```

[Senate Hearing 114-704]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-704

  STEALING THE AMERICAN DREAM OF BUSINESS OWNERSHIP: THE NLRB'S JOINT 
                           EMPLOYER DECISION

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE NATIONAL LABOR RELATIONS BOARD'S JOINT EMPLOYER DECISION

                               __________

                            OCTOBER 6, 2015

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      Available via the World Wide Web: http://www.gpo.gov/fdsys/

                         U.S. GOVERNMENT PUBLISHING OFFICE 

96-983 PDF                     WASHINGTON : 2017 
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                          Washington, DC 20402-0001

          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                  LAMAR ALEXANDER, Tennessee, Chairman

MICHAEL B. ENZI, Wyoming           PATTY MURRAY, Washington
RICHARD BURR, North Carolina       BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia            BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky                ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine               AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska             MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois                SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina          TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah               CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas                ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana

               David P. Cleary, Republican Staff Director
                  Evan Schatz, Minority Staff Director
              John Righter, Minority Deputy Staff Director

                                  (ii)

  

                            C O N T E N T S

                               __________

                               STATEMENTS

                        TUESDAY, OCTOBER 6, 2015

                                                                   Page

                           Committee Members

Alexander, Hon. Lamar, Chairman, Committee on Health, Education, 
  Labor, and Pensions............................................     1
Murray, Hon. Patty, a U.S. Senator from the State of Washington..     3
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia...    33
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    36
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas.......    37
Warren, Hon. Elizabeth, a U.S. Senator from the State of 
  Massachusetts..................................................    39
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......    40
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin..    42
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................    44

                               Witnesses

Stockeland, Ciara, Owner, Founder, MODE Stores, Fargo, ND........     5
    Prepared statement...........................................     7
Martin, Edward, President/CEO, Tilson Home Corporation, Austin, 
  TX.............................................................    11
    Prepared statement...........................................    12
Kisicki, Mark G., Shareholder, Ogletree Deakins, Nash, Smoak & 
  Stewart, P.C., Phoenix, AZ.....................................    14
    Prepared statement...........................................    16
Rubin, Michael, Partner, Altshuler Berzon LLP, San Francisco, CA.    24
    Prepared statement...........................................    26

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Independent Electrical Contractors (IEC).....................    49
    Letters:
        Associated Builders and Contractors (ABC), Inc...........    49
        American Hotel & Lodging Association (AH&LA).............    50
        Asian American Hotel Owners Association (AAHOA)..........    51
        Chamber of Commerce of the United States of America......    52
    Response by Ciara Stockeland to questions of:
        Senator Collins..........................................    57
        Senator Scott............................................    57
    Response by Edward Martin to questions of:
        Senator Collins..........................................    58
        Senator Scott............................................    59
        .........................................................

                                 (iii)
 
  STEALING THE AMERICAN DREAM OF BUSINESS OWNERSHIP: THE NLRB'S JOINT 
                           EMPLOYER DECISION

                              ----------                              

                        TUESDAY, OCTOBER 6, 2015

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-430, Dirksen Senate Office Building, Hon. Lamar 
Alexander, chairman of the committee, presiding.
    Present: Senators Alexander, Isakson, Collins, Hatch, 
Roberts, Murray, Casey, Franken, Bennet, Baldwin, Murphy, and 
Warren.

                 Opening Statement of Senator Alexander

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will please come to order.
    This morning, we have a hearing about the recent National 
Labor Relations Board decision that threatens to steal the 
American Dream from owners of 780,000 franchise businesses and 
millions of contractors. We'll also discuss the legislation 
I've introduced to undo this decision and restore the law the 
way it was before the NLRB decision.
    Senator Murray and I will each have an opening statement. 
We'll introduce our panel of witnesses. We thank each of you 
for coming. After the witness testimony, each Senator will have 
5 minutes of questions.
    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.''
    On August 27, the NLRB released a decision that threatens 
to steal that 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 up the economic ladder 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 a 
total of 60 cosponsors in the House, including three Democrats.
    For 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, work hours, issuing 
directions, determining compensation, and handling day-to-day 
recordkeeping.
    Under the new joint employer standard adopted in August in 
Browning-Ferris Industries, a 3 to 2 NLRB majority said that 
merely indirect control or even unexercised potential to 
control working conditions could make two employers joint 
employers. This means all these franchisees and contractors who 
have worked so hard to build businesses in their communities, 
hire the right people, and sometimes spend 12 hours or more 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.
    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 might be much better off being the boss.
    That means costs go up--less ability to invest capital. As 
joint employers, business owners will be forced to engage in 
collective bargaining and share liability for labor law 
violations.
    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 Denver 
news channel, ``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, TN 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 six locations. They would like 
to continue to grow, but this new NLRB decision is causing them 
to put their plans on hold.
    Two Men and a Truck is a good example of how franchising 
allows entry into business ownership and the middle class. It 
was started in Michigan by a mom with 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. Thirty-
eight percent of their franchisees began by working on a truck.
    Successfully operating a franchise business is one of the 
most important ways to climb the ladder of success.
    Women own or co-own nearly half of all franchise 
businesses. Minorities own about 20 percent. Why would we want 
to cutoff this business model?
    The Protecting Local Business Opportunity Act that I have 
introduced 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 of our bill, and I hope we will add more. I hope 
that will include some Democratic members of the Senate.
    This is an issue that is important. I believe it's time for 
Congress to act as soon as possible to stop a destructive 
policy that damages 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.
    Senator Murray.

                  Opening Statement of Senator Murray

    Senator Murray. Thank you very much, Mr. Chairman.
    Our economy and our workplaces and our country should work 
for all of our families, not just the wealthiest few. I assume 
everyone agrees we can't make that happen without considering 
the massive changes in the labor market over the past 30 years.
    Many big corporations increasingly rely on temp agencies, 
franchises, and other third-party sources to stay competitive 
and lower labor costs. Sometimes corporations still maintain 
significant control over the workers performing their day-to-
day operations of franchises and subcontractors.
    Some of these corporations work very hard to ensure workers 
are treated fairly and have access to the protections they 
deserve. Unfortunately, when some other parent companies 
maintain this control, it can often come at a huge cost to 
workers and to small business owners alike.
    For example, some of the biggest corporations can dictate a 
franchise's pricing and store hours, they decide how many 
people are on a franchisee's staff, and they sometimes even 
have a say in how much employees can earn. Yet, these parent 
companies can escape all liability for poor working conditions 
and rock-bottom wages.
    In some cases, workers have tried to exercise their basic 
rights to join together and improve wages and workplace 
conditions. When those workers sit down to negotiate, they find 
out that not all of the people who have control over the terms 
and conditions of their jobs have to show up at the bargaining 
table.
    Take for example a worker named Arold, who worked for a 
temp agency that supplied workers for a warehouse in 
California. In a report from the National Employment Law 
Project, he said he and his coworkers barely made more than the 
minimum wage. They never knew when their shift would end, and 
they never had a set day off of work. That made it impossible 
for them to plan their lives.
    When they joined together to form a union, instead of 
meeting them at the bargaining table, the company that owned 
the warehouse threatened to close the temp agency and fire all 
the workers. These employment arrangements can be bad for small 
business owners as well.
    Take for instance a man named Syed. In a story from NPR, he 
said he came to the United States from India, and he's been a 
franchise owner for nearly a quarter of a century. Over time, 
the parent company had enacted tighter and tighter controls 
over Syed's business, and that has really limited his ability 
to free up resources to treat his workers better. He said, 
``When I lived in Bombay, this is not what I thought they meant 
by the American Dream.''
    While there are many responsible corporations, other parent 
companies put all liability for low wages and poor working 
conditions squarely on the shoulders of the small business 
owners. I believe we need to help our workers and grow our 
economy from the middle out, not from the top down. That means 
that we as a nation should not turn our backs on empowering 
workers, especially because that's the very thing that has 
helped so many workers climb into the middle class.
    There has been an overwhelming amount of disinformation out 
there about the NLRB's Browning-Ferris 's decision. Before 
hearing testimony, I want to make a couple of things clear.
    When workers want to join together with their coworkers, 
they are not looking for special treatment. They are simply 
exercising their basic rights that are guaranteed by law. 
Second, one of the Board's responsibilities is adapting to the 
realities of today's workplaces to make sure workers can 
exercise their right to collectively bargain.
    Some of my Republican colleagues have claimed that this 
decision is somehow an over-reach. Given the changes in the 
workplace, the Board is simply carrying out its duties under 
the law.
    This might be the most important point. I've heard some 
opponents of this decision use sweeping language about the 
scope of this decision. Let's be clear. This decision does not 
change the relationship between a local business owner and her 
employees. If she was deciding who to hire and who on her staff 
deserved a raise before this decision, she will continue doing 
that going forward.
    The Browning-Ferris 's decision only clarifies that if 
another company also has substantial control in the critical 
terms of employment, like who to hire and fire or how much to 
pay franchise owners' employees, the NLRB is going to take it 
at its word and treat it as an employer as well. Workers can 
only exercise their basic rights, rights that are guaranteed 
under the Constitution and the National Labor Relations Act, 
when all of the employers who have a say in their working 
conditions are at the table.
    Again, the labor market looks a lot different today than it 
did 30 years ago. Rather than using these trends to end basic 
worker protections and undermine the fundamental fairness of 
due process, this committee should study these trends and 
discuss what we can do for workers and small business owners to 
keep the American Dream in reach for all families.
    I hope this committee can find ways to look at these trends 
and work together on policies that expand economic security, 
grow the economy from the middle out, and ensure our country 
and workplaces work for all families, not just the wealthiest 
few and the biggest corporations.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Murray.
