Alexander: NLRB Decision “Could Destroy a Small Business Opportunity for More than 700,000 Americans”

Says “successfully operating a franchise business is today one of the most important ways to climb the ladder of success”

Posted on February 5, 2015

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“The pending decision by the National Labor Relations Board would threaten this very American way of life, knocking the ladder out from under hundreds of thousands of Americans…”  –Lamar Alexander

 

WASHINGTON, D.C., Feb. 5, 2015 – U.S. Sen. Lamar Alexander (R-Tenn.), Chairman of the Senate labor committee, today said the pending National Labor Relations Board decision to change the joint employer standard “could destroy a small business opportunity for more than 700,000 Americans.”

At a committee hearing on the consequences of a change in the standard, Alexander said: “These men and women are franchisees….They may work 12 hours a day serving customers, meeting a payroll, dealing with government regulations, paying taxes, and trying to make a profit.

“We live at a time when Democrats and Republicans bemoan the fact that it’s getting harder and harder to climb the economic ladder of success in our country. Successfully operating a franchise business is today one of the most important ways to do that.”

Excerpts of the senator’s opening statement follow:

This hearing this morning is about a pending National Labor Relations Board decision that could destroy a small business opportunity for more than 700,000 Americans.

These men and women are franchisees. They operate health clubs, barber shops, auto parts shops, child care centers, neighborhood restaurants, music stores, cleaning services, and much more.

They use the brand name of companies like Planet Fitness, Merry Maids or Panera Bread.

They may work 12 hours a day serving customers, meeting a payroll, dealing with government regulations, paying taxes, and trying to make a profit.

We live at a time when Democrats and Republicans bemoan the fact that it’s getting harder and harder to climb the economic ladder of success in our country.

Successfully operating a franchise business is today one of the most important ways to do that.

Why would the pending decision by the National Labor Relations Board threaten this very American way of life, knocking the ladder out from under hundreds of thousands of Americans?

The board and its General Counsel are pursuing a change to what is called the “joint employer” standard.  This standard, or test, has since 1984 required that for a business to be considered a joint employer, it must hold direct control over the terms and conditions of a worker’s employment—to decide that, the NLRB looks at who hires and fires, sets work hours, picks uniforms, issues directions to employees, determines compensation, handles day to day supervision, and conducts recordkeeping.

Under the changes the NLRB is now considering, it would take just indirect control over the employees’ terms and conditions of employment, or even unexercised potential to control working conditions, or where ‘industrial realities’ otherwise made it essential to meaningful collective bargaining,

So what could this mean for these more than 700,000 franchisees and employers?

These franchise companies will find it much more practical to own all their stores and restaurants and day care centers themselves. There will be many more company-owned outposts, rather than franchisee-owned small businesses.

Franchisees tell me they expect “franchisors would be compelled to try to establish control over staffing decisions and daily operations….franchisees would lose their independence and become de facto employees of the franchisor.”

This case doesn’t just affect franchisees, it will affect every business that uses a subcontractor or contracts out for any service.  That includes most of the 5.7 million businesses under NLRB jurisdiction in America – because most businesses contract for some service. 

Consider a local bicycle shop that contracts out its cleaning service under a cost plus provision, in which the cleaner is paid for all of its expenses to a certain limit, plus a profit.

If this arrangement is interpreted to create “indirect control” or have “unexercised potential” over working conditions – they could trigger joint employer obligations. 

Same thing with a local restaurant that outsources all of its baked goods under a contract that includes penalties for being late or delivering substandard goods—it could be considered a joint employer of the bakery employees.

 

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