A Giant Leap... for Franchising

September 11, 2017

Congress has introduced legislation to permanently protect franchises from joint employer liability.

By Michael Layman and Caitlin Lively

After more than three years of murky, government-inspired “joint employment” liability looming over franchises, the IFA-led effort to fight back recently reached a new high point. On July 27, the 115th Congress introduced a bipartisan bill entitled the Save Local Business Act (H.R. 3441), and its intent is to provide clarity on all the joint employment compliance questions that have faced franchise owners over the past three years. The Save Local Business Act, introduced by U.S. Rep. Bradley Byrne (R-Ala.), simply states that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers under both the National Labor Relations Act and the Fair Labor Standards Act. In doing so, the legislation would clearly define what constitutes a joint employer, restore the previous “direct control” standard that effectively protected the franchisor-franchisee relationship, and prevent any entity from being held liable for labor violations allegedly committed by franchises or subcontractors over which it had no actual, direct and immediate control.

IFA is thrilled with the bipartisan work by members of Congress to responding to the business community on the joint employer liability standard. U.S. Reps. Virginia Foxx (R-N.C.), Tim Walberg (R-Mich.), Lou Correa (D-Calif.) and Henry Cuellar (D-Texas) each cosponsored Byrne’s bill. These five members of Congress and Rep. Andy Harris (R-Md.) announced the bill at a July 27 press conference held in front of the steps of the U.S. Capitol building. In addition, several franchisees from ServiceMaster, FASTSIGNS International, Checkers, Popeyes Louisiana Kitchen and Burger King also appeared at the press event in support of the bill.

At the press conference, Rep. Foxx — who chairs the House Education and the Workforce Committee — said that the legislation was intended to “correct wrongs that have been created in the past” by restoring the common-sense joint employer definition held for decades. The bill’s author, Rep. Byrne, telegraphed his optimism in saying that “We are dead serious about not just passing (the Save Local Business Act) out of the House, but getting it over to the Senate and getting 60 votes.”

The legislation is needed because the National Labor Relations Board in its August 2015 Browning-Ferris Industries decision reversed 30 years of precedent to hold that employers may be liable for the alleged actions committed against employees of subcontractors and other business partners, even if the primary employer had no direct control over the employees. The new NLRB standard immediately threatened the franchisor-franchisee relationship because it has forced franchisors to respond to this new liability in numerous ways, and none of them are positive for franchise owners.

In December 2014, NLRB first issued consolidated complaints against both McDonald’s USA and McDonald’s franchisees as joint employers. NLRB’s “trial” against McDonald’s has been totally unprecedented, as the initial administrative law judge hearing began in March 2015, and remains in the discovery phase more than two years later.

Beyond the McDonald’s case and the Browning-Ferris Industries decision, there have been hundreds of joint employer actions against locally owned businesses in numerous industries nationwide, including small franchise employers, construction companies, general contractors, service providers, and their business partners. These cases have been under the NLRA, FLSA, and many other areas of the law. The following companies have been targets of high-profile joint employment claims based on questionable legal theories:

Microsoft: Microsoft initiated a corporate social responsibility program, lauded by President Obama, that required supply chain contractors to offer paid leave to their employees. But this program was used as evidence that Microsoft was a joint employer with its suppliers in a charge filed with the NLRB in 2015.

Amazon: Amazon has faced multiple joint employer wage and hour suits brought by employees of warehouse and delivery companies.

DirecTV: In a January 2017 decision that rivaled the expansive BFI decision, the Fourth Circuit of Appeals found that a business might be a joint employer so long as it is “not completely disassociated” from a subcontractor under FLSA.

The impact of unpredictable joint employer liability on local businesses has been profound. According to a 2016 report by IFA and U.S. Chamber of Commerce, local franchise owners are now facing higher operational and legal costs, less compliance assistance, and even lower enterprise values as a result of joint employer.

The Save Local Business Act would clarify joint employment liability and represent a big step toward protecting the autonomy of both franchisees and franchisors. It is the culmination of the IFA-led effort to coordinate the business community’s response to joint employer, known as the Coalition to Save Local Businesses.

Now that the Save Local Businesses Act has been introduced, it is imperative for all of us who care about franchising to get Congress to act. IFA and CSLB encourage all franchise leaders to act. Write your legislator, host in-district meetings with members and tell your story. There are many ways to get involved. Quickly send a letter to your member of Congress by visiting www.savelocalbusiness.com and clicking on the “Take Action” icon. Join IFA’s Franchise Action Network by signing up at www.franchiseactionnetwork.com and selecting “Join Us.” Attend the FAN Annual Meeting, Sept. 11-13 in Washington, D.C., find out more at www.franchise.org/fan. If Congress doesn’t hear from franchise leaders en masse, there’s still a possibility of no action on joint employer.

Fortunately, over the past three years, franchise owners have been extraordinary in influencing elected leaders. In this time alone, 24 CSLB witnesses have testified before Congress telling their small business stories and explaining how joint employer is hurting their businesses and employees. In addition, franchise owners have hosted more than 100 in-district meetings with members of Congress and their local business-owning colleagues to discuss joint employer. Not to mention, businesspeople have sent more than 65,000 letters to Congress expressing frustration with joint employer and asking for statutory clarity. The impact of joint employer facing franchises and other types of locally owned businesses has been the subject of extensive discussion in Congress — all a result of the outreach by franchise leaders.

IFA President and CEO Robert Cresanti, CFE, remarked: “Through our members’ ongoing engagement and advocacy on this issue, along with the Coalition to Save Local Businesses, IFA has been at the very forefront of the broad effort to encourage Congress to provide clarity to franchise and other local businesses."

Let’s keep up the momentum of our remarkable grassroots movement this fall at the FAN Annual Meeting. Thank you for your support, and IFA’s Government Relations and Public Policy Department looks forward to working with you to advance the Save Local Business Act for all franchise owners, executives and employees.

Read the full version of this article online at www.atourfranchise.org.

Michael Layman is Executive Director of the Coalition to Save Local Businesses and IFA’s Vice President of Regulatory Affairs.

Caitlin Lively is an Intern in IFA’s Government Relations and Public Policy Department.