Congress Calls Out Labor Department for Dodging Requests

New docs show coordination between regulators that they had previously denied (UPDATED)

Tom Perez / AP
January 21, 2016

Congressional Republicans are pressing Labor Secretary Tom Perez to come clean about whether the Department of Labor is working with other regulators to crack down on franchising operations.

The House Education and Workforce Committee sent a letter to Perez on Tuesday after documents obtained through a Freedom of Information Act request revealed that top regulators within the department had hinted at creating new rules for franchisees. Those documents seem to dispute the Labor Department’s insistence in November that no new rules were on the table, according to the committee.

"The Department’s unwillingness over a period of months to fully cooperate with the Committee’s request—calls into question the Department’s respect for Congress’s constitutional oversight authority," the letter says.

The documents, which were provided to the committee by the National Labor Relations Board, showed that a top lawyer from the department’s Occupational Safety and Health Administration (OSHA) had been working closely with National Labor Relations Board General Counsel Richard Griffin. The department had previously denied any coordination with the board in the run-up to the publication of guidelines for liability in cases where workers are injured while performing contract work.

"OSHA has not adopted a new multiemployer citation standard," the Labor Department said in a November letter to the committee. "The Department did not coordinate with the Board."

Griffin, a former union attorney whose first NLRB appointment was declared unconstitutional by the Supreme Court, has been trying to crack down on franchise operations in recent years. In April 2015 OSHA lawyers invited him to participate in a panel discussion on the "fissured workplace," a term unions use to describe franchisees and subcontractors.

"This information clearly demonstrates the Department and the NLRB communicated directly on joint employer policies. This communication has been at the center of the Committee’s oversight inquiry from the beginning," the committee says in its letter. "Even the Department’s repeated assurances of ‘no coordination’ between the two agencies are now suspect."

A department spokesman told the Washington Free Beacon that Secretary Perez received the letter and plans to respond to the allegations next week.

Under a franchise agreement a small businessman pays a large corporation annual fees for the right to operate under the company brand; the individual franchisee runs day-to-day operations, such as scheduling and payroll, while the franchisor helps distribute menu items and company merchandising.

Labor regulators are working to overhaul the decades-long precedent that only small businessmen can be held accountable for labor violations in their stores. Griffin recommended charges against McDonalds corporate headquarters in July 2014 for labor violations committed by individual franchisees. The board ruled in August 2015 that a large corporation could be held liable for the actions of a subcontractor.

Matthew Haller, spokesman for the International Franchise Association, said that regulators have long targeted franchising. Any new rules could disrupt an industry that employs more than 8 million workers and hundreds of thousands of entrepreneurs. Holding a corporation liable, he said, would cause them to tighten control of day-to-day operations or do away with contracting altogether to avoid "unscrupulous lawsuits."

"IFA opposes any regulatory change that unwarrantedly holds franchisors responsible for their franchisees employees," he said. "We appreciate and encourage Chairman Kline and others to exercise their congressional oversight function to ensure small business owners are not unfairly targeted by overzealous regulators or trial lawyers."

The department has until Jan. 26 to provide the committee with information about its interactions with Griffin.

Update 10:23 a.m.: This article has been updated to reflect comment from the Department of Labor.