House Education and Workforce Committee Holds Hearing on Joint Employer Legislation

The House Committee on Education and the Workforce held a hearing Sept. 13 on legislative efforts to change the joint employer standard. Specifically, the hearing considered a bill by Subcommittee on Workforce Protections Chairman Bradley Byrne (R-AL), the Save Local Business Act (H.R. 3441), which would return the joint employer standard to a narrower definition that holds responsible only employers who have direct, actual, and immediate control over terms of employment.

The National Labor Relations Board (NLRB) in its 2015 decision in the Browning-Ferris case broadened the definition of joint employer so that employers with “potential” or “indirect” control over employees could be held liable for labor violations. This exposes more companies to legal liability for how their subcontractors, staffing agencies and franchisees treat their employees. The broader standard also makes businesses responsible for providing overtime pay and healthcare benefits to a larger universe of employees, and further makes businesses more susceptible to workforce unionization. These issues are a specific concern for the travel plaza industry, where the franchisee model is ubiquitous, and where many companies hire "independent contractors" to provide various services (e.g., fuel delivery, infrastructure maintenance, etc.) for their facilities.

During the Sept. 13 hearing, Republicans generally supported the bill and argued that the current NLRB standard creates uncertainty, harms business opportunities, and affects franchising. Specifically, committee members, including Tim Walberg (R-MI), Joe Wilson (R-SC), and David Roe (R-TN), generally supported changing the standard, arguing that the NLRB’s decision creates uncertainty for small businesses, which can affect their business decisions. Republicans pointed out that small businesses often do not have in-house counsel, and that paying for outside counsel can take money away from expanding business operations. In addition, Chairwoman Virginia Foxx (R-NY) stated that the current standard of “potential” control is too broad to be a proper standard.

Regarding franchising, Republicans remain concerned that the current NLRB standard could seriously harm franchises. They argued that due to the NLRB’s current definition of a joint employer, franchisors may pull back support for franchisees due to uncertainty about liability. This forces franchisees to spend money on materials like training and hiring kits that would otherwise be developed by the franchisor, but now must be created by the franchisee. Additionally, Republicans argued that franchisors may also decide to take the opposite tack and exercise more control over the franchisee, effectively making business owners into middle managers, instead of businessmen in their own right. Furthermore, confusion over businesses’ potential liability may lead them to not expand, hire new workers, or otherwise improve their businesses.

Meanwhile Democrats, including Reps. Donald Norcross (D-NJ) and Bobby Scott (D-VA), expressed several concerns with how the bill was drafted. Primarily, they noted that the bill language would require employers to fulfill all of the listed criteria describing control over terms of employment to be considered a joint employer. For example, if a businesses does not control one aspect of employment, such as scheduling, Democrats said it may not be able to be considered a joint employer under the bill, even if the company deliberately contracts out scheduling to another firm. Rep. Alma Adams (D-NC), along with fellow Democrats, said that this would actually serve to increase uncertainty about who the actual employer is, and would not protect workers.

Other Democrats, including Rep. Mark Takano (D-CA), also discussed the effect of the bill on more modern employment arrangements. Millions of Americans are now employed through temp agencies or subcontractors, as opposed to more “traditional” employer-employee relationships. Under the bill, either contractors or subcontractors may be able to claim that because they do not handle certain aspects of employment, they therefore cannot be considered joint employers at all. As such, Democrats are concerned that the language in the bill does not do enough to protect these workers against abusive labor practices.

Regarding franchising, Democrats—specifically Rep. Norcross—pointed out that no franchisor has ever been declared a joint employer, despite there being more than 800,000 franchisees in the United States. Rep. Suzanne Bonamici (D-OR) also stated that franchisors can still freely provide guidance to franchisees as long as such guidance is optional.

Witnesses at the hearing included: Zachary D. Fasman, Partner, Proskauer Rose LLP; Tamra Kennedy, President, Twin City T.J.’s, Inc., testifying on behalf of the International Franchise Association; Granger MacDonald, Chief Executive Officer, MacDonald Companies, testifying on behalf of the National Association of Home Builders; and Michael Rubin, Partner, Altshuler Berzon LLP.

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