A secret memo circulating among Democrats on Capitol Hill attempts to portray legislation that would reverse an Obama-era regulation that threatened the franchise business model as bad for small business owners.
Democratic staffers issued a memo on Monday intended to rally members of the House Committee on Education and Workforce against the Save Local Business Act, which would protect contractors and franchisors from being held liable for labor violations committed by subcontractors or franchisees that oversee labor practices.
The bill would overrule a 2015 decision by President Obama's National Labor Relations Board, which expanded the liability of parent companies in a decision critics said heavily favored labor unions. The bill has attracted bipartisan support since it was introduced in July. Rep. Henry Cuellar (D., Texas) announced his support after consulting with franchisees who said the new standard would limit opportunities for small businesses, as parent companies seek to shield themselves from liability.
"We must ensure that our small businesses and franchises receive fair treatment from the government, and not confusion and arbitrary regulations that harm them," Cuellar said in a July release. "I have heard from small business owners throughout my district and the country, and it is clear that the NLRB's joint employer decision was a major threat to the life of the franchise industry and the dream of business ownership for millions of Americans."
Democrats are looking to chip away at that support by painting the bill as a threat to small businesses and franchisees. The memo says the bill "fails to protect small businesses and gives franchisors a blank check to dictate franchisees' employment practices, leaving franchisees on the hook for any legal violations."
"This bill insulates franchisors from any potential liability as a joint employer, and empowers them to exercise control over franchisees while leaving franchisees exposed to liability," the memo says.
An insider who has followed the bill and spoke on condition of anonymity to speak candidly said such a claim reflects ignorance of labor law and joint employer. If a parent business were to dictate such a violation, courts and regulators could still hold it liable as a joint employer because it exercised control over work conditions under the standard set by the bill. The Act, like the previous NLRB precedent, would only protect companies who do not dictate labor practices, such as scheduling or pay rates, to their franchisees.
"The Democrats are basically treating franchisees like nothing more than middle managers that are too stupid to own a business on their own," he said. "It takes small business owners for granted."
The memo urges Democrats to oppose the bill because it would spread "chaos" and threaten the ability of unions to organize and collectively bargain. Franchise businesses are difficult to unionize because organizers must gather support on a store-by-store basis; holding a parent company liable could allow large unions to enter a company using a top-down approach that would affect all stores.
The memo cites the NLRB's investigation into McDonald's as a joint employer in a complaint involving Service Employees International Union and the Fight for 15 movement as a reason the bill should be opposed.
"As subcontracting becomes increasingly common, maintaining and expanding joint employer standards are necessary for workers fighting for better wages and conditions," the memo says. "This bill would enable unscrupulous employers to more easily subcontract their labor for the purpose of keeping wages low and avoiding their bargaining obligations."
The insider said Democratic staffers do not understand the nature of subcontracting or franchising. He said Democrats could end up handing a victory to big businesses and large franchisees and subcontractors who can afford expensive regulatory attorneys at the expense of entrepreneurial franchisees, subcontractors, and other small business owners.
"The memo only proves how naïve they are about how these businesses actually work," the insider said.
Lawmakers will debate the act before a joint session of the House Workforce Protections and Health, Education, Labor, & Pensions subcommittees on Wednesday morning.