Fair
    Labor Standards Act, but the Fair Labor Standards Act --
        Ms. Fudge. Mr. Rubin, if I could just interrupt you one
    moment. I really would like to yield the last of my time to our
    ranking member, if you would allow me to do that, sir.
        Mr. Scott. Thank you. Mr. Rubin, I think you can finish up
    that statement, but include in that, if you have a Fair Labor
    Standards Acts violation and somebody comes in and says, ``I'm
    not an employer under this definition,'' and then the other guy
    comes in and says, ``I'm not an employer under this definition
    either,'' is it possible that nobody is responsible?
        Mr. Rubin. Wow. In fact, as I look at the language of the
    Act, that is possible.
        Imagine this circumstance: Company A is in charge of
    hiring. Company A and B share responsibility for firing. And
    company B also sets wages. The worker says, who is my employer
    under this definition? Well, does either company, A or B,
    control the essential terms, which are then listed? There are
    nine of them in the conjunctive? No.
        So in that case there may be no employer.
        Mr. Scott. So if there's a finding that I wasn't paid
    overtime, nobody owes it?
        Mr. Rubin. Neither company is a joint employer and arguably
    neither is an employer at all. The uncertainty, this language
    explodes uncertainty to the point where every single case,
    where any element, any term or condition of employment is
    shared, there's going to be litigation over whether either
    company could be --
        Mr. Byrne. Mr. Rubin, you're going to have to wrap up
    again.
        Mr. Rubin. I think I've answered the question.
        Mr. Byrne. Okay good. Thank you. Thank you.
        All right. The Chair now recognizes for questions, for five
    minutes, the gentlewoman from New York, Ms. Stefanik.
        Ms. Stefanik. Thank you, Mr. Chairman.
        Mr. Fasman, in the amicus brief submitted by Microsoft in
    the Browning-Ferris case, Microsoft argued that the NLRB's new
    standard will discourage companies from implementing policies
    and initiatives that go above and beyond their legal
    requirements.
        For example, market leaders with complex supply chains will
    be penalized simply for implementing policies on responsible
    product sourcing or human rights, as well as labor and
    environmental standards.
        In this Congress, I've worked on the Millennial Task Force,
    which I chair with my colleague, Mr. Messer, who also sits on
    this committee, and we have explored how today's companies are
    changing business models to attract and retain the largest
    segment of our work force, millenials. What companies such as
    PriceWaterhouseCoopers, Uber, and Google are telling us is that
    millennials are looking for companies that have a purpose
    larger than the business. Corporate citizenship is now more
    than ever a key factor in millennials interest in a job.
        So how does this new joint employer standard actually chill
    positive corporate policies by American companies, specifically
    large companies with complex supply chains?
        Mr. Fasman. I think that that's a very good point. And the
    answer is that large companies with supply chains and with
    innovative programs, under the standard that the labor board
    has created, have to be extremely careful about the control
    that they exercise. It is implementing policies from the top
    down. That seems to me to be a very doubtful enterprise if in
    fact this is the standard, because the more control you retain,
    the more you say you should do this, this is how we want to do
    this, the more likely it is that you're going to be considered
    a joint employer.
        Ms. Stefanik. Is there any more specific example you can
    provide?
        Mr. Fasman. I can't think of any sitting here right now.
        Ms. Stefanik. Okay. Thank you very much.
        I yield back.
        Mr. Byrne. The gentlewoman yields back.
        The Chair now recognizes the gentlewoman from Oregon, Ms.
    Bonamici, for five minutes.
        Ms. Bonamici. Thank you very much, Mr. Chairman. And thanks
    to each of the witnesses for being here today.
        We've had this conversation many times. I am one of the
    people here on the committee who used to practice law as well.
    I represented franchisees in disputes with franchisors, and I
    certainly know and appreciate the franchise model and the
    opportunities that it creates.
        Before that, though, before law school, I worked at my
    mom's small business. And I look at the title of this Save
    Local Business Act and, you know, we all want local businesses
    to thrive and succeed. This bill is not the way to do it.
        You know, and as we've heard multiple times, this BFI case
    that we've talked about so much does not upend the franchise
    model. And as we've heard again this morning, that was made
    clear in the Freshii case, a franchisor is not a joint employer
    if they act like a franchisor by protecting brand standards.
    And yes, a franchisor can provide guidance. And there was an
    advice memo from the NLRB on that. Employee handbooks, payroll
    services. Those things, as long as they're optional, do not
    make a franchisor a joint employer.