    I'm pleased to welcome our four witnesses today. Ms. Ciara 
Stockeland is the founder of MODE designer fashion discount 
stores headquartered in Fargo, ND. Founded in 2007, MODE now 
has nine franchises operating boutique stores across six 
States.
    Ed Martin is the president of Tilson Home Corporation in 
Austin, TX. Tilson Homes is a family-owned, build-on-your-lot 
custom home builder that's been in business for 80 years.
    Mark Kisicki is a shareholder of the Ogletree Deakins law 
firm in Phoenix, AZ. He has represented clients in some of the 
most significant cases before the National Labor Relations 
Board. He is a member of the American Bar Association section 
of Labor and Employment Law Committee on Practice and Procedure 
under the NLRA.
    Mr. Michael Rubin is a partner at Altshuler Berzon LLP in 
San Francisco, CA. Mr. Rubin specializes in class action and 
appellate litigation, representing workers.
    We thank the four of you for coming, some of you long 
distances today. We ask that you keep your testimony to about 5 
minutes. That will leave more time for the Senators to have a 
conversation with you and ask questions.
    Why don't we start with you, Ms. Stockeland.

  STATEMENT OF CIARA STOCKELAND, OWNER, FOUNDER, MODE STORES, 
                           FARGO, ND

    Ms. Stockeland. Good morning Chairman Alexander, Ranking 
Member Murray, and members of the committee. My name is Ciara 
Stockeland, the owner and operator of MODE, a designer outlet 
concept, which I founded in Fargo, ND. I currently live in 
Grand Forks, ND, with my husband and our two children, Harrison 
and Isabella, who are actually watching today's events at their 
schools, fifth and sixth grades.
    Thank you very much for the invitation to appear before 
this committee today to share my story of small business 
ownership and discuss the concerns of local business owners 
everywhere regarding the NLRB decision to change the joint 
employer standard. It is an honor to be in Washington before 
you today. Likewise, it will be an honor to join employees, 
employers, and many others as I attend the White House Summit 
on Worker Voice tomorrow.
    Today's joint employer issue is a critical threat to our 
livelihoods, and it is very important that small business 
perspectives are heard by our Nation's leaders. I am here to 
speak on behalf of the hundreds of small business owners like 
myself who are members of the Coalition to Save Local Business, 
which I joined because I believe saving local business is 
what's at stake in this so-called joint employer issue.
    Today, I will share why it's so critical for the future 
viability of millions of small businesses and the 780,000 
franchise businesses in America that this committee and 
Congress reinstate the very successful joint employer standard 
by passing S. 2015. This simple, one sentence legislation will 
restore certainty to small business, and I urge every committee 
member to support the bill.
    Mr. Chairman, I am a small business owner and a third 
generation entrepreneur. I employ 10 people in my North Dakota-
based company, and our franchisees have about 40 employees 
across 11 stores. I love creating jobs in America.
    Nine years ago, I opened my first store in Fargo, ND. Four 
years ago, we began franchising and have successfully expanded 
to 12 locations across the Midwest and South Carolina. Why did 
I franchise rather than own a company-based operation? I knew 
it would be difficult to operate company-owned stores and 
support employees from a remote location in North Dakota.
    By franchising, my brand could grow through the operations 
of local entrepreneurs. I hope to continue to grow, and I plan 
to have 75 stores by 2024.
    I am a franchisor. My company, MODE, is one of more than 
3,000 franchisors in the United States. While some people may 
hear the terms, franchise or franchisor, and think only of 
major corporations, they should also think of my story and the 
story of hundreds of thousands of both franchisors and 
franchisees who are small business owners. My company is 
precisely the kind of small business that Members of Congress 
can support.
    Like many small business owners, I have known the stress of 
working to ensure I can cover payroll and rent. While my 
employees have been paid first, I did not take a consistent 
paycheck until 2014. That's 8 years of working virtually for 
free.
    Every day I work, knowing that if my business fails, my 
family will lose everything. We do not need another insecurity 
to add to the already extreme risk of business ownership.
    You might think we would have government that supports us. 
Instead, the NLRB has created extreme uncertainty by 
introducing the BFI decision. I have two points to share.
    First, the joint employer ruling affects every small 
business. The majority of NLRB members made clear that the BFI 
's decision was an isolated one. The Board wrote,

          ``We have decided to restate the Board's legal 
        standard for joint employer determinations and make 
        clear how that standard is to be applied going 
        forward.''

    All businesses covered by the NLR Act and their business 
partners may face liability under the Board's new joint 
employer doctrine.
    Second, there can be no question that the joint employer 
standard makes small business unsafe. No one here can assure me 
that my business will not run afoul of a nebulous indirect 
control standard. The expansion of joint employer liability 
from direct control to both direct and indirect leaves small 
businesses facing serious uncertainty.
    Mr. Chairman, I plead for the use of common sense. The 
joint employer standard that has existed for decades works and 
protects small business. Why change it? If S. 2015 is not 
enacted, why would I continue to grow, knowing that I have the 
risk and that I am liable for other employers' workers.
    Senator Alexander has put forth a proposal today to protect 
entrepreneurs and small business. I urge all members of this 
committee to support locally owned businesses in your States by 
working to enact and protect, using the Protecting Local 
Business Opportunity Act, S. 2015.
    Thank you very much.
    [The prepared statement of Ms. Stockeland follows:]
                 Prepared Statement of Ciara Stockeland
    Good morning Chairman Alexander, Ranking Member Murray, and members 
of the committee. My name is Ciara Stockeland, the owner and operator 
of MODE designer outlet stores, which I founded in Fargo, ND. I 
currently live in Grand Forks, ND with my husband and our two amazing 
children, Harrison and Isabella. Thank you very much for the invitation 
to appear before this committee to share my story of small business 
ownership and discuss the concerns of local business owners everywhere 
regarding the National Labor Relations Board's (NLRB) recent decision 
to change the ``joint employer'' standard.
    It is an honor to be in Washington before the distinguished members 
of this committee today. Likewise, it will be an honor to attend the 
``White House Summit On Worker Voice'' tomorrow. This is an issue of 
great importance to franchise businesses like mine, and it is important 
that small business perspectives are heard by our Nation's leaders.
    I am here to speak on behalf of the hundreds of small business 
owners like myself who are members of the Coalition to Save Local 
Businesses. I joined the Coalition because I believe saving local 
businesses is what's at stake in this so-called joint employer issue.
    Today I will share why it's so critical for the future viability of 
millions of small businesses and the 780,000 franchise businesses in 
America that this committee and Congress reinstate the very successful 
joint employer standard by passing S. 2015. This simple, one-sentence 
legislation will restore certainty to small businesses and our 
employees. I urge every member to support the bill.
                  my north dakota small business story
    Mr. Chairman, I am a franchisor. By working extremely hard and 
expending immeasurable time and energy, I founded a successful brand 
that has grown into a franchise. While some people may hear the term 
``franchise'' or ``franchisor'' and think only of major corporations, 
they can also think of me, my story, and the story of hundreds of 
thousands of both franchisors and franchisees who are small business 
owners.
    Nine years ago, I opened my first retail store, Mama Mia, a high-
end maternity store, in Fargo, ND. Shortly after, I developed the 
concept for MODE, and we opened our first location right next door to 
Mama Mia. In 2008, I chose to merge the two stores into what was our 
first MODE location, as you would see it today. We wanted to build a 
brand. We began offering franchise opportunities in 2011, and we have 
successfully expanded to 12 locations across the Midwest and South 
Carolina. We hope to continue growing. Our goal is to have 75 stores by 
2024.
    I am here today because my goal is to grow our business and 
continue creating opportunities for future franchisees and their 
employees. The uncertainty introduced by the NLRB's BFI 's decision 
jeopardizes the expansion of my business. As a small business owner who 
meets countless public and private demands and competes against massive 
corporations each day, I find it terribly frustrating to have 
regulators harming my business and the careers of so many others in our 
system.
    To understand my frustration, you must understand how franchising 
actually works. When our franchisees enter into an agreement to run a 
MODE franchise store, they sign up to own and operate their own 
business. I simply provide franchisees with a foundation from which to 
launch their business: our recognized brand and trademark, a set of 
business practices to ensure consistency and quality across all 
locations, and support for marketing and advertising. From there, our 
franchisees are responsible for operating their own stores and enacting 
their own employment practices, including hiring and training their own 
employees, setting their wages, and offering benefits based on their 
own competitive local markets. Franchisees obtain their own tax ID 
number and pay their own taxes. And, as part of their contract, they 
are required to abide by and operate under all existing laws, labor and 
otherwise. They are truly an independent business. I want to see each 
and every one of my franchisees succeed, and I try to support them 
however I can, but I am not a joint employer of their employees. I 
don't need to be. I would not lend my trademark, business model, and 
reputation to any of my franchisees if I had any reservations about 
their ability to handle the operations of the business themselves. In 
fact, the very reason I started a franchise instead of opening stores 
under the ``company-owned'' business model, was to ensure that every 
MODE location is run by local business women who had ``skin in the 
game.'' I wanted these women to be able to have the full responsibility 
of owning and operating their own MODE store versus being a mere 
manager with constant oversight from hundreds of miles away in Fargo.
    I am extremely proud of my success, and the success of our 
franchisees. From the very beginning, I believed that each franchisee 
gave me the opportunity to help foster a leader. Together with my team 
in North Dakota, we mentor, train, and work with our franchisees to 
create a successful business that strengthens its community. We want 
each of these talented individuals to grow in their leadership skills 
so that they too can pay it forward to what some may refer to as 
employees, but whom I call rising entrepreneurs.
