Alexander Calls on Democrats to Help Reverse Labor Decision that Will “Steal the American Dream” From Owners of 780,000 Franchise Businesses, Millions of Contractors

 “It is the biggest attack on the opportunity for small businessmen and women in this country to make their way into the middle class that we’ve seen in a long, long time.”

– Lamar Alexander

WASHINGTON, D.C., October 6 – The chairman of the Senate labor committee today urged Senate Democrats to support legislation to roll back a recent National Labor Relations Board decision he said may “steal the American dream from owners of the nation’s 780,000 franchise businesses and millions of contractors.”

“The labor board’s new ‘joint employer’ standard will make big businesses bigger and the middle class smaller by discouraging larger companies from franchising and contracting work to small businesses,” said committee chairman Sen. Lamar Alexander (R-Tenn.) at a committee hearing on the new decision.

“It is the biggest attack on the opportunity for small businessmen and women in this country to make their way into the middle class that we’ve seen in a long, long time – and I am committed to fighting it with legislation that already has 45 Republican cosponsors in the Senate and bipartisan support in the House.”

He added: “I believe that Congress must act as soon as possible to stop this destructive policy change from damaging the middle class growth that has made this nation what it is today. I hope my colleagues on both sides of the aisle will agree.”

Alexander last month with House Education and Workforce Committee Chairman John Kline (R-Minn.), Senate labor subcommittee chairman Johnny Isakson (R-Ga.) and House subcommittee chairman Phil Roe (R-Tenn.) introduced the Protecting Local Business Opportunity Act to roll back the NLRB ruling and reaffirm an employer must have “actual, direct and immediate” control over an employee to be considered a joint employer – the same standard that was in place decades before the board’s extreme Browning Ferris Industries (BFI) decision.

The chairman’s prepared remarks follow:

Last week, I met a man named Aslam Khan. He is an immigrant from Pakistan who started out as a dishwasher at Church’s Chicken and who today has become a very successful owner of Church’s Chicken franchises.

He talked about achieving the American Dream. He said it was possible because of our nation’s “free enterprise, entrepreneurial spirit.”

But on August 27, the National Labor Relations Board released a decision that threatens to steal the American dream from owners of the nation’s 780,000 franchise businesses and millions of contractors.

It threatens to destroy that free enterprise, entrepreneurial spirit.

The labor board’s new “joint employer” standard will make big businesses bigger and make the middle class smaller by discouraging larger companies from franchising and contracting work to small businesses.

It is the biggest attack on the opportunity for small businessmen and women in this country to make their way into the middle class that we’ve seen in a long, long time – and I am committed to fighting it with legislation that already has 45 cosponsors in the Senate and bipartisan support in the House.

For over three decades, federal labor policies have held that two separate employers are “joint employers” if both have direct and immediate control over employment terms and working conditions.

That means two employers who are both responsible for tasks like hiring and firing, setting work hours, issuing direction to employees, determining compensation and handling day to day record keeping.

Under the new “joint employer” standard adopted in August in Browning Ferris Industries, a 3-2 NLRB majority said that merely indirect control or even unexercised potential to control working conditions could make a franchisee and franchisor joint employers.

That means that for all these franchisees and contractors who have worked so hard to build businesses in their communities, hire the right people, and spend 12 hours a day serving customers, meeting a payroll, dealing with government regulations, paying taxes, and trying to make a profit – they will no longer be considered their workers’ sole employer. Rather, they are just one of their workers’ employers.

And for the businesses that have franchised their brand or used subcontractors to haul their waste or clean their offices – and are now considered one of the employers of those companies’ workers – there will be a huge incentive to retake control of those franchises, and retake control of those contracted tasks. Because if you’re going to have all the liability of being the boss, you’re much better off actually being the boss.

If those businesses stop using franchisees and subcontractors, their costs go up.  The system of letting other businesses invest their capital in carrying forward your business goal evaporates. 

When costs go up, these businesses lose their ability to grow and create more jobs.

As joint employers, business owners will be forced to engage in collective bargaining and share liability for labor law violations.

As this new standard is applied, we will learn just how much liability an employer will face for another employer’s decisions.  Will she be required to contribute to healthcare costs, workers compensation and pension funds?  Will this scheme mean new “joint employers” will be on the hook for notoriously underfunded multi-employer pension plans? 

As if facing legal liability for another employer’s labor problems isn’t bad enough, the Administration is about to make it even more costly.

The President and his Department of Labor are currently in the process of finalizing regulations that will increase the impact of having labor law violations on your record if you want to contract with the federal government.

Under the Fair Pay and Safe Workplaces regulation, labor law violations will be counted against federal contractors when they bid for contracts.

This change also harms employees:

Millions of employees will lose the ability to negotiate things like pay, hours and leave time with their direct supervisor, because those decisions will now be made between the larger employer and the union.

As one employee put it in an interview with a local Denver news channel (Michael Rasmussen to Channel 7 on Sept 3):  “I would be just another number to a corporation.  I’m a person to my employer now.”

Franchising will be particularly impacted by this decision. 

There are 780,000 franchise establishments across this country – and they create nearly 9 million jobs.  

Last week I met with a Chattanooga, Tennessee, couple who started their own franchisee location of “Two Men and a Truck,” a moving company. 

With hard work and commitment, they have been able to grow that first franchise into 6 locations.  They would like to continue growing but this new NLRB decision is causing them to put those plans on hold.

The Two Men and a Truck franchisor is an excellent example of how franchising allow entry into business ownership and the middle class.  It was started in Michigan by a mom who had two sons she was ready to put to work.  Her first franchisee was her daughter. 

It has now grown to 220 franchisees, who have created 8,000 jobs. 

38% of their franchisees began by working on a truck

75% of Two Men and Truck managers began by working on a truck

Successfully operating a franchise business is today one of the most important ways to climb the ladder of success.

The International Franchise Association estimates that every $1 million in lending to starting or growing franchisees creates 40 jobs.

Franchising has been a way for many women and minorities to jump into business ownership. 

Women own or co-own nearly half of all franchise businesses.

Minorities own about 20 percent of all franchises.

Why would the NLRB want to cut off this business model, as well as the opportunity of millions of small, local subcontractors to work with larger companies?

The legislative solution

The Protecting Local Business Opportunity Act (S. 2015) would roll back the NLRB ruling and reaffirm that an employer must exercise actual, direct and immediate control over essential terms and conditions of employment.

This is the commonsense standard that has been applied for decades. 

We have 45 cosponsors on S. 2015 already, and I hope we will be able to add more. 

This is an issue that is so important – I believe that Congress must act as soon as possible to stop this destructive policy change from damaging the middle class growth that has made this nation what it is today.

I hope my colleagues on both sides of the aisle will agree.

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