        And you know, that, if they're going to act like a joint
    employer, they should be treated as a joint employer.
        And Mr. Rubin, you've talked a little bit about why a fact-
    specific standard is important. And I really appreciated also
    your response to ranking member Scott's question, because as I
    read this language with the ``and,'' all of those have to be
    met to be a joint employer.
        Why is it important that there be a fact-specific standard
    when assessing joint employment?
        Mr. Rubin. Under any standard, the current standard under
    the FLSA, the NLRA, state law, other federal statutes, it all
    depends on the actual relationship between the parties. There's
    so many ways franchisors, franchisees, lead companies, supplier
    companies can structure their relationship. That's a good
    thing. We welcome flexibility in how companies operate and how
    they interact with each other --
        Ms. Bonamici. And those are typically spelled out in the
    franchise agreement, correct?
        Mr. Rubin. Yes. And it's set forth in as clear language as
    they can set it forth. And the courts must look at the specific
    factors and see what happens, both as a matter of contract, and
    then on the ground in terms of the actual exercise of control.
    That's why it's fact-specific.
        You can't just say, because you have a relationship of
    user/supplier or franchisor/franchisee, you are or are not a
    joint employer. You have to look at the facts on the ground and
    the legal relationship by contract under the law in the
    jurisdiction under the particular statute. That's how you
    analyze cases.
        Ms. Bonamici. Well, I certainly agree that the language in
    this bill would make it much more confusing and create much
    more uncertainty about who is a joint employer, what entity is
    a joint employer.
        Mr. Rubin, we're sitting here in 2017 and there's still a
    pay gap between women and men. It's difficult for individuals
    to prevail in Equal Pay Act claims. Congress did pass the Lilly
    Ledbetter Fair Pay Act in 2009. There's also the Paycheck
    Fairness Act, which I support that would further strengthen the
    right of pay equity.
        If this bill, the Save Local Business Act, were to pass,
    would it make it more difficult for a worker to succeed in an
    Equal Pay Act claim? If so, how?
        Mr. Rubin. It probably would. That's another great
    uncertainty with the way this bill is written. The Equal Pay
    Act is incorporated into the FLSA.
        Ms. Bonamici. Right.
        Mr. Rubin. As a result it adopts the standards set forth in
    the FLSA. It depends on Congress' intent at the time, and
    that's why there's going to be litigation over it. But
    certainly if this bill changes the definition from what it's
    been going back to the early 1930's to what is proposed here,
    it will affect the Equal Pay Act, make it far more difficult,
    in fact, I think impossible, to prove joint employer
    relationships.
        Same thing will happen under the Family Medical Leave Act
    and certainly under the Migrant and Seasonal Agricultural
    Worker Protection Act, which also borrows the FLSA definitions.
    So we are going to have an explosion of litigation, more
    uncertainty, more expense for franchisors, franchisees,
    contractors and the like, if this bill were enacted.
        Ms. Bonamici. And I know it's been asked before, but just
    to clarify, how many cases are you aware of where a franchisor
    has been found to be a joint employer with its franchisees
    under the Fair Labor Standards Act?
        Mr. Rubin. Zero.
        Ms. Bonamici. Thank you.
        I yield back the balance of my time.
        Mr. Byrne. The gentlewoman yields back.
        The Chair now recognizes the gentleman from Georgia, Mr.
    Allen, for five minutes.
        Mr. Allen. Thank you, Mr. Chairman, and thank you witnesses
    for enduring this.
        As you can, see there's a very, varied difference of
    opinion. I will tell you, Mr. MacDonald and Ms. Kennedy, I'm
    not going to warn you of the risk of running your business. I'm
    a small business person and I, for years, and it's a
    construction business, and I pretty well understood the risk.
    And I'm not going to try to tell you how to run your business.
    I think that's the great thing about this country. Is you
    decide what's best for you and your employees. And we need to
    keep it that way, in my opinion.
        As far as this law is concerned, obviously we've had two
    lawyers who can't agree here today. Ain't America, a great
    place to live, we're all trying to figure out what is best for,
    you know, the people and the citizens, the great citizens of
    this country.
        But it is pretty dynamic right now, this economy, and the
    innovation is very dynamic. And frankly, you know, the five-
    year business plans are a thing of the past. You know, one-year
    business plan, maybe six months, I don't know, maybe 30 days is
    what we have to deal with in the business world because your
    competition is getting, you know, it's just difficult out
    there. And but that's good. That's good for the customers. And
    we haven't talked much about customers here today but that's
    who we, that's who we work for.