    One of our primary goals as a franchisor is to motivate women to 
dream big and take risks in all areas of their lives. Last week during 
our industry's annual meeting here in Washington, DC, I was thrilled to 
celebrate the success of one of my entrepreneurs, Heather Pitsiladis, 
as she was recognized by her peers as the recipient of the ``Franchisee 
of the Year Award'' Heather has worked incredibly hard and is truly a 
leader in her community. I could not be happier to see her recognized 
for her hard work and determination. As part of the ``Lean In'' 
generation, I am overwhelmed by the extent to which MODE is 
contributing to the success of women in business. These are successes 
that we should all be celebrating, especially the strong women on this 
committee, rather than watching while the NLRB takes actions that have 
the intended or unintended effect of upending their businesses. Because 
that is what is happening.
    Mr. Chairman, franchising works. There are more than 780,000 
franchise establishments employing nearly 9 million professionals in 
America today. Franchise businesses generate $890 billion of economic 
output for the U.S. economy, representing 3 percent of the Gross 
Domestic Product. And, they have grown faster than the U.S. economy for 
5 consecutive years. Franchising is perhaps the most successful 
business model in American history. It has been a successful model for 
myself, allowing me to take my concept and vision and allow other 
business women to realize their own success through its principals. 
Franchises are small businesses. Franchising jobs cannot be outsourced. 
Franchising means economic opportunity for people from any background. 
Why is this not precisely the business model that every regulator and 
Member of Congress supports?
    Our businesses are threatened because the NLRB's new, ``indirect'' 
standard may make employers liable for employees, even if they are not 
in their direct control. No longer can businesses be sure they will be 
safe from liability simply because they do not control the hiring, 
wages, or supervision of another business's employees. No one can 
safely assure me or any other small business that we are safe from 
joint employer liability with our franchisees or contractors.
            scope of the browning-ferris industries decision
    On August 27, 2015, the NLRB issued its Browning-Ferris Industries 
(BFI) decision and invented a new joint employer standard based on one 
company having ``indirect control'' and ``reserved contractual 
authority'' over another company's employees. The Board's ruling is 
troublesome for numerous reasons.
    First, the majority of NLRB members made clear that this is a 
significant, not a minor, change in Federal labor law. The Board 
members write that ``we have decided to revisit and to revise'' the 
joint employer standard after being urged by the NLRB General Counsel 
``to abandon (the) existing joint-employer standard.''
    Second, the BFI 's decision was not an isolated one. The Board 
writes,

        ``We have decided to restate the Board's legal standard for 
        joint-employer determinations and make clear how that standard 
        is to be applied going forward.''
    Furthermore, small and growing franchise businesses like mine are 
not the only ones jeopardized by this ruling. As the dissenting NLRB 
members write,

          ``(T)he number of contractual relationships now potentially 
        encompassed within the majority's new standard appears to be 
        virtually unlimited.''

    All businesses covered by the National Labor Relations Act and 
their business partners may face liability under the Board's new joint 
employer doctrine.
    Third, the expansion of joint employer liability from ``direct'' 
control to both direct and ``indirect'' leaves small businesses facing 
serious uncertainty. As the Board majority states,

          ``(W)e will 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.''

    In other words, under the Board's new doctrine, an entity need not 
actually commit a crime to be found guilty; it need only to possess the 
ability to commit it. That alone creates the uncertainty and risk that 
will directly affect my willingness to continue moving forward and 
growing my business.
    Mr. Chairman, we need some common sense. The joint employer 
standard that has existed for decades works and protects small 
businesses from liability. Why change it? Because of issues pertaining 
to control? Let's address that. I do not have direct control over my 
system's employees. Do I have indirect control over my franchisees? Of 
course I do. And so does any franchise system with its local 
franchisees. While I have nothing to do with their employment 
decisions, I have a lot to do with their brand. Our brand was my idea, 
and it is in my best interest to protect it. Some other people thought 
our store concept was a good idea, so we gave them the permission to 
use it. That is the spirit of franchising. And now it needs the 
protection of Congress. The NLRB has now prepared such a nebulous, 
unpredictable joint employer test that practically allows them to 
target any business relationship.
        consequences of bfi decision on locally owned businesses
    How will the new joint employer standard impact local businesses 
throughout the country? Under the new indirect control test, prime 
companies may be held liable for the employment and labor actions of 
third-party vendors, suppliers, staffing firms, franchisees, or 
subcontractors, over which they have no direct control. Consequently, 
local business owners may forfeit operational control of their stores, 
clubs, inns or restaurants to their franchisors, or their contractual 
business may dry up because no one wants to partner with a business for 
which they could be held liable. The enterprise value of thousands of 
franchises and small businesses may be reduced due to their decreased 
operational control. Future franchise development is jeopardized as 
brands expand using a corporate ownership model.
    Another real world effect of the new joint employer standard 
relates to small business insurance coverage. Employment practices 
liability insurance, known as EPLI, provides coverage to employers 
against claims made by employees alleging discrimination, wrongful 
termination, harassment or other issues. Insurers determine EPLI 
coverage based on the number of a company's employees; the more 
employees a business has, the higher the premium. All businesses carry 
management liability insurance, which insures directors and officers 
from employment practices liability, fiduciary liability, and fidelity 
coverage, which is crime coverage related to employee dishonesty. In 
the eyes of any carrier, the more employees you have, the higher their 
risk. Under this new joint employer definition, if a franchisor takes 
responsibility for the total number of employees on the payroll of all 
franchisees--which you can be sure is how insurance companies will 
perceive that ruling, and not on a ``case-by-case'' basis--our premiums 
will either skyrocket or we may be unable to secure coverage at all. 
The risk to the carrier is much greater, in terms of class action 
lawsuits, so insurance companies will have no choice but to charge 
more. Inevitably, that cost will trickle down from the franchisor to 
the franchisee. And the only people who win in that scenario are class 
action lawyers.
    As a franchisor who is now potentially facing new indirect control 
liability over my franchisees, I am faced with countless questions. 
Should I be compelled to start meddling in my franchisees employment 
decisions, such as their hiring, direction, supervision, and training 
practices? Should I distance myself from my franchisees or allow 
existing franchise agreements to expire? As I think about myself, my 
husband, and my two children, the bigger question becomes: Should I 
stop franchising altogether? I cannot afford the risk this would bring 
to our family.
    Under the expanded joint employer standard, Main Street will see 
small businesses replaced by big businesses. There will be fewer local 
businesses because franchises will consolidate or choose to open 
corporate locations instead of franchises. Large companies will be less 
likely to expose themselves to unpredictable liability by contracting 
with small businesses for their products and services. Local 
entrepreneurs will not open new businesses in their local areas as 
small business opportunities decrease. As a result, America's Main 
Street will lose small businesses created by independent owners in 
their local communities.
    Employees will lose too. They will have reduced opportunities to 
learn and advance in a massive corporation than in a locally owned 
business. There will be fewer mentoring opportunities because owners 
will be in distant corporate headquarters. They will earn lower wages 
because they are not advancing. And they will enjoy less workplace 
flexibility because they will no longer be managed by small business 
owners in their hometown, but rather by corporate management in faraway 
headquarters.
    This issue is undoubtedly confusing. As we heard at last week's 
House hearing, labor law scholars and even NLRB members cannot agree 
what the impact of this ruling will be on my business. The Board who 
implemented this new ruling didn't bother clarifying it. My concerns 
are many, but they boil down to this: Why are businesses like mine not 
being given a fair shake by our government? Why can't we have a 
government that supports small businesses? Why are small business 
owners facing the artificial threat of losing our businesses because of 
unelected bureaucrats? All we want is a commonsense solution so we can 
continue to grow our businesses in the communities we care about, and 
in so doing, contribute something to our world. Certainly, we can find 
more clarity in a one sentence piece of legislation than in an arcane 
regulatory body's 50-page decision.
    In response to our concerns about our livelihoods, some academics 
and legal scholars have practically patted small business owners like 
me on the head and said ``Don't worry, the NLRB will make its decisions 
on a `case-by-case basis.' '' Case-by-case inconsistency based on an 
unpredictable ``indirect'' control joint employer standard makes small 
business owners fear when we might be in the crosshairs of regulators. 
Small business leaders deserve more certainty and protection from 
Senators than the NLRB and its apologists provide.
        freshii memorandum offers no comfort to small businesses
    While the NLRB's BFI decision has created tremendous uncertainty 
and fear within the small business community, we heard from some 
advocates at the U.S. House subcommittee hearing on September 29, 2015 
that there is no reason for franchise business people to be concerned. 
Certain witnesses told the U.S. House subcommittee that the BFI 
decision does not involve franchising, but they contended that the more 
important recent NLRB opinion to franchising involved a franchisee 
called Freshii.
    The Freshii advice memorandum is simply a distraction. While I am 
not an attorney, I do understand that the Freshii advice memorandum was 
issued in May 2015 not by the NLRB, but rather by the Division of 
Advice, which is part of the General Counsel's office of the NLRB. The 
distinction is that the General Counsel is the prosecutor and the Board 
members are the judges. The General Counsel's office wrote the Freshii 
advice memo, and the Board members decided the BFI case.
    Mr. Chairman, importantly, the Freshii memorandum does not have the 
force of law. The BFI decision does. Freshii deals with one specific 
case, which is not being prosecuted, while BFI has been litigated and 
applies to all industries and all kinds of contracts held by 
businesses, small and large. And importantly, while the BFI decision 
was a contracting case, every franchisor-franchisee relationship is 
based on a contractual franchise agreement. Franchising is contracting.
