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Franchisees Fight Back

Entrepreneurs tell Senate to roll back Obama appointees’ ‘absurd’ rule

Stock photo of a small business owner
Stock photo of a small business owner / AP
• June 16, 2016 12:40 pm

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Obama administration regulators could cripple the growth of businesses that employ more than 8 million Americans.

The National Labor Relations Board (NLRB) overturned decades of precedent, ruling in 2015 that corporations could be held liable for labor violations committed by subcontractors or franchisees in Browning Ferris. Franchise owners and franchisees told the Senate Committee on Small Business and Entrepreneurship that the change in rules could hinder economic growth.

Under the existing franchising system, small business owners pay corporate brands, such as McDonalds and other chain outlets and restaurants, to operate under the company brand. Those entrepreneurs are charged with day-to-day management of the business.

The NLRB’s previous interpretation of the rule held that liability under federal labor law was limited to the small business owner since the corporation did not handle hiring or scheduling. The new standard could make the umbrella company vulnerable to violations perpetrated at the local level.

Ciara Stockeland, owner of Mode, a high end maternity leave shop with 11 locations in six states, told the committee that she should not be held liable for employees that she "did not hire and do[es] not manage."

"Not all franchise brands are high powered multination corporations," she said. "Changes to the joint employer standard have me questioning the future of [my company growth] … you must understand how absurd the new standards are."

The new standard could force her to halt expansion or bring locally owned stores under direct corporate control to address litigation costs. Stockeland said that this would eliminate opportunities for budding entrepreneurs to pursue their goals of becoming small business owners.

"The Joint Employment Standard means less growth and less jobs," she said.

Committee Chairman Sen. David Vitter (R., La.) echoed those concerns, saying that the new rule "puts millions of jobs at risk."

"That’s yet another controversial example of the Obama administration’s push for aggressive labor policies that in my opinion will not only hurt small businesses but hurt workers," Sen. Vitter said. "American entrepreneurs are under attack from an agenda-driven NLRB."

Keith Bolek, a partner at union law firm O'Donoghue & O’Donoghue, defended the board’s decision, saying that the new standards do not threaten jobs because Browning Ferrris was not a sweeping ruling and determinations of liability will be made on a "case-by-case basis."

"The board made a reasoned decision under common law. … The fear is enormously overblown," he said.

Bolek said that the public interest would be served because the joint employer standard makes it easier to collectively bargain. Unions have pushed for joint employer liability because of the difficulty of organizing franchises. Under the previous standard organizers would have to campaign on a store-by-store basis. The new standard could allow labor groups to pressure corporations to deal with the union from the top-down.

"In the end the goal is not to create jobs, but to create good jobs," he said.

Lynn Berberich, a Baltimore franchisee of home care company BrightStar Healthcare, said that the new standard threatens worker job prospects as well as her own expansion goals. She became a franchisee after being laid off during the 2008 recession and now employs more than 200 people.

She testified that BrightStar no longer supplies franchisees with many tools that improved efficiency and allowed her to more easily manage her workforce. She had been forced to pay out-of-pocket for applicant tracking, scheduling tools, and payroll system, which were all previously supplied by the umbrella company. That has resulted in "a slowed down hiring process."

"The impact of the NLRB’s Joint Employer Standard negatively impacts the lives of my 200 employees and our patients," she said. "The losers are small business owners like me."

The Senate is now considering a bill that would re-establish the previous joint employment standard.

Published under: Big Labor, Unions