        But going back to these models and what we're trying to
    clean up here, as far as trying to make at least the lawyers
    understand, you know, again we've got the lawyers disagreeing
    on, ``well, there's going to be more litigation after this
    law,'' versus, you know, ``well, we've got to have this to
    decrease litigation.''
        You know, Mr. MacDonald, as far as your relationship with
    your subcontractors -- and also Texas is a right-to-work state.
        Mr. MacDonald. That's true, actually.
        Mr. Allen. Yeah. Yeah. In fact, going back, Mr. Fasman, as
    far as, you know, you've got states in this country that are
    right-to-work states, and you've got states that are not right-
    to-work.
        This Browning-Ferris case, obviously this was in
    California. Georgia is a right-to-work state. Texas is a right-
    to-work state. How is that, I mean, how do you deal with that?
        Mr. Fasman. Well, I think it's a different -- so is
    Michigan, by the way.
        Mr. Allen. Yeah.
        Mr. Fasman. And I think the real question in any of these
    situations is who the employer is. And I don't think that
    that's necessarily directly related to the right-to-work issue
    at all. But I would like to, Congressman, I would like to utter
    some words that haven't been said during this hearing. Because
    everybody has talked about, there's never been a franchisor who
    has been found to be a joint employer.
        There's been 145 days of hearing in the McDonalds'
    litigation on just that point. General counsel Griffin is using
    the Browning-Ferris decision to prosecute McDonalds and all of
    its franchisees across the country.
        There's an air of unreality here in the questions that have
    been asked. I mean, to say there hasn't been a franchisor who
    has ever been found to be a joint employer, I mean, tell that
    to McDonalds who's spent the last 145 days, and continuing, in
    hearings on this point.
        And I find it unbelievable that nobody has mentioned that.
    I just did.
        Mr. Allen. Yeah, and I am glad you brought that up. I was
    going to get to that as well.
        As far as the right to work situation, Mr. MacDonald, I
    know, you know, one of the questions is whether you work in
    union or open shop. And at least in a right-to-work state you
    can have two gates and you can work, work both union and open
    shop subcontractors.
        Do you have any subcontractors who work under those, under
    that scenario?
        Mr. MacDonald. Yes, sir, we certainly do.
        Mr. Allen. You do?
        Mr. MacDonald. The people that provide our elevator
    services Thyssen Krupp are union, and even their maintenance
    personnel are as well. And we work hand in hand with them.
        Mr. Allen. Right. So we don't have any issues there that --
    these were some concerns that were brought up about, and I know
    -- and I'm not sure in a state that's a not right-to-work
    state, you don't have that option. Is that correct?
        Mr. Fasman. I think that that's correct. I think that you
    don't have that option.
        Mr. MacDonald. And it's a state-by-state situation. And you
    bring up a wonderful point that a lot of state law is going to
    be trampled as we try and unravel all the litigation around
    this, that is pending and it's working quite well, and it's
    working well in Texas.
        Mr. Allen. Well, obviously, you know, we're here to try to
    dismantle regulatory involvement in the process. We think
    that's the most innovative, productive way for this country to
    grow and to get people to work.
        Thank you for your testimony.
        Mr. Byrne. The gentleman yields back.
        The Chair now recognizes the gentlewoman from North
    Carolina, Ms. Adams, for five minutes.
        Ms. Adams. Thank you, Mr. Chairman.
        Ranking member, thank you as well. And thank you to the
    witnesses today.
        You know, what's interesting to me is that the very people
    that my colleagues claim to be advocating for with the support
    of H.R. 3441 are those who will suffer the most if this bill is
    enacted.
        The focus on the harm the joint employer standard does to
    franchisees is a red herring because the National Labor
    Relations Board has really never found the franchisor to be a
    joint employer.
        So it seems that all this bill does is create a scheme that
    would give franchisors the power to scourge labor and
    employment laws while leaving franchisees increasingly exposed
    to lawsuits.
        So I have a couple of questions. Mr. Rubin, my colleagues
    claim that H.R. 3441 creates certainty for franchisees and the
    joint employment context, so could you explain why this may not
    necessarily be the case and what uncertainty might arise from
    narrowing the standard in this way?
        Mr. Rubin. The only certainty created by the bill is, as
    Representative Scott was pointing out, it is certain that no
    franchisor or other large company could be held liable as a
    joint employer. It creates uncertainty because there are still
    lots of other federal statutes and lots of state statutes that
    have a range of different standards.
        The standards proposed here still have to be applied on a
    fact-by-fact basis.