    As I've previously mentioned, this issue may seem confusing to 
members of the committee, and it is also confusing to small business 
owners. And that is the point: confusion produces uncertainty and more 
litigation and less growth. Hard-working local business owners need the 
common sense clarity of S. 2015.
             need for this legislation cannot be overstated
    All Senators will soon have an opportunity to stand up for small 
businesses in their States and support S. 2015. There is no time to 
lose. Prior to the BFI decision, some elected leaders told concerned 
small business owners not to worry and, effectively, ``Let's wait for 
BFI to come out.'' Now, too many Members of Congress are saying, ``It's 
too soon after BFI came out to rush to judgment.'' I cannot overstate 
the urgency needed in responding to a dangerous, unpredictable 
``indirect'' control standard. What the NLRB has done is establish a 
nebulous joint employer doctrine that allows it to target any business 
relationship it wants. Which one of our small businesses will be their 
next target?
    Mr. Chairman, as I've outlined in this testimony, there are real-
world consequences to this ruling. Senators who refuse to support the 
one-sentence ``Protecting Local Business Opportunity Act'' will have to 
explain to their constituents why companies like mine may be liable for 
workers I don't even employ; why franchisees can no longer get 
Employment Practices Liability Insurance; why franchisees may lose 
operational control of the stores they established and built; why 
franchisees find that their franchise agreements are not being renewed; 
and why small business livelihoods are being taken away. The fact is, 
this legislation means everything to us and our futures. We need your 
help. I need your help.
    My grandfather was an entrepreneur. My father was an entrepreneur. 
I have created jobs in my own State through the growth of my company, 
and I now give the opportunity to countless business women to also own 
their own business through franchising. I want this freedom and 
opportunity for my son and daughter should they choose to pursue the 
American Dream by starting their own business.
    Thank you Mr. Chairman, for recognizing and responding to an 
overreach by another branch of the Federal Government by authoring S. 
2015. I urge all members of this committee to support locally owned 
businesses in your States by working to enact the ``Protecting Local 
Business Opportunity Act.'' I look forward to answering any questions 
you may have.

    The Chairman. Thank you, Ms. Stockeland.
    Mr. Martin.

    STATEMENT OF EDWARD MARTIN, PRESIDENT/CEO, TILSON HOME 
                    CORPORATION, AUSTIN, TX

    Mr. Martin. Thank you, Chairman. Good morning. Thank you 
for the opportunity to testify today. My name is Eddie Martin. 
I am a home builder from Austin, TX, and president and chief 
executive officer of Tilson Home Corporation.
    I have been active in the National Association of Home 
Builders throughout my career. The NAHB is also a member of the 
Coalition to Save Local Businesses, which was formed to protect 
the traditional joint employer standard. I am honored to 
participate in this hearing.
    I have over 30 years of experience in the home building 
industry. Tilson Homes has been a family-owned and -operated 
company since 1932. We currently have 140 employees with a wide 
range of disciplines, including construction supervisors, 
design and drafting professionals, warranty tech, and 
administrative staff.
    Beyond our full-time staff, Tilson contracts with 287 
companies to perform a range of specialized services that are 
required to build a home, like roofers, framers, and cleaners. 
On average, each of our contractors has about 15 employees.
    Because we contract with so many small companies, we are 
very concerned about the potential impact of NLRB's Browning-
Ferris 's decision. The Browning-Ferris' decision leaves 
employers guessing over how much indirect control constitutes a 
joint employer.
    Of particular concern to me is whether basic business acts, 
like choosing a project's completion date or scheduling an 
electrician to come to a job site at a certain time, would 
trigger a finding of joint employment. For example, if Tilson 
contracted with a paint company for a home in Austin, TX, we 
would be prevented from telling a subcontractor when to paint 
the walls or even when the walls would be constructed.
    You might argue that indirect or potential control over 
just one essential term of employment, like scheduling, would 
not be sufficient to justify a finding of joint employment. 
Because the new indirect test is so vague and nonspecific, the 
NLRB has not excluded that possibility.
    Browning-Ferris simply does not make sense in the real 
world. I ask the question of whether I have indirect control if 
I ask a contractor to bring on extra staff to make up for 
delays. In an industry that is at the mercy of weather, if rain 
sets my schedule back, shouldn't I be able to ask a contractor 
to increase the labor on the job site without becoming a joint 
employer?
    Browning-Ferris is so ambiguous and creates such blurry 
lines that even a homeowner doing a remodel project could be 
viewed as a joint employer. In the real world, a homeowner is 
going to be involved in decisions regarding when workers begin 
and end the work day and will set deadlines for the completion 
date. Those acts could meet the test of joint employer.
    Or consider a homeowner who has a clogged drain. They may 
call a plumbing company and ask for a specific plumber that 
they've used in the past. Does that homeowner have indirect 
control over staffing by requesting a specific employee and 
then scheduling a time for completion? This new standard is 
fundamentally flawed because it does not provide a clear and 
definite role for determining if a company is a joint employer.
    Home building is highly decentralized, supporting numerous 
local small businesses. Having a large number of such small 
firms in the industry promotes competition, which ultimately 
benefits home buyers by helping them keep construction costs 
down. How can a business like mine work with hundreds of other 
businesses to navigate this maze of uncertainty?
    If the goal of the NLRB is to put small firms out of 
business, then congratulations are in order. This ruling may 
very well do that. Ultimately, less competition among small 
firms leads to higher home prices for consumers. Congress must 
act quickly to restore the traditional definition of joint 
employment so that companies like Tilson can have a clear 
picture of our responsibilities.
    Thank you again, and I look forward to your questions.
    [The prepared statement of Mr. Martin follows:]
                  Prepared Statement of Edward Martin
                              introduction
    I appreciate the opportunity to participate in today's hearing on 
the National Labor Relations Board's (NLRB) joint employer standard. My 
name is Ed Martin. I am a home builder from Austin, TX, and the 
president and chief executive officer of Tilson Home Corporation. I am 
also a past president of the Texas Association of Builders and have 
been active in the National Association of Home Builders' (NAHB) 
leadership structure at the local, State and national levels throughout 
my career.
    I have more than 30 years of broad-based experience in the housing 
industry. I have worked as an HVAC technician, a leasing agent, and as 
an attorney representing the multifamily industry. Currently, I am the 
President of Tilson Homes, one of the largest custom home building 
production companies in the United States.
    I began working at Tilson Homes during law school, and the company 
has grown considerably since that time. We currently employ 140 
individuals, including construction supervisors, design and drafting 
professionals, and warranty technicians. The majority of these 
employees are full-time staff with competitive salaries and benefits.
    We are a ``Build on Your Lot'' custom home builder, meaning we 
design and construct every inch of the home to the customer's 
specifications on their own personal property. On average, we build 
300-500 homes per year at an average price of $270,000. This year, we 
will construct approximately 400 homes. Building quality, affordable 
housing for our customers and their families is our top priority.
    The building industry is made up of a vast system of general 
contractors and subcontracted businesses. Beyond our full-time staff, 
Tilson Homes contracts with 287 companies and specialty trades to 
perform a range of services, including HVAC work, cleaning, 
landscaping, and roofing, amongst other specialties.
    It is important for our company and the housing industry at large 
to stay current on policies that affect our ability to contract with 
the myriad of specialty trades needed to build a home. Timely delivery 
of homes is inextricably tied to our ability to promptly schedule 
trades and manage issues that could lead to production delays, such as 
weather-related incidents or labor shortages. For these reasons, we 
have been closely monitoring the developments at the NLRB regarding its 
joint employer standard.
  the new browning-ferris standard is limitless, unrealistic in real 
                                 world
    The new joint employer standard adopted by the NLRB in Browning-
Ferris is alarming. Under the decision, Tilson Homes could be 
considered a joint employer if it has indirect control or the potential 
to exercise control or co-determine the essential terms of a 
subcontractor's employee's employment, including hiring and firing, 
discipline, supervision, scheduling, seniority and overtime, and 
assigning work and determining the means and methods of performance. 
This is a radical departure from the traditional standard of ``direct 
and immediate control.''
    According to the dissenting opinion in Browning-Ferris, all 
business-to-business relationships, including subcontracting, could 
fall under the umbrella of this standard. The NLRB acknowledged that 
issues related to the nature and extent of a putative joint-employer's 
control over particular terms and conditions of employment ``are best 
examined and resolved in the context of specific factual 
circumstances.'' \1\ That being said, one of the factors of significant 
discussion in both the majority and dissenting opinions in Browning-
Ferris is scheduling.
---------------------------------------------------------------------------
    \1\ Browning Ferris Industries at 16.
---------------------------------------------------------------------------
    The discussion of scheduling is important to home builders because 
we are, by our very nature, schedulers. At Tilson Homes, our 
construction supervisors' chief responsibility is to ensure the 
specialty trades are scheduled on time in order to meet the consumer's 
delivery date. With an average of 22 subcontractors needed to build a 
home, we are greatly concerned about our inability to limit our 
exposure to joint liability under the National Labor Relations Act 
(NLRA) under the new Browning-Ferris test.
    The new ``indirect or potential'' control standard in Browning-
Ferris is ambiguous, at best. We question whether the simple act of 
choosing a project's completion date would trigger a finding of joint 
employment. For example, if Tilson Homes contracted with a painting 
company for a home in Austin, would we be prevented from telling the 
subcontractors when to paint the walls or even when the walls would be 
constructed? Would we be prevented from scheduling installation of the 
fire sprinklers or cabinets? Would the roof be completed in time for 
the codes inspector to visit? This would be akin to ordering a pizza, 
but allowing the delivery service to show up at the driver's 
discretion.
    It is also common for general contractors to request additional 
labor or time on the job site when weather-related delays jeopardize 
deadlines. Would the act of requesting two additional workers to get a 
deck installed trigger a finding of joint employment? If a project gets 
delayed due to heavy rainfall, would I not be able to tell the 
contractor to double his labor and meet the construction deadline? If I 
know one of the trades' employees is a diligent and efficient worker, 
would I not be able to request the specific worker on my job site? 
