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Bill to dramatically narrow joint-employer standard clears House

By Pamela Wolf, J.D.

On November 7, the House passed the Save Local Business Act, which would effectively kill the National Labor Relations Board’s revised joint-employer standard that unleashed a firestorm when it was first announced in the Board’s the 2015 3-2 Browning-Ferris Industries decision. The bill, H.R. 3441, passed by a 242-181 vote that saw eight Democratic lawmakers crossing party lines to join the unified Republicans in favoring the legislation. The Save the Local Business Act has prompted sharp controversy since it was introduced on July 27, 2017 (see Save Local Business Act: Is tanking the revised joint-employer standard the right move?, September 14, 2017).

In Browning-Ferris Industries, it is important to remember that the Labor Board returned to its pre-1984 standard for determining joint-employer status under the National Labor Relations Act. The Board announced that it would no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. The Board also dropped its requirement that to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status under the Board’s revised standard. The net effect of the Board’s decision was to make finding joint-employer status easier, much to the alarm of many in the business community and, in particular, the franchise business.

New standard imposed by law. If passed, the Save the Local Business Act would take the joint-employer standard out the hands of the Labor Board and dramatically narrow it. Under H.R. 3441, joint employment would be found only where a person (which includes employers and their agents) “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment (including hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, and administering employee discipline).”

According to Senate Health Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-Tenn.), the Save Local Business Act “is good news for the owners of this country’s 780,000 franchise businesses—health clubs, barber shops, neighborhood restaurants—who saw their path to the American dream threatened by the Obama National Labor Relations Board’s damaging and unreasonable definition of a ‘joint employer.’”

Blow to workers. But Bobby Scott (D-Va.), Ranking Member of the House Education and the Workforce Committee, sees the Save the Local Business Act as a blow to workers. He contends that the bill would have the net effect of eliminating accountability for the entities that are actually calling the shots in the workplace. Workers who try to hold employers accountable for violating wage and hour laws, unfair labor practices, or refusing to negotiate will lose under H.R. 3441, he said.

Liability but nobody to hold accountable. Scott posed the scenario under which two companies claim they are not employers. If both companies fail to meet the legislation’s new, narrower definition of “joint employer,” the employee may be left with no legal employer to hold accountable, and even though a court may find the worker is owed overtime pay, there would be nobody on the hook to pay for it.

Does it hurt responsible businesses? Opponents of H.R. 3441 also say that contrary to its title, the Save the Local Business Act actually hurts responsible businesses. The bill insulates low-road construction contractors from liability when they cut costs by using subcontractors that steal workers’ wages, thereby hurting law-abiding businesses who compete against them. The Signatory Wall and Ceiling Contractors Alliance warned House Leaders in an October 5 letter that H.R. 3441 would “create a standard that would surely accelerate a race to the bottom in the construction industry and many other sectors of the economy. It would further tilt the field of competition against honest, ethical businesses.”

Much need certainty. Proponents of the bill say they welcome the clarity that it provides. International Franchise Association President and CEO Robert Cresanti called House passage of H.R. 3441 “a significant milestone for the 733,000 franchise businesses and the 7.6 million employees who need certainty to flourish in our modern economy.” He said the development is “the first step in re-establishing a business environment where American entrepreneurs can hire new employees, train existing ones, and unlock the full economic potential of their communities.” The IFA has led the charge in a broad effort of “encouraging Congress to provide commonsense clarity to franchise and other local businesses,” according to Cresanti.

Existential threat? “The Save Local Business Act is the most important legislation for franchising in a generation—a commonsense bill with bipartisan support that protects business relationships and promotes economic growth,” Cresanti continued. “The NLRB-created joint employer definition is far too broad and poses an existential threat to the franchise and small business community.”

But will it hurt franchisees? Opponents of the legislation question exactly who in the franchise community would benefit under H.R. 3441. Democrats on the House Education on Workplace Committee observed that while H.B. 3441 purports to help protect the independence of franchisees, legal experts point have pointed out that the legislation would harm small franchisees by holding them accountable for their franchisors’ decisions. Under the Save the Local Business Act, if the franchisor directs the franchisee to take actions that results in a violation, the franchisee would be forced to accept this shared control, without shared responsibility. That’s not exactly a good deal for franchisees.