        There is no way, no court, at any time, since the Supreme
    Court in the Rutherford in 1947, has ever tried to analyze a
    joint employer case without looking at the facts.
        There is always uncertainty until the facts are developed,
    a well-counselled franchisee, small business, large business,
    franchisor will know how to avoid responsibility by delegating
    all control to the other business or to take on responsibility,
    as it should, if in fact it does control the workers.
        Ms. Adams. Okay. So, Mr. Rubin, Ms. Kennedy is concerned
    about the impacts that the common law joint employee standard
    may have on her business, and believes that common law standard
    limits her autonomy as a franchisee and increases cost. Well,
    what's your view?
        Mr. Rubin. The common law standard has been in effect for
    well over a hundred years.
        As the board in Browning-Ferris emphasized -- looking at
    the restatement of the law of agency which sets out the common
    law principle, it is a fair and appropriate way to determine
    when one company is acting on behalf of another. That's what
    agency is all about.
        Where the franchisor directs the franchisee to do certain
    things, and that's indirect control, it is responsible for what
    it has directed the franchisee to do. It's as simple as that.
    Common law was developed, initially, the principle, for when a
    company is responsible for its employees wrongful acts against
    someone else. There was strict liability imposed on the master
    for the acts of a servant.
        The statutes have been adopted in order to protect the
    employees of the master so the master doesn't deprive those
    workers of their rights. And that's all the joint employer
    doctrine is about, ensuring that the responsible parties are
    held liable and responsible for bargaining for, and making
    whole, employees who are deprived of fundamental statutory
    rights because of a larger company's own actions.
        Ms. Adams. All right. Thank you very much.
        And, Mr. Chair, I yield back.
        Mr. Byrne. The gentlewoman yields back.
        The Chair now recognizes the gentlewoman from Georgia, Mrs.
    Handle, for five minutes.
        Mrs. Handle. Thank you, Mr. Chairman.
        Thank you to all the witnesses here today. I appreciate the
    insightful testimony.
        For Mr. MacDonald, with the aftermath of Hurricane Harvey
    and now with Hurricane Irma through Florida and into Georgia
    and South Carolina, how important will it be for builders to be
    able to find subcontractors to work with the rebuilding effort?
    And does the expansion of the joint employer standard impact
    that it in any negative way?
        Mr. MacDonald. It will impact it in a negative way because
    we can't do anything that impedes our ability to get more folks
    to come to work. We were having problems getting people to come
    to work before the storms in these areas because we have an
    economic rebirth since the 2008 crash. And so now it's just
    being exacerbated by the fact that we're not only trying to
    produce new housing but we're trying to repair the damaged
    housing and get people back in their homes.
        Mrs. Handle. Okay. Great. Thank you very much.
        Ms. Kennedy, like you, I also am not an attorney. In fact,
    we actually share a common history in that I, too, started out
    as a secretary and worked my way up. One may have an opinion
    about the direction of my career since then. But I want to say
    that I have tremendous respect for lawyers both on this panel
    and across the country. At the same time having the view points
    of people who are actually on the ground, having to implement
    these types of regulations that come through and giving us a
    very practical real-world impact of what you're trying to deal
    with, as well as Mr. MacDonald, is incredibly important. And so
    I appreciate that you're here.
        One question for you: You spoke about owning stores in Iowa
    and Minnesota. If you were thinking to expand into Wisconsin or
    Illinois, as you know there will be different definitions
    there, as a result is it possible that a different test for
    joint employer liability under FLSA would apply?
        As a business owner, would it be helpful, more helpful or
    less helpful to ensure that we have a uniform national standard
    such as the one created in this -- bipartisan, I would like to
    add -- the Save Local Business Act, and how important is that
    consistency and uniformity to you.
        Ms. Kennedy. Thank you very much. It would be very helpful
    to have one clear definition of what joint employer means
    across any state line. Working in two states right now, it's
    difficult, challenging. I learn fast and often. When things
    change from one -- I mean, we share a border, that's about it,
    from Iowa to Minnesota. If I do want to expand -- and I hope to
    -- in other states besides the two that I'm in, it would be
    very helpful to have one specifically clear set of languages
    that help guide us in how we look at joint employer and, in
    fact, any other type of regulation as we run our businesses.
        Mrs. Handle. Right. Thank you very much.
        Mr. Chairman, I yield back.
        Mr. Byrne. The gentlewoman yields back.
        The Chair now recognizes the gentleman from California, Mr.
    DeSaulnier, for five minutes.