Would it be fair for the NLRB to prohibit this worker from being 
requested?
    Let us take another example from a typical relationship between a 
homeowner and a remodeler. If I am, as a homeowner, doing a renovation 
of my bathroom, I may very well meet the standards set by Browning-
Ferris as a joint employer. In the real world, the homeowner is going 
to be involved in decisions regarding when the workers begin their day, 
leave for the day, and will generally set deadlines for project 
completion. If, as the homeowner, I am dissatisfied with the work 
product, I will not hesitate to fire the company doing the work. If I 
am uncomfortable with one of the workers coming into my home, I will 
ask the company to send someone else. This is not atypical for a 
remodeling project, but Browning-Ferris creates such blurry lines that 
a homeowner could be viewed as a joint employer in certain 
circumstances.
    Under the new standard, I believe that each of these factors could 
be assessed in a finding of joint employment. It could be argued that 
indirect or potential control over just one of the essential terms of 
employment, such as scheduling, would not be sufficient to justify a 
finding of joint employment. The NLRB, however, has not excluded such a 
possibility. In reality, businesses could be found to be joint 
employers of another company's workers by merely doing one of the 
aforementioned actions--scheduling or requesting additional labor or 
even a specific worker. There is no certainty or predictability 
regarding the identity of the employer under this new standard. It is 
fundamentally unrealistic.
            browning-ferris will harm housing affordability
    The Nation's housing markets are beginning to see widespread 
consistent, sustainable growth. Home builders are major job creators. 
Currently, the industry employs 694,000 individuals in the builder 
category and 1.761 million as residential specialty contractors, for an 
industry total of 2.46 million. These workers and entrepreneurs are 
spread out across the Nation. Since the start of 2014, 201,000 jobs 
have been added by home builders and remodelers. More are expected with 
continued gains in construction activity.
    In order to meet the housing needs of a growing population and 
replacement requirements of older housing stock, the industry should be 
constructing about 1.4 million new single-family homes each year and 
more than 1.7 million total housing units. In comparison, home builders 
in 2014 constructed only 647,000 single family homes and 354,000 
multifamily units.
    According to NAHB estimates, construction of 1,000 single family 
homes creates 2,970 full-time equivalent (FTE) jobs. Similarly, 1,000 
new multifamily units results in 1,130 FTE jobs and $100 million in 
remodeling expenditures creates 890 jobs. This means as we return to 
normal levels, home builders will have millions of jobs to fill. 
According to the most recent release of the NAHB/First American Leading 
Markets Index, the U.S. market is running at 92 percent of normal 
economic and housing activity. As the recovery continues, there will be 
millions of more jobs in home building and related trades. Congress 
should consider policies that support a continued housing recovery.
    Policies that reduce labor market flexibility, such as those that 
limit the use of independent contractors, will reduce the number of 
local home building firms. The industry is highly decentralized, 
supporting a large number of local, competitive firms.\2\ At Tilson 
Homes, each of the specialty trades we contract with has an average of 
15 employees, varying from 5 to 150 employees. Besides being a sector 
that supports local small businesses, a large number of such small 
firms in the industry promotes competition, providing a benefit for 
prospective home buyers.
---------------------------------------------------------------------------
    \2\ As of 2012 (the most recent data available), there were 48,557 
residential construction firms. See ``Construction Job Openings Steady, 
Hiring Slowing'' by Robert Dietz at http://eyeonhousing.org/2015/09/
construction-job-openings-steady-hiring-slowing/.
---------------------------------------------------------------------------
    The Browning-Ferris decision will make home builders employers of 
other company's workers. The decision calls into question the very 
basic idea of what it means to be a business. Employers will be forced 
to re-examine their entire business model since it affects their 
responsibilities not only at the NLRB, but with other Federal agencies 
such as the Internal Revenue Service, the U.S. Department of Labor, or 
for the purposes of the Affordable Care Act.
    Without the human resources departments typical of large firms, 
small firms will find it challenging to compete. This will lead to a 
centralization of the industry, with less competition among small firms 
and higher home prices. Decentralization of the market is better for 
the housing recovery because more competition among small firms will 
yield more affordable housing options for consumers. If the goal of the 
NLRB is to put small home builders out of business, this may very well 
be the outcome.
                               conclusion
    Codifying the NLRB's traditional definition of ``direct and 
immediate control'' will provide certainty and predictability of the 
identity of the employer. If left unchecked, the Browning-Ferris 
decision will be damaging to the marketplace and housing affordability. 
For these reasons, I strongly encourage Congress to restore the 
traditional definition of joint employment and ensure a level playing 
field for all businesses. It is imperative that our government does not 
act to raise the cost of housing through policies that limit the 
ability of businesses to organize as independent contractors.
    Thank you again for the opportunity to testify today.

    The Chairman. Thank you, Mr. Martin.
    Mr. Kisicki.

 STATEMENT OF MARK G. KISICKI, SHAREHOLDER, OGLETREE DEAKINS, 
            NASH, SMOAK & STEWART, P.C., PHOENIX, AZ

    Mr. Kisicki. Thank you, Chairman Alexander and Ranking 
Member Murray. I appreciate the opportunity to be here and 
testify about this very important legislation.
    The Protecting Local Business Opportunities Act would amend 
the National Labor Relations Act, but it would accomplish far 
more than its title or its simple language suggests. It would 
require the NLRB to employ an ordinary meaning of the term, 
employer, when interpreting the Act, just as Congress intended, 
not the far-fetched definition that the Board just adopted in 
BFI or Browning-Ferris.
    The touchstone of the National Labor Relations Act is the 
right of employees, as a group, to collectively decide if they 
want union representation to act on their behalf collectively, 
or if they want to deal directly with their employer on an 
individual basis. In order for them to exercise that right and, 
indeed, for employers to know what their rights and obligations 
under this law are, it is of fundamental importance to be able 
to identify who is the employer of any particular group of 
employees.
    Yet the Board has limited who can be defined as an 
employer, and, in fact, Congress has limited who can be defined 
as an employer to just one employer of any particular unit. 
That employer can be two companies acting together as an 
employer, but it can only be one employer.
    Because it's so important for employees and employers to 
know their rights and the limits of this act, defining who is a 
joint employer is necessary. The Board, however, failed to 
define what a joint employer was or provide any clear standards 
until 1984, when it finally did so, and it adopted the ordinary 
meaning that we all understand constitutes an employer. It's 
the entity that actually exercises direct and immediate control 
over significant terms and conditions of employment, the things 
that we all associate with an employer, the ability to hire, to 
direct the employee by supervision, to reward the employee 
through compensation, and, when necessary, to discipline and 
discharge.
    In Browning-Ferris, however, the Board undid that clarity 
that had existed under this Act, uninterrupted for 30 years. It 
adopted a new standard that, in reality, is no standard at all. 
Employers and, indeed, no union can be comfortable thinking it 
can determine who is a joint employer under this standard, 
because the NLRB failed to give us any guidance as to how this 
very nebulous standard is going to be applied.
    For example, the new joint employer standard is a two-part 
test. The first part of the test is itself another multi-part 
test, and the Board failed to give us any standard as to how 
those factors would be weighed or evaluated.
    In fact, the standard that the Board adopted, the common 
law test, is, in fact, rooted in the common law. It was a test 
that was developed not to determine an employer-employee 
relationship, but to distinguish between employees and 
independent contractors. When there's no question that 
individuals at issue are somebody's employees, this test does 
very little to help us figure out whose employees they actually 
are.
    Moreover, the Board failed to give us any guidance as to 
how it would weigh the remaining factors of this test that are 
actually relevant once we conclude that we're dealing with an 
individual who is somebody's employee. The Board left that 
entirely to its own discretion in future cases and the 
discretion of its general counsel.
    One thing that the Board did make clear, however, in 
Browning-Ferris, is that indirect control by one company over 
another's employees, or the potential to control them, is 
enough to create a joint employer standard and a relationship 
as a joint employer. That standard is inherently nebulous, 
because the ability to exercise indirect control or the ability 
to potentially control employees is inherent, at least to some 
extent, I would posit, in every business relationship where one 
employer is supplying goods or services to another.
    It will take years of litigation and cost before we have 
standards that can be applied consistently and can be 
understood by all the constituents of this Act, employers, 
unions, and employees alike. Until then, this standard that the 
Board has adopted in BFI will do violence to the very purpose 
of the National Labor Relations Act, which is to provide 
stability in labor relations.
    Further undermining the purpose of the Act is the damage 
this new standard will cause to the collective bargaining 
process. Bargaining initial contracts is a very difficult and 
time-sensitive, time-consuming commitment. Typically, it takes 
more than a year. This new standard is going to put together 
employers that may have some interests in common, but certainly 
have competing interests, because they are, in fact, different 
employers. It is going to require them to have to come to an 
agreement as to what the appropriate----
    The Chairman. Could you wind up your testimony, please?
    Mr. Kisicki. Thank you, Senator--what the appropriate terms 
of a collective bargaining agreement should be. Congress should 
act to restore stability in labor relations to protect the 
National Labor Relations Act's fundamental purpose by adopting 
this legislation.
    Thank you.
    [The prepared statement of Mr. Kisicki follows:]
                Prepared Statement of Mark G. Kisicki\1\
                          i. executive summary
    The Protecting Local Business Opportunity Act is a simply worded 
amendment to the National Labor Relations Act (the ``NLRA'' or ``Act'') 
that would accomplish far more than its name and simplicity suggest. It 
would require the National Labor Relations Board (the ``NLRB'' or 
``Board'') to give the term ``employer'' its ordinary meaning--as 
Congress intended not the ``far-fetched'' one that the Board just 
adopted in Browning-Ferris Industries of California, Inc. d/b/a BFI 
Newby Island Recyclery, 362 NLRB No. 186 (August 27, 2015) (``BFI''). 
