Main Street In Jeopardy - U.S. Chamber Of Commerce
Main Streetin JeopardyThe Expanding Joint EmployerThreat to Small Businesses
About the International Franchise AssociationCelebrating 56 years of excellence, education and advocacy, the International Franchise Association is the world's oldest and largest organizationrepresenting franchising worldwide. IFA works through its government relations and public policy, media relations and educational programsto protect, enhance and promote franchising and the more than 800,000 franchise establishments that support nearly 9.1 million direct jobs, 994 billion of economic output for the U.S. economy and 3 percent of the Gross Domestic Product (GDP). IFA members include franchisecompanies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing,law, technology and business development.The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more thanthree million businesses of all sizes, sectors, and regions, as well as the state and local chambers and industry associations.Copyright 2016 by the United States Chamber of Commerce. All rights reserved. No part of this publication may be reproduced or transmittedin any form—print, electronic, or otherwise—without the express written permission of the publisher.
Table of ContentsAbstract . 2I.Introduction . . . 3II.Origins of the Expanded Definition of Joint Employer . 4A. The Writings of David Weil . 4B. Unions and the Franchise Industry. . 6C. “Fight for 15” (and a Union). 8III.The Federal Government and Joint Employer . 10A. The NLRB Weighs In . 10B. WHD's Administrative Interpretation. 18C. OSHA Memorandum.20IV.Rhetoric vs. Reality. 21A. BFI Does Not Return to Any Pre-existing Standard.22B. The Freshii Memorandum is Irrelevant. 22C. BFI Provides No Guidance to Employers.23V.Real World Impacts. 24VI.Brand Protection, the FTC, and the Lanham Act. . . 26VII. State and Local Developments . 27A. California and AB 1897 . 27B. Seattle's Minimum Wage Ordinance . 28C. New York State . 29D. Cook County’s Responsible Business Act . 30E. State Franchise Reform Laws . 31VIII. Conclusion . . . 32Endnotes . . . 33Main Street in JeopardyThe Expanding Joint Employer Threat to Small Businesses1
ABSTRACTThe concept of joint employment, that is, where two separate employers share responsibilityand liability for the same employee, has long been recognized under multiple federal statutes,including the National Labor Relations Act (NLRA). For nearly three decades, the NationalLabor Relations Board (NLRB or Board), which enforces the NLRA, used a simple and clearstandard for determining joint employer status, one that relied on “direct and immediate”control over fundamental terms and conditions of employment. This bright line test allowedfor the expansion of successful business models, such as franchising and subcontracting,that have encouraged flexibility, specialization, and job growth. In 2015, however, the NLRBoverturned its well-established standard, replacing it with a vague and sweeping new testthat has caused turmoil and uncertainty for a wide range of employers. Unfortunately, theinterest in expanding joint employer liability has spread to other federal agencies as well asstate and local governments. Essentially, businesses across multiple industries may now findthemselves liable for workplaces they don’t control and workers they don’t employ. Congresscan, and must, take action to restore common-sense to this aspect of labor law.2Main Street in JeopardyThe Expanding Joint Employer Threat to Small Businesses
I.INTRODUCTIONOn August 27, 2015, the NLRB issued a decision in a case known as Browning-Ferris Industries(BFI). Despite the Board’s assurance that it had merely “refined” its standard for determiningjoint employment under the NLRA by applying “long-established principles,” employers knewthat the decision represented a significant policy change with potentially serious economicconsequences. In replacing the time-tested “direct and immediate control” standard with asweeping and vague test based on “indirect”and “potential” control over fundamentalterms and conditions of employment, theNLRB had suddenly exposed a broad rangeof businesses to liability for workplaces theydon’t control and workers they don’t employ.The Board’s decision only reinforced theanxiety created by the NLRB’s GeneralCounsel, Richard Griffin, who several monthsprior had filed unfair labor practice chargesagainst McDonald’s as a joint employer withseveral McDonald’s franchise owners. Thesecharges were based on complaints filed byService Employees International Union (SEIU)-In replacing the time-tested“direct and immediate control”standard with a sweeping andvague test based on “indirect”and “potential” control overfundamental terms andconditions of employment, theNLRB had suddenly exposed abroad range of businesses toliability for workplaces theydon’t control and workers theydon’t employ.funded worker centers as part of the union’scampaign to organize fast food restaurants.The NLRB’s actions, alarming enough on their own, raised additional fears within thebusiness community that other regulatory agencies would start applying expansivestandards to find joint employment status under their respective statutes. Those fears haveproved well founded, as both the Occupational Safety and Health Administration (OSHA) andthe Wage and Hour Division (WHD) at the U.S. Department of Labor (DOL) have indicatedtheir intentions to heavily scrutinize situations that may give rise to joint employer liability.Moreover, several state and local governments have picked up on the concept and begun toapply their own expansive views of joint employment.In 2015, the U.S. Chamber of Commerce released a report on the joint employer issue titled“Opportunity at Risk.” The report examined the history of the franchising and subcontractingbusiness models, the historical treatment of franchising and subcontracting under severaldifferent statutes, and efforts by the NLRB to undermine those models. The report wasreleased five months before BFI was issued.U.S. Chamber of Commerce International Franchise Association3