        Mr. DeSaulnier. Thank you, Mr. Chairman. I would like to
    maybe make just some macro comments. I'm not an attorney. And
    this is, maybe, in the context, Mr. Chairman, I hope you don't
    take any offense, it might have been easier on everyone, but
    not as good for attorneys, if we just went back to the more
    traditional employer/employee relationship.
        I know that the Obama administration and the Department of
    Labor had been working on a study that showed that up to 70
    million Americans no longer have a traditional employer/
    employee relationship. So in that context we have this debate.
        Having worked at fast food restaurants -- and I'm going to
    date myself -- when I was in college in the 1970's, it was a
    traditional employer/employee relationship. Having owned
    restaurants for 35 years -- Ms. Kennedy, I understand the
    pressure you're under -- but they were independent restaurants,
    and I wonder about this rule and the impact it might have in
    the real world, as some of my colleagues like to say, having
    worked in what their definition of the real world is, on
    independent restaurants.
        Because with all due respect to McDonalds, I never felt
    like, even though I was in fine dining, they wanted me to stay
    in the business any longer if they could get my business aside.
        So, Mr. Rubin, in the context, the larger context, I'm just
    worried about this erosion of worker protection. I wish it
    could be clearer. I share that with the majority party.
        I know that former Secretary of Labor, Secretary Reich,
    likes to argue that we should make it simpler just by saying
    employee/employer relationship is if you've received 80 percent
    of your compensation, you are employed by that employer. It
    strikes me that for everybody that would be easier, knowing
    that we have to have something for these unique franchise
    relationships. But maybe you could just expand on sort of more,
    in your world, what happens with other employers as they try to
    compete in the world where you've got this disadvantage, in my
    mind's eye, when I'm trying to compete with somebody who pays
    less in terms of wages and benefits because they're contracting
    out.
        Mr. Rubin. Right. That's an interesting perspective and one
    we haven't addressed.
        I, too, started my career as a secretary, my first job out
    of college, and spent a lot of time in a small business, Rubin
    Hardware and Son, in Dorchester, Massachusetts, founded by my
    grandfather in 1922. I understand the impacts on small
    businesses, and I particularly understand the impacts on small
    businesses that try to follow the law.
        And that's the problem we have here. The - we'll call them
    high-road businesses. That's a nomenclature, they shouldn't be
    called that. They're simple law-abiding business, as every
    business should strive to be and the overwhelming majority do.
    The problem they face is competition from companies that don't
    follow the law --
        Mr. DeSaulnier. Right.
        Mr. Rubin. -- who are able to save labor costs, by what has
    been called wage theft. By taking money, sometimes in small
    amounts, but in the aggregate large amounts, from workers not
    in compliance with the FLSA and other statutes.
        And what the joint employer doctrine does, and actually, we
    see it more often in the agricultural context, more than half
    of the cases that have actually been litigated and found joint
    employer, have involved farm workers who have been ripped off
    by farm labor contractors. But we see it in a range of
    industries where labor is a significant element of the
    employer's cost, and where the reason the company is cheating
    its workers is because the squeeze is on from the higher-up-
    the-ladder company.
        So the contract doesn't provide the small business enough
    profits. Yet demands that it acts in a certain way, certain
    productivity quotas that can't be done legally. That's when
    that company caught in the middle, that small business has to,
    find sometimes violating the law, and that adversely affects
    every other small business.
        So it's not just the small businesses that themselves are
    in a joint employer relationship that would be affected by this
    bill. Every small business that faces the competitive squeeze
    from other small businesses that aren't legally compliant
    because of their relationships with other companies are going
    to be harmed by this bill.
        Mr. DeSaulnier. And I just -- one other aspect to that, Ms.
    Kennedy, one of the pressures I felt as I went longer in my
    restaurant career was disposable income. So this dynamic, and
    this race to the bottom, gives workers, consumers, less
    disposable income. So I always looked at the trade magazines to
    look at that in terms of housing costs, transportation,
    healthcare costs, because there's less money for them to spend
    in the marketplace.
        And, Mr. Chairman, just in conclusion, maybe Mr. Rubin can
    add some comments to this. I did want to note that McDonald's
    is still pending and was brought under the 1984 joint employee
    standard which was pre-BFI, if I'm correct. Mr. Rubin, you have
    any comments about that?
        Mr. Rubin. Yes. And the facts of the case are very
    McDonald's specific, as are the facts of other cases against
    McDonald's. But, yes, it's based on the old tried-and-true
    standard.