Although the Board's new standard might serve a political agenda in the 
short run, in the long run, it will cause serious damage to large 
sections of our economy and to the Act itself.
---------------------------------------------------------------------------
    \1\ Mr. Kisicki is a shareholder in the law firm of Ogletree, 
Deakins, Nash, Smoak & Stewart, P.C. (``Ogletree Deakins''), one of the 
Nation's largest law firms dedicated to representing management in 
labor and employment matters. Mr. Kisicki is a member of the ABA 
Section of Labor and Employment Law Committee on Practice & Procedure 
Under the NLRA. The statements and opinions contained in this testimony 
are those of Mr. Kisicki personally and are not being presented as 
views or positions of Ogletree Deakins or any of the firm's clients.
---------------------------------------------------------------------------
    Notably, the Act never references the term ``joint employer,'' and 
expressly limits the Board's ability to certify bargaining units to 
groups of individuals who are employed by a single employer. 29 U.S.C. 
151, et seq. The Board, however, recognized the reality that two 
entities could, in fact, exercise such control over a group of 
employees' terms and conditions of employment that, collectively, the 
two employers should be deemed ``the employer'' of those employees. 
Initially, the Board applied the approach to situations where the two 
entities were not truly separate, and developed the ``single employer'' 
test for such situations. In the 1960s, the Board expanded on that 
approach by recognizing that wholly distinct business entities could, 
despite their separate identities, collectively control as a ``joint 
employer'' a group of employees' terms and conditions of employment. 
The Board, however, failed to articulate any consistent standard for 
determining when two entities would be found to be a joint employer. 
The lack of any readily identifiable standard led to confusion, even by 
the Board. See, e.g., NLRB v. Browning-Ferris Indus. of Pa., Inc., 691 
F.2d 1117 (3d Cir. 1982) (noting that ``there has been a blurring of 
these concepts at times by some courts and by the Board'').
    The Board soon adopted the standard articulated in the Third 
Circuit's 1982 Browning-Ferris Industries decision and applied it 
consistently for more than 30 years. In its recent BFI decision, 
however, the Board reversed 30 years of established labor law to adopt 
a new but amorphous standard for determining when two legally separate 
companies jointly employ a group of employees. In particular, the Board 
adopted a two-part test. The first part of that test is, itself, a 
multi-factor test that the Board asserts determines whether a ``common 
law employment relationship'' exists between a particular group of 
workers and the putative joint employer. If so, and ``the putative 
joint employer possesses sufficient control over those employees' 
essential terms and conditions of employment to permit meaningful 
collective bargaining,'' then both employers will be deemed to jointly 
employ the unit of employees. Id. at p. 2. The common law employment 
test the Board adopted, however, is not particularly helpful for 
identifying ``the employer'' of a group of employees because that was 
not the purpose it was developed to serve. That test was not developed 
to identify which one (or more) of several entities was an individual's 
employer, but to determine whether an individual was an employee or an 
independent contractor.\2\ When there is no dispute that the workers in 
a group are, in fact, employees of some entity, many of the factors of 
the common law test are already satisfied and provide no meaningful 
guidance to help determine which particular entity (or entities) is (or 
are) their employer(s). Also, the common law test the Board purportedly 
incorporates was rooted in judicial efforts to resolve questions of 
liability for the torts committed by individuals while acting on behalf 
of others, not in any effort to define statutory employer-employee 
relationships. Indeed, the unique nature of the NLRA, which grants and 
protects the rights to employees as a group, not as individuals, makes 
the application of the Board's proposed test ill-suited to the purposes 
of the Act and yields results antithetical to the Act's goals.
---------------------------------------------------------------------------
    \2\ Cf. Clackamus Gastroenterology Associates v. Wells, 538 U.S. 
440, 444 n.5 (2003) (in coming as close as the Court ever has to 
defining the term ``employer'' under a labor or employment law, the 
Supreme Court concluded that the common law factors for determining 
whether an individual is an employee [the factors the Board's new 
standard expressly adopts] were ``not directly applicable to this case 
[under the Americans with Disabilities Act] because we are not faced 
with drawing a line between independent contractors and employees. 
Rather, our inquiry is whether a shareholder-director is an employee 
or, alternatively, the kind of person that the common law would 
consider an employer'').
---------------------------------------------------------------------------
    In addition, the Board's decision in BFI fails to provide any 
guidance as to how the common law test is to be applied. It does not, 
for example, explain how its particular factors are to be weighed and 
balanced. It provides no help to employees, employers, unions, or the 
Board's own regional directors in enabling them to determine, with any 
reasonable certainty, what entity is, will or should be deemed to be a 
joint employer. Instead, BFI holds that an entity's indirect control 
over another's workers is sufficient in itself to render that entity a 
joint employer of the employees. BFI also dictates that the theoretical 
ability one entity has to control another's workers, even if not 
exercised, is also sufficient to establish a joint employer 
relationship. Indirect control and the unexercised theoretical 
potential to control another company's workers are inherent aspects of 
almost every business relationship where one entity provides goods or 
services to another. Moreover, the right to control the workers of 
another company is always inherently reserved by operation of law to 
any business that owns or leases property on which another company's 
workers perform their jobs. Obviously, the extent of such indirect 
control or unexercised right to control varies dramatically in business 
relationships. BFI gives employers, employees and unions no basis for 
guessing how much indirect control or reserved but unexercised right to 
control will be deemed sufficient by the NLRB to find that two entities 
are joint employers.
    Being able to determine, with a degree of certainty, the statutory 
``employer'' of a particular unit of employees is crucial under the 
NLRA for employers, employees, and unions alike. Without reasonable 
certainty, companies will be unable to know what legal rights and 
obligations they have and what risks they have assumed. Without being 
able to identify their employer with reasonable certainty, employees 
will not know the extent of their rights under the Act, and unions will 
not know whether their picketing is legal or illegal under the Act. The 
lack of reasonable certainty will, in itself, have profound economic 
consequences on businesses that cannot make rational decisions in the 
marketplace because they have no meaningful standards to apply in 
assessing their potential costs, risks and rewards. This lack of 
certainty will adversely affect all businesses, and will 
disproportionately affect small businesses and franchisees by adding 
yet another layer of legal complexity and expense to their 
entrepreneurial efforts. The latter comprise the segment of the 
employer community that has led the country in creating jobs, and in 
providing the greatest opportunity for women and minorities to move 
from being employees to becoming business owners. Moreover, that same 
lack of certainty undoubtedly will lead to a serious instability in 
labor relations, undermining the most fundamental purpose of the Act.
    For more than 30 years, the Board has provided that stability by 
giving all of its stakeholders the ability to know, with reasonable 
certainty, who employed any particular group of workers. The Board's 
prior standard deemed two separate entities to be joint employers of a 
unit of workers if they shared, or co-determined, ``the essential terms 
and conditions of employment'' of those workers in a manner that 
``meaningfully affects matters relating to the employment relationship 
such as hiring, firing, discipline, supervision, and direction.'' TLI, 
Inc., 271 NLRB 798 (1984). Moreover, the Board provided further clarity 
to that standard by requiring that the putative joint employer's 
control over the employment matters was direct and immediate. Id. 
(citing Laerco Transp., 269 NLRB 324 (1984)).
    Remarkably, the Board's stated reason for overturning the stability 
that its 30-year-old standard had provided is to address what it 
perceives to have been the prior standard's failure to ``keep pace with 
changes in the workplace and economic circumstances'' in light of the 
``more than 2.87 million of the Nation's workers employed through 
temporary agencies.'' \3\ However, the standard the Board has been 
applying for the past 30 years already provided that protection. Under 
the pre-BFI standard, contingent employees of one company who worked at 
another and were under the second company's direct supervision--as is 
almost always the case--already would have been deemed to be jointly 
employed by both companies. No change in the standard was necessary for 
the Act to accommodate the changes in employment patterns that the 
Board posits as the rationale for its radical revision of a long-
settled standard. In the absence of any legitimate rationale, the 
unquestionable dislocation and uncertainty that will ensue by such 
revision cannot be justified.
---------------------------------------------------------------------------
    \3\ Board Issues Decision in Browning-Ferris Industries, Aug. 27, 
2015; https://www.nlrb.gov/news-outreach/news-story/board-issues-
decision-browning-ferris-industries.
---------------------------------------------------------------------------
    Unless Congress acts through this proposed amendment, it will take 
years of litigation and untold cost to determine how the NLRB will 
apply its new standard to the diverse business arrangements that exist 
today. In the meantime, the economy--and the fundamental purposes of 
the Act itself--will have been seriously damaged.
                              ii. analysis
A. For Thirty Years Before BFI, the Board Applied a Clear and 
        Appropriate Standard For Determining Joint Employer Status.
    For more than three decades before BFI, the Board provided 
stability in labor relations for all parties by applying a clear and 
appropriate standard for determining when two separate entities were 
joint employers under the Act. That standard required that each entity 
exert direct and significant control over the same employees such that 
they ``share or codetermine those matters governing the essential terms 
and conditions of employment . . .'' TLI, Inc., 271 NLRB 798, 798 
(1984). The Board applied that test by evaluating whether the putative 
joint employer ``meaningfully affects matters relating to the 
employment relationship such as hiring, firing, discipline, supervision 
and direction'' and whether that entity's control over such matters is 
direct and immediate. Id., (citing Laerco Transp., 269 NLRB 324 
(1984)).