This report, produced by the U.S. Chamber of Commerce and the International FranchiseAssociation (IFA), picks up where “Opportunity at Risk” left off. It first examines the roots ofthe campaign against the franchising and subcontracting business models. This includesthe writings of WHD Administrator David Weil and the “Fight for 15” protests, which arethe public relations face of the SEIU’s campaign to unionize the fast food industry. It thenhighlights the actions of the NLRB, the WHD, andIn essence, what was onceviewed simply as a labor issueis now a local small businessand jobs issue. Congresscan, and must, take action toreturn common sense to thisaspect of labor law, eitherthrough an appropriationsrider or stand-alonelegislation.OSHA, with regard to joint employment. While it istoo early to compile hard economic data, the reportincludes descriptions of how some businesses aredealing with the fallout of the BFI and McDonald’scases. Finally, it examines how state and localgovernments are approaching the issue.While an expansive view of joint employment mayhave been conceived by a small group of activists andunion leaders, it now influences government policyat the federal, state, and local levels. Unfortunately,the consequences of these ongoing policy changesare likely to spread far beyond the narrow organizingobjectives of the SEIU and harm businesses of all shapes and sizes — as well as theiremployees. In essence, what was once viewed simply as a labor issue is now a local smallbusiness and jobs issue. Congress can, and must, take action to return common sense to thisaspect of labor law, either through an appropriations rider or stand-alone legislation. Leftunchecked, the new liabilities created by the NLRB, and increasingly by other governmententities, will be to the detriment of workers, employers, and the economy.II.ORIGINS OF THE EXPANDED DEFINITION OF JOINT EMPLOYERA.The Writings of David WeilA significant contributor to the philosophical underpinnings of expanded joint employmentis David Weil, previously a professor at Boston University and now Administrator of theWHD.1 In 2010, while still a professor, Weil wrote an enforcement manual for the WHD thatemphasized the term “fissured workplace.”2 In that manual, Weil claimed:The relationship between worker and employer has become more and morecomplex as employers have contracted out, outsourced, subcontracted, anddevolved many functions that once were done in house. Like rocks weakenedand split apart by the passage of time, employment relationships have4Main Street in JeopardyThe Expanding Joint Employer Threat to Small Businesses
become deeply “fissured” in many sectors that employ large numbers ofvulnerable workers.3According to Weil, this so-called “fissuring” is responsible for increased violations of labor andemployment laws and higher levels of economic inequality. Weil’s solution is to go after theemployer with the deepest pockets by linking that business to the employer alleged to haveactually committed the violation:WHD should pursue strategies that focus at the top of industry structures, onthe companies that affect how markets operate and many of the incentivesthat ultimately affect compliance. This starts with having a clear “map” of howpriority industries operate and how that results in employer behavior. It thenrequires putting in place coordinated investigation procedures built aroundrelated business entities rather than individual workplaces and using thoseregulatory tools (from persuasion and education to the use of penalties, hotgoods provisions, and other legal tools) to craft comprehensive agreements.4Weil reinforced this theory in a 2011 article advocating enforcement targeted at “higher-level,seemingly more removed business entities.”5 In 2014, he authored his most comprehensivework on the issue, a book entitled: “The Fissured Workplace: Why Work Became so Bad for soMany and What Can be Done to Improve It.”“The Fissured Workplace” calls for targeting certain industries, such as franchising,hospitality, and construction. Weil considers these industries the predominant drivers ofthe alleged abuses featured in his book (although he gives little credit to franchising andsubcontracting for the jobs, economic growth and entrepreneurial opportunities thosebusiness models create). “The Fissured Workplace” suggests that dramatic and radicalchanges to the law are needed to increase liability for employers. Weil states that, “[I]nnovativesolutions could be created by reestablishing that lead companies have some sharedresponsibility for the conditions arising in the network of workplaces they influence throughtheir activities.”6It should come as no surprise that Weil’s suggested solution for the alleged problemsassociated with “fissured workplaces” are almost identical to those used to justify anexpanded joint employer standard. Indeed, some in the labor and employment lawcommunity have called Weil the “Godfather” of the campaign described in this report.U.S. Chamber of Commerce International Franchise Association5
B.Unions and the Franchise IndustryWhile Administrator Weil looked at business models like franchising and subcontractingfrom an academic and enforcement perspective, organized labor had a much more outcomebased approach to the joint employer issue.As observers of labor policy know, membership in labor unions has been in a steady declinefor 60 years. Union membership peaked in 1955, when 35 percent of the workforce wasunionized, but in 2015 just 11.1 percent of workers belonged to unions.7 Moreover, accordingto the Bureau of Labor Statistics (BLS) only 6.7 percent of the private sector workforce isunionized.8 This seemingly inexorable decline is a major challenge to union leaders.Responding to that challenge has involved a myriad of different strategies including callsto dedicate a fixed percentage of revenues to organizing, developing “corporate campaign”tactics to harass employers, engaging in shareholder activism, setting up the “Change to Win”federation as an entity distinct from the AFL-CIO, and pushing for legislative changes to theNLRA such as the Employee Free Choice Act (EFCA).None of these efforts have been particularly successful. However, the last of them deservesspecial mention, not because EFCA was a viable piece of legislation, but because it involvedthe method unions see as the most promising for long-term success — getting governmentto change the rules of the game. And with regard to the question of joint employment, oneunion in particular has pushed this approach the furthest.The SEIU is one of the largest and most aggressive unions in the country. In recent years, ithas embarked on a highly ambitious campaign to unionize the fast food industry. This would6Main Street in JeopardyThe Expanding Joint Employer Threat to Small Businesses