        Mr. DeSaulnier. Thank you.
        Thank you, Mr. Chairman.
        Chairman Byrne. Thank you, Mr. DeSaulnier.
        The chair now recognizes the gentleman from Wisconsin, Mr.
    Grothman, for 5 minutes.
        Mr. Grothman. Yes I'll start with, Mr. Fasman. It's kind of
    a difficult topic because you normally think small business is
    the backbone of America. And, of course, government, for a long
    time, has been waging a war on small business, trying to drive
    them out of business, just punish them. They hate them. But
    could you just -- in general, a lot of small businesses today
    are franchisees.
        Could you give me, in general, your opinion of what will
    happen to small businesses as this goes into effect? Will more
    of them be driven into becoming carpet stores and more
    employees be forced to work for large corporations? Will that
    be something that will happen in the long run?
        Mr. Fasman. That is, of course, where this ultimately goes.
    If you are a large franchisor, and you're found to be a joint
    employer with franchisees across the country, you may have
    thousands of collective bargaining agreements that you have to
    negotiate. And that's untenable. So what do you do under those
    circumstances? Well, there are certain things you could do. But
    one of them is you could say, well, we won't have franchise --
    we won't --
        Mr. Grothman. Become all carpet stores.
        Mr. Fasman. Yeah.
        Mr. Grothman. Just like we do in so many other industries -
    -
        Mr. Fasman. Correct.
        Mr. Grothman. -- the government will -- their hatred for
    the small businessman will be such they want everybody to have
    to work for a large corporation. That's what's going to happen.
    Right?
        Mr. Fasman. Yes. I mean, that's the logical thing to do is
    to say, look, we can't do this, we can't negotiate, you know,
    3,000 franchise labor contracts. It's just an impossibility.
        Mr. Grothman. Not to mention you don't want to be
    personally on the hook for what's going on with somebody who
    you're not supervising yourself.
        Mr. Fasman. Well, that is absolutely right. And that really
    is. That really goes back to what we're talking about here.
    It's hard for a business that has a contractual relationship
    with another business and says, look, you run all of these
    things, we don't want -- as is the case with Ms. Kennedy -- you
    hire, you fire, you pay, and you're responsible for this, to be
    told after the fact by a Federal agency, oh, but, by the way,
    you're a joint employer because you have the potential to
    control that relationship. I mean, that just is -- that just
    makes no sense.
        The parties do this. And, you know, with all due respect to
    what I've heard today, companies do this not to evade the law.
    They do this because this is a legitimate and important
    business model in generating jobs throughout the United States.
    It's not a nefarious way to get around paying employees what
    they're entitled to under the law.
        Mr. Grothman. Well, Ms. Kennedy, I'll ask you. I guess you
    now own several Taco John's. But you just probably started out
    with one?
        Ms. Kennedy. Actually, I bought the company in 1999, and we
    started out with more restaurants than I have today. I started
    with 14. I'm down to nine.
        Mr. Grothman. Oh, okay.
        Ms. Kennedy. Yeah.
        Mr. Grothman. I'll ask you, though, as somebody who is a
    franchisee. Would you feel you were a small business woman if,
    I guess, you lost control of the employer/employer relationship
    in which more and more of the employer/employer relationship --
    assuming Taco John's would allow you to continue to exist,
    would be directed from the corporate level?
        Ms. Kennedy. In effect, it would make me a manager for
    them. If they are going to be responsible for employees that
    are technically my employees and my business, why would they
    want to carry all of that risk if they couldn't direct every
    single action of those employees? And that's really what is at
    odds here today, is that uncertainty over whether or not --
    could they? Is it possible that they could take over control of
    my employees? Because they might be held responsible in the end
    for what they do.
        Mr. Grothman. Now we're looking at joint employer role
    today, Ms. Kennedy. But we sit on other committees. We deal
    with other sort of businesses. And this idea of hating small
    business, and forcing them into a position in which they
    ultimately have to get bought out by the big corporation, is
    something that we see in other areas, not just in the
    restaurant business. Do you know why the government hates small
    business? Could you take -- tries to drive them out of
    business? Could you maybe speculate as to why that is, why
    there are politicians who would be in favor of this rule?
        Ms. Kennedy. I guess I can't. I won't speak for or to that.
    I can tell you from my perspective, though, that it's easier to
    control the larger.
        Mr. Grothman. Easier to control. Yeah.
        Ms. Kennedy. Yeah. Yeah.
        Mr. Grothman. Control the big business. Control the little
    guy.
        Ms. Kennedy. Yeah.