    By tying joint employer status to direct and immediate control over 
the fundamental aspects of the employment relationship--hiring, firing, 
discipline, supervision and direction--the Board's pre-BFI standard 
ensures that the joint employer is actually involved in matters 
material to the scope of the Act, and is not merely engaged in a market 
relationship that may have an indirect impact upon employees. 
Additionally, by requiring that the control be direct and immediate, 
the standard assigns joint employer status only to those entities with 
the actual authority to impact the employment relationship, the 
singular focus and subject matter of the Act.
    In articulating the joint employer standard in Laerco and TLI, the 
Board provided further clarity by applying it to the detailed, 
particular facts of each case. Laerco involved a group of drivers that 
another company, CTL, supplied to it under a cost-plus contract. 269 
NLRB 324, 325 (1984). CTL made all the decisions regarding hiring, 
discipline and discharge of the drivers it provided. Id. at 324-25. CTL 
also made all legally required contributions and deductions from the 
drivers' paychecks and provided them with benefits. Id. at 325. Once a 
driver was assigned to a Laerco facility, CTL representatives sometimes 
provided the driver with his or her initial job duty instructions; 
however, other times Laerco provided those initial instructions alone 
or with CTL representatives. Id.
    Beyond occasionally providing CTL's drivers with their initial 
instructions, Laerco supplied the drivers' vehicles and required them 
to comply with Laerco's safety regulations. Id. at 324. Under Laerco's 
contract with CTL, Laerco was permitted to establish driver 
qualifications and refuse to accept any drivers provided by CTL. Id. On 
occasion, Laerco pointed out issues regarding the drivers' performance 
to CTL, which CTL then resolved. Id. at 325. CTL supervisors were 
seldom at the Laerco facilities to which CTL assigned its drivers, so 
Laerco provided what little supervision the CTL drivers needed, such as 
directing them where to go for a pick-up or delivery and setting the 
drivers' priorities. Id. Laerco would attempt to resolve minor problems 
that arose for the drivers in the workplace, but CTL handled any 
significant issues. Id. at 326.
    In reviewing the facts of the case, the Board noted:

          The joint employer concept recognizes that two or more 
        business entities are in fact separate but that they share or 
        codetermine those matters governing the essential terms and 
        conditions of employment. [Citing Biore v. Greyhound Corp., 376 
        U.S. 473 (1964) and NLRB v. Browning-Ferris Industries, 691 
        F.2d 1117 (3d Cir. 1982)] Whether an employer possesses 
        sufficient indicia of control over petitioned-for employees 
        employed by another employer is essentially a factual issue. To 
        establish joint employer status there must be a showing that 
        the employer meaningfully affects matters relating to the 
        employment relationship such as hiring, firing, discipline, 
        supervision, and direction. Id. at 325.

    Examining the facts before it in Laerco, the Board held that the 
level of control exercised by Laerco was inadequate to establish that 
Laerco and CTL functioned as a joint employer. Id. Although Laerco 
provided some supervision of the CTL drivers, it was ``of an extremely 
routine nature'' and ``the degree and nature of Laerco's supervision'' 
failed to render it a joint employer. Id. at 326. Moreover, while 
Laerco exercised some control in resolving minor issues raised by CTL's 
drivers,

          ``[A]ll major problems relating to the employment 
        relationship'' were handled by CTL. Id. Consequently, the Board 
        concluded that Laerco was not a joint employer because its 
        control of the CTL employees' terms and conditions of 
        employment was not meaningful, given ``the minimal and routine 
        nature of Laerco's supervision, the limited dispute resolution 
        attempted by Laerco, [and] the routine nature of the work 
        assignments.'' Id.

    TLI, Inc. also involved a situation where one company, TLI, 
provided drivers to another company, Crown. 271 NLRB 798 (1984). Each 
day, Crown directed the drivers as a group about which deliveries to 
make, but the drivers selected their specific assignments based on 
seniority. Id. at 799. The drivers reported their accidents to Crown; 
however, TLI investigated the accidents and determined whether 
discipline was warranted. Id. When a driver engaged in conduct that 
concerned Crown, Crown would give an incident report to TLI and TLI 
conducted its own investigation. Id. Crown did not hire, fire or 
discipline TLI's employees. Id.
    The Board analyzed these facts under the standard set forth in 
Laerco and the Third Circuit's 1982 Browning-Ferris decision and 
determined that,

          ``[A]lthough Crown may have exercised some control over the 
        drivers, Crown did not affect their terms and conditions of 
        employment to such a degree that it may be deemed a joint 
        employer.'' Id.

    The Board found that Crown's daily supervision was not 
``meaningful'':

          ``The supervision and direction exercised by Crown on a day-
        to-day basis is both limited and routine, and considered with 
        [Crown's] lack of hiring, firing, and disciplinary authority, 
        does not constitute sufficient control to support a joint 
        employer finding.'' Id. (emphasis added).

    Furthermore, even though a Crown representative actually attended 
bargaining sessions between TLI and the union and discussed cost 
savings, the Board found his involvement did not amount to sharing or 
co-determining terms and conditions of employment because the Crown 
representative left the actual savings determinations to TLI and the 
union. Id.
    The standard articulated by the Board in Laerco and TLI is clear, 
rational and withstood the test of time for 30 years. Indeed, the 
Board's direct control standard was ``settled law'' since 1984, until 
August 27, 2015. See Airborne Express, 338 NLRB 597, n.1 (2002). Over 
that span of years, the Board developed a coherent body of law from 
Laerco and TLI that elucidates the facts, circumstances and scenarios 
under which an entity becomes a joint employer.\4\ Reviewing courts 
likewise have adhered to the Board's bright-line test for decades.\5\
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    \4\ See, e.g., Aldworth Co., 338 N.L.R.B. 137, 139-40 (2002) 
(affirming ALJ's finding of joint employer relationship because 
``[b]ased upon a thorough review of the record, the judge determined 
that Respondents Aldworth and Dunkin' Donuts together share control 
over the hiring, firing, wages, benefits, discipline, supervision, 
direction and oversight of the truck drivers and warehouse employees 
and thereby meet the standard for joint employer status''); Mar-Jam 
Supply Co., 337 N.L.R.B. 337, 342 (2001) (affirming finding of joint 
employment after analyzing all terms and conditions of employment and 
finding that putative employer directly hired and fired employees, 
solely supervised and directed the employees with regard to work 
assignments, time, attendance and leave, and disciplined the 
employees); C. T Taylor Co., 342 N.L.R.B. 997, 998 (2004) (affirming 
finding of no joint employment where none of essential terms and 
conditions of employment were controlled by putative employer); Mingo 
Logan Coal Co., 336 N.L.R.B. 83, 95 (2001) (stating that the putative 
joint employer meaningfully affected all five essential terms and 
conditions of employment); Villa Maria Nursing and Rehab. Center, Inc., 
335 N.L.R.B. 1345, 1350 (2001) (affirming finding of no joint employer 
relationship where ``Villa Maria does not have any authority to hire, 
fire, suspend or otherwise discipline, transfer, promote or reward, or 
lay off or recall from layoff ServiceMaster's employees. Villa Maria 
does not evaluate them or address their grievances.''); Windemuller 
Elec., Inc., 306 N.L.R.B. 664, 666 (1992) (affirming ALJ's finding of 
joint employment based on facts that putative joint employer shared or 
co-determined hiring, firing, discipline, supervision and direction); 
Quantum Resources Corp., 305 N.L.R.B. 759, 761 (1991) (affirming joint 
employer finding and specifically adding to Regional Director's 
decision that FP&L's control over hiring, discipline, discharge and 
direction ``[t]ogether with the close supervisory relationship between 
FP&L and [contract] employees . . . illustrate[s] FP&L's joint employer 
status''); D&S Leasing, Inc., 299 N.L.R.B. 658, 659 (1990) (finding 
joint employment based on facts that putative joint employer shared or 
co-determined the hiring, firing, discipline, supervision and direction 
of contract employees); G. Heileman Brewing Co., 290 N.L.R.B. 991, 1000 
(1988) (affirming joint employer finding based on the fact that G. 
Heileman shared or co-determined all five essential terms and 
conditions of its contract employees' employment, and in addition 
negotiated directly with the union); Island Creek Coal, 279 NLRB 858, 
864 (1986) (no joint employer status because there was ``absolutely no 
evidence in this record to indicate that the normal functions of an 
employer, the hiring, firing, the processing of grievances, the 
negotiations of contracts, the administration of contracts, the 
granting of vacations or leaves of absences, were in any way ever 
performed by [the putative joint employer]).
    \5\ See, e.g., SEIU Local 32BJ v. NLRB, 647 F.3d 435, 443 (2d Cir. 
2011) (finding that supervision which is ``limited and routine'' in 
nature does not support a joint employer finding, and that supervision 
is generally considered ``limited and routine'' where a ``supervisor's 
instructions consist primarily of telling employees what work to 
perform, or where and when to perform the work, but not how to perform 
the work.'') (citation omitted); AT&T v. NLRB, 67 F.3d 446, 451 (2d 
Cir. 1995) (finding no joint employment where only one indicium of 
control (participating in the collective bargaining process) existed 
and there was no direct and immediate control over hiring and firing, 
discipline, supervision or records of hours, payroll, or insurance); 
Holyoke Visiting Nurses Ass'n v. NLRB, 11 F.3d 302, 307 (1st Cir. 1993) 
(finding joint employer status where the putative joint employer had 
``unfettered'' power to refuse to hire certain employees, monitored the 
performance of referred employees, assumed day-to-day supervisory 
control over such employees, gave such employees their daily 
assignments, reports, supplies, and directions, and held itself out as 
the party whom employees could contact if they encountered a problem 
during the work day); Carrier Corp. v. NLRB, 768 F.2d 778, 781 (6th 
Cir. 1985) (finding joint employer status where the putative joint 
employer ``exercised substantial day-to-day control over the drivers' 
working conditions,'' was consulted ``over wages and fringe benefits 
for the drivers,'' and ``had the authority to reject any driver that 
did not meet its standards'' and to direct the actual employer to 
``remove any driver whose conduct was not in [the putative joint 
employer's] best interests.'').