appear to be a lucrative target. BLS data reveal that in the broadly-defined “food services anddrinking places” category, which employs 8.5 million individuals and includes many franchiserestaurants, only 1.5 percent of workers belong to unions.9 Thus, there is vast, untappedpotential amongst this pool of employees. An impediment to unionizing many of theseworkers, however, is the franchise system.Franchising has been a way of providing products and services to customers in the UnitedStates since the mid-19th century, when Isaac Singer invented the sewing machine andcreated franchises to distribute them. A franchisee is typically a small business ownerwho operates one or more local businesses under the brand name of the franchisor. Thefranchisor, by contrast, is a larger enterprise that focuses on product development, brandmanagement and marketing.The major advantage of operating a franchise is the ability to utilize the franchisor’sestablished brand name, which reduces the need for a small business owner to spendresources establishing their own market identity, something that is especially helpful inhighly competitive industries.10 For the franchisor, the financial benefit comes from thetrademark, royalties, and service fees paid by the franchisee. The key is that the franchisorand its franchisees are legally separate businesses.As unions have found over the years, organizing in the fast food industry is challenging.First, many workers view their employment in that industry as temporary, so the idea ofunion representation and paying dues may be of little interest. Second, turnover in theindustry is high, in some cases as high as 75% annually.11 What this means for unions is thatan organizing campaign at an individual location must be in almost perpetual operation,a potentially expensive proposition, as by the time a majority of a workplace has beenconvinced to vote for representation (already a difficult task for the first reason mentionedabove), most of those recruits are likely to have moved on to other employers and the processmust start again.However, these challenges are compounded by the franchise model. First, even if a uniondoes manage to win an election at a franchised fast food restaurant, it will have madeno inroads into businesses operating under the same banner as they themselves areindependently owned and operated establishments. Second, because the franchisor does notown or manage franchisees, there is no obligation for the brand name company to come tothe bargaining table. Thus, the union will have spent a great deal of time and money for ahandful of employees, and seemingly reached a dead end.To make the proposition more viable, what the SEIU needs is a way to break down the legalseparation between a brand name company and its franchise owners. In other words, it needsU.S. Chamber of Commerce International Franchise Association7
a way to make them joint employers under the NLRA. Once joint employment is established,organizing even one restaurant at one location becomes a pathway to other restaurantsand, more importantly, the means to force the brand name company to the bargaining table.As part of contract negotiations, the SEIU can then ratchet up pressure on the brand nameand seek a nationwide agreement on organizing concessions, such as allowing franchiseesto be organized by card check. With concessions in hand, the SEIU could rapidly pick offrestaurants around the country, giving it leverage for even more concessions. These mightinclude a region-wide organizing agreement, underPut simply, what may havestarted as a labor issuehas become a local smallbusiness and jobs issue.which an employer essentially surrenders facilities ina given region to a union in exchange for the unionrefraining from organizing in other regions.While in past years, such a scheme stood little chanceof success, the SEIU has found a willing co-conspiratorin the NLRB and other government agencies. As this report will demonstrate, the fallout frombasing broad-reaching policy decisions on the narrow interests of one union will extend farbeyond fast food. Put simply, what may have started as a labor issue has become a localsmall business and jobs issue.C.“Fight for 15” (and a Union)The SEIU’s fast food campaign has taken place on several fronts. Perhaps the most visible ofthese is the series of “Fight for 15” protests that have taken place in a number of cities overthe past four years.After several months of planning by approximately 40 organizers, the first protests took placein late November 2012 and involved several small demonstrations at McDonald’s, KFC andBurger King locations in New York City.12 Among them were demonstrations by 14 workersfrom a midtown Manhattan McDonald’s and 40 protesters outside of a Burger King near PennStation. Despite their modest size, they garnered a fair amount of media attention, and TheNew York Times called the demonstrations “the biggest wave of job actions in the history ofAmerica’s fast-food industry.”13The protests resumed in April 2013, with demonstrations in New York and Chicago.14Over the summer of 2013, the “Fight for 15” campaign continued with demonstrations inadditional cities such as Detroit, St. Louis,
A. Writings of David Weil The . A significant contributor to the philosophical underpinnings of expanded joint employment is David Weil, previously a professor at Boston University and now Administrator of the . WHD. 1. In 2010, while still a professor, Weil wrote an enforcement manual for the WHD that emphasized the term “fissured workplace .
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