        Mr. Grothman. You know, you lose touch, of course, with the
    local community. I'm sure you give money to the local charities
    and participate in those events. And, you know, once big Mr. --
    nothing against Taco John's, but big Mr. Taco John's gets out
    there they're not going to be helping out with the local float
    at the local parade or whatever. It's a shame that so many
    people are trying to drive people like you out of business.
    It's kind of a shame that the government is doing that. I guess
    my time is up.
        Chairman Byrne. The time is up. Gentleman yields back.
        I now recognize myself for five minutes for questions.
        Mr. Fasman, we've heard today that there have been
    virtually no findings of joint liability for franchisors. And
    yet, there are press stories of investigations and cases
    regarding a number of brand name franchisors. And you mention
    the McDonald's case. Is it accurate to say that franchisors and
    franchisees have no reason to worry under this BFI standard?
        Mr. Fasman. Absolutely not. It is inaccurate to say that.
    And the reason to worry, of course, are the things that we've
    been talking about today when we've actually talked about the
    bill. The Browning-Ferris decision is, as I said, completely
    allows the labor board to come in and say, after the fact,
    you're a joint employer based upon evidence that was not there,
    not on the way that you've run your business. So I would be
    remiss in not saying that this is a standard that all
    businesses, not only franchisors, but all businesses, should
    care about.
        And, Mr. Chairman, you've made it very clear, and said,
    that, you know, all you have to do is look at the McDonald's
    prosecution on this, on this theory. And I don't agree that the
    McDonald's -- the McDonald's prosecution was brought before
    Browning-Ferris. But I can virtually guarantee that the general
    counsel will argue that Browning-Ferris should apply under that
    ruling or in that case. So I don't agree with the proposition
    that this has nothing to do with it.
        Chairman Byrne. It seems to me that the game here is to get
    a favorable decision in the McDonald's case and then use that
    as precedent to go after franchisor/franchisee relationships
    throughout the country, large, medium, and small. Would you
    agree?
        Mr. Fasman. I agree with that. I think that that's why it's
    being brought.
        Chairman Byrne. So would you agree with this assertion,
    that prior to Browning-Ferris that there was certainty under
    the National Labor Relations Act about who is and who is not a
    joint employer?
        Mr. Fasman. Well, I think that there -- yes. I think that
    there was certainty in the sense that there was 30 years of
    history. All of these cases, as Mr. Rubin rightly points out,
    are fact-specific. But we at least knew what the standard was.
    I do not agree, by the way, that there was a common law
    standard for 46 years before that period of time that was
    applied under the National Labor Relations Act. I think -- I've
    read all those cases.
        And if one can figure out what the standard was, you're
    better than I am, and a better lawyer than I am. Those cases
    were all over the place. And even the board said about its
    prior decisions that it was somewhat amorphous what test we
    used.
        So this standard in 1984 brought clarity, brought
    certainty, balanced the rights of employees, employers, and
    labor unions, in an appropriate fashion.
        Chairman Byrne. And what did the Browning-Ferris standard
    do to that clarity and that certainty?
        Mr. Fasman. Well, it destroyed it. It destroyed it by
    introducing this after-the-fact, nonfactual, contrafactual
    possibilities about potential control and indirect control. It
    just threw everything into uncertainty. And it will literally
    take -- if this standard continues, it will literally take
    another 30 years to figure out what it means.
        Chairman Byrne. As opposed to going back to the old
    standard under the bill that we're talking about today and
    having that clarity and certainty that we had before.
        Mr. Fasman. Yes. I agree, Mr. Chairman.
        Chairman Byrne. Ms. Kennedy, the American Action Forum,
    Washington think tank, just released a study citing a downtrend
    in growth in the hotel industry, which is heavily reliant on
    franchises. This could be attributed to expanding the joint
    employer standards. Do you think a similar downturn could occur
    in the franchise restaurant industry based on expansion of the
    joint employer standards?
        Ms. Kennedy. I do. I sit here today with that exact
    position. I am waiting before I start construction on another
    site. I just finished building one, got it open successfully in
    January, and now I'm on hold.
        I want to make sure that what I build is mine under all of
    the laws. And all of the history that I have, 33 years as a
    franchisee, or an employee of a franchisee, everything seemed
    like we were together in this idea of franchising. And now,
    with this, the question is out there: Will they be able to take
    over, in essence, my business, because they might be
    responsible for my employees?
        I'd like to point out, too -- and I'm reminded -- that
    there are hundreds of charges against franchises pending at the
    NLRB waiting on the McDonald's decision. So it might be fair to
    say that there aren't any today. That probably isn't going to
    be the case once that decision is made.
        Chairman Byrne. Thank you.
        And that comes to the conclusion of our question and
    answer. I would like to thank our witnesses for taking the time
    to testify before our subcommittee today. It was excellent
    testimony, got great information out there.
        I would ask unanimous consent to submit for the record a
    statement from the House Committee on Small Business, Chairman
    Chabot in support of H.R. 3441. Without objection, it will be
    entered in the record.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Byrne. Mr. Takano, do you have any closing
    remarks?
        Mr. Takano. I do, Mr. Chairman.
        I would like to thank the witnesses for their testimony
    today. And particularly I want to thank Mr. Rubin from my home
    State of California for clarifying some things for us.
        And I just want to say that too many Americans can't afford
    to buy a house, send their children to college, or save for
    retirement. It really should not be this way. American workers'
    productivity has led to tremendous economic growth.
        But, unfortunately, the rules are written so that the
    economy delivers only for those at the very top. Here in
    Congress, we have the power to fix that. Unfortunately, we seem
    to have our priorities mixed up. We have held numerous hearings
    on how to undermine our nation's unions and fundamental labor
    protections. If we spent the same amount of time, in this
    committee, working towards building up our nation's workforce
    as we have spent on destroying unions, I believe we could have
    come together on a bill to dramatically scale up investments in
    our nation's workforce through registered apprenticeship
    programs.
        H.R. 3441 is not a good deal for small business owners or
    small franchises. And it's an even worse bill for workers. I
    hope we can work together to refocus our priorities, to support
    and strengthen the rights of our working people in our modern
    economy.
        Mr. Chairman, at this time I would like to ask unanimous
    consent to insert into the record the slides that Mr. Norcross
    and I referenced in our opening statements.
        Chairman Byrne. Without objection, so ordered.
        [The information follows:]

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        Mr. Takano. And I'd also like to ask unanimous consent to
    insert two letters opposing H.R. 3441 from the AFL-CIO, and the
    other, collectively, from the Teamsters, SEIU, UAW, UFW, UFCW,
    and the USW.
        Chairman Byrne. Without objection, so ordered.
        [The information follows:]

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        Mr. Takano. Thank you, Mr. Chairman. And that concludes my
    closing statement.
        Chairman Byrne. Thank you, Mr. Takano.
        Well, this has been very useful and helpful, I think, both
    to the committee and to the House as we consider this
    particular piece of legislation.
        What's really going on here is this is a game. I think we
    all understand what the game is here. You just heard the two
    letters that were entered into the record from the largest
    labor unions in America. It's an effort by the labor unions to
    try to organize where they haven't been able to organize
    before. And it's a very calculated game. It started with the
    Browning-Ferris decision, but certainly the Browning-Ferris
    decision is going to be used, is being used today in the
    McDonanld's case to try to get precedent to use to come in and
    interfere with the employment relationship of small businesses.
        Let me make this very clear. This is going to hurt small
    businesses. I don't hear from big businesses about this. Big
    businesses have lawyers, and accountants, and all those people
    to take care of them.
        I hear from people like Mr. MacDonald and Ms. Kennedy from
    my district and all over America. And they know that this is
    going to hurt them. More importantly, they know what's going to
    hurt their employees. This is not about the employees of small
    businesses or the small businesses in America. This is about
    the big labor unions in America trying to find a way to try to
    claw themselves back into the position they were in years ago.
        Labor unions have continued to lose their percentage of
    American workers that they represent even after 8 years of a
    very favorable administration. And this is one more effort
    that's their attempt to try to get back into some sort of
    position of strength in America.
        I would assert the only way they can get back in strength
    is by changing their model, not by interrupting or interfering
    with a model that's worked for small businesses and the
    employees of small businesses throughout America.
        So I think, if anything, the testimony we've heard today
    has underscored the need for this piece of legislation. I will
    say to my colleagues that I have open ears and open minds. If
    they have some suggestions they want to make to me about
    changes they think that would improve it, I'm happy to listen.
        But based upon what I've heard today, it simply has
    underscored what I've been hearing for months now, which is
    that we desperately need to pass this law, get certainty and
    clarity back into that employment relationship, and help small
    businesses throughout America.
        There being no further business, the subcommittees stand
    adjourned.
        [Additional submission by Mr. Takano follows:]

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        [Whereupon, at 12:20 p.m., the subcommittees were
    adjourned.]

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