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    The stability and predictability provided by the Board's pre-BFI 
standard has allowed thousands of businesses, large and small, to 
structure their business relationships in a sensible and optimal 
fashion, subcontracting discrete tasks to other companies with 
specialized expertise to provide services that would otherwise be far 
more difficult or costly. At the same time, that joint employer 
standard did not deny any employee the right to union representation 
granted by the Act, nor prevent any union from bargaining with the 
employer directly involved in setting the terms and conditions of 
employment in a workplace.
B. The BFI Standard for Determining Joint Employer Status is Amorphous 
        and Contrary to the Language, Legislative Intent and 
        Fundamental Policies of the Act.
    As the Supreme Court has opined,

          ``[A] fundamental principle in our legal system is that laws 
        which regulate persons or entities must give fair notice of 
        conduct that is forbidden or required.''

    FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317-18 
(2012) (holding due process required fair notice even when regulations 
imposed no criminal penalty or monetary liability). Inherent in the 
notion of due process is the requirement that the obligation be clear 
enough that citizens can reasonably ascertain to whom it applies.
    The ``standard'' the Board adopted in BFI, however, is no standard 
at all; rather, it merely provides for the NLRB to make post-hoc 
conclusions drawn after results-oriented inquiries. It fails to explain 
how the common law test--which was never developed to resolve disputes 
about which entity was an individual's employer--is to be applied to 
any of the numerous business arrangements that pervade our economy, 
much less, how any particular factor is to be weighed and the scales 
balanced. Absent such guidance, that standard fails to provide the 
notice required by due process.
    Rather than provide meaningful guidance that reasonably limits the 
new joint employer standard, the Board has demonstrated through other 
recent cases that its view of that standard is expansive and untethered 
to either the clear language or the intent of the NLRA. In CNN America, 
Inc., 361 NLRB No. 47 (2014), for example, the Board found CNN to be a 
joint employer of employees provided by a contractor (TVS), despite the 
fact that the Board had certified TVS as ``the employer'' of those 
employees some 20 years earlier. As noted above, the Act envisions that 
a group of employees has one and only one employer. Although two 
employers can be deemed to jointly employ a group of employees, it 
belies the language and purposes of the Act for the Board to ignore its 
own certification as to who is ``the employer'' of a group of 
employees. The Board has processes that can be used to modify a 
certification when economic situations change, but, in the absence of 
the certification being modified, employers must be able to rely on the 
Board's certification to conclude whether they are, or are not, the 
employer of any particular group of employees.\6\ Yet, despite its own 
certification to the contrary, the CNN Board found CNN to be a joint 
employer liable for back pay awards for approximately 300 highly 
compensated individuals for up to a 10-year period of time. If a Board 
certification of employer status can be ignored at the whim of a 
subsequent NLRB on a joint employer theory, then it will be, as a 
practical matter, impossible for employers to determine their rights 
and potential obligations under the Act. Moreover, the 10-year lapse of 
time it took the Board to resolve CNN is indicative of the lengthy 
delays we can expect before countless dollars are spent by employers to 
figure out what the parameters of the Board's new joint employer 
standard are.
---------------------------------------------------------------------------
    \6\ A union or employer, for example, may file an ``AC Petition'' 
asking the Board to modify a prior certification. NLRB's Rules and 
Regulations, 29 C.F.R. 102.60(b).
---------------------------------------------------------------------------
    Indeed, the BFI standard is incapable of clear application because 
business relationships today typically involve an agreement or physical 
realities that necessarily but indirectly result in one entity 
impacting the terms and conditions of employment for the other's 
employees. Service contracts, in particular, often involve significant 
control by the customer over the service provider and, when services 
are performed on the customer's property, the amount of control is even 
greater. That control, in turn, can indirectly impact the service 
provider's employees' terms and conditions of employment. Hours the 
services are performed, the skills of the individuals who will perform 
them and conduct requirements to ensure the customer's employees, 
property and its own customers are reasonably protected--not to mention 
the amount the customer is willing to pay for the services--all 
necessarily impact the service provider's employees' terms and 
conditions of employment. Under the Board's new test, the customers in 
such cases apparently would be deemed to jointly employ the service 
providers' employees. Yet, it would be absurd to treat a homeowner as 
the joint employer of the workers a contractor hires to remodel her 
home simply because she and the contractor have agreed to a specified 
amount she will pay for the services, she controls the location, 
environment and hours where and when the work will be performed, and 
what the individual must do to leave her home clean and free of hazards 
at the end of every day.
    The Board's assertion that its indirect control test is limited 
because it applies only to common law employees is simply incorrect 
given that the multi-factor test it adopted provides no basis for 
determining who an employee's employer is. Moreover, the fact that the 
Board applied that test on the facts of this case demonstrate that the 
purported common law test can be manipulated to find almost any company 
is a joint employer if it contracts with another for services to be 
rendered on its property. In particular, Leadpoint hired, fired, 
disciplined, paid and supervised its employees. Yet, it provided 
services that were part of BFI's business operation on its property 
during hours BFI mandated the services be performed, and the Board had 
no difficulty concluding that BFI was a joint employer of Leadpoint's 
workers under its new standard.
            1. The BFI Standard Would Violate the Clear Provisions and 
                    Dictates of the Act
    Although the Supreme Court has never defined the term ``employer'' 
under the Act, it has made it abundantly clear that an employment 
relationship is defined by direct supervision of the putative employee. 
Allied Chemical & Alkali Workers of Am., Local Union No. 1 v. 
Pittsburgh Plate Glass Co., 404 U.S. 157, 167-68 (1971). And in Allied 
Chemical, the Court rejected the Board's attempt to expand the 
definition of the term ``employee'' beyond its ordinary meaning, 
observing that,

          ``It must be presumed that when Congress passed the Labor 
        Act, it intended words it used to have the meanings that they 
        had when Congress passed the Act, not new meanings that, 9 
        years later, the Labor Board might think up. . . . 
        ``Employees'' work for wages or salaries under direct 
        supervision. . . . It is inconceivable that Congress, when it 
        passed the Act, authorized the Board to give to every word in 
        the Act whatever meaning it wished. On the contrary, Congress 
        intended then, and it intends now, that the Board give to words 
        not far-fetched meanings, but ordinary meanings.''

    Id. at 167-68 (quoting H.R. Rep. No. 245, at 18, 80th Cong., 1st 
Sess. (1947) (emphasis in original)). Just as the Board cannot define 
the term ``employee'' in a manner inconsistent with its ordinary 
meaning, it cannot adopt a ``far-fetched'' definition of ``employer'' 
that dramatically expands it by eliminating the fundamental touchstone 
of an employer-employee relationship; namely, direct control of the 
employee.\7\ Cf. NLRB v. Lundy Packing Co., 68 F.3d 1577 (6th Cir. 
1995) (``The deference owed the Board . . . will not extend, however, 
to the point where the boundaries of the Act are plainly breached.''). 
If Congress meant ``employee'' to be defined by the fact that she is 
directly controlled by her employer, it is axiomatic that Congress 
meant ``employer'' to be the person who directly controls the employee. 
Moreover, the Act clearly limits the certification of any bargaining 
unit to employees of a single employer. Although the Board has 
developed the fiction of a single, joint employer, to be consistent 
with the dictates of the Act, its new approach in BFI is utterly 
inconsistent with the clear language of the Act and its policies and 
purposes.
---------------------------------------------------------------------------
    \7\ Similarly, Congress limited the Board's ability to certify a 
unit of employees employed by more than one company in requiring that 
all employees in a unit be employed by a single employer. Oakwood Care 
Ctr., 343 NLRB 659 (2004). Obviously, had Congress intended to allow 
for the certification of a unit of workers with different employers, it 
would have done so by simply adding the two words, ``or employers,'' to 
section 9(b). As noted above, the Board has overcome this limitation by 
utilizing the fictional ``joint employer'' entity. That fiction, as it 
has been applied historically, may be consistent with congressional 
intent. But the fiction that two wholly separate companies constitute a 
``joint employer'' entity cannot be legitimately extended as far as the 
Board directs in BFI such that it includes as a joint employer any 
entity that has the right to control some terms and conditions of 
another's employees without ever having exercised that right. Such a 
definition is inconsistent with any reasonable interpretation of what 
Congress meant by using the singular term, ``the employer,'' in the 
Act.
---------------------------------------------------------------------------
            2. The BFI Joint-Employer Test, in Practice, Will Undermine 
                    the Act's Purpose of Encouraging Effective 
                    Bargaining
    When Congress adopted the Act, it made clear its primary purpose 
was to ``encourag[e] the practice and procedure of collective 
bargaining.'' 29 U.S.C. 151. As noted above, however, a series of 
cases that had expanded the Act's reach beyond what Congress intended 
caused Congress to revisit and substantially revise the Act in ways 
that directly or practically limited the process of collective 
bargaining. For example, Congress amended the Act to protect employee 
rights to not engage in collective bargaining or otherwise support 
unions and it made clear that the Act's reach was not as extensive as 
the Board and Court seemed to believe. Taft-Hartley Act, Pub. L. No. 
80-101, 61 Stat. 136 (1947) (amending 29 U.S.C. 157). Another limiting 
change Congress made through the Taft-Hartley Act was to preclude the 
Board from certifying a unit based solely on the extent to which a 
union had been successful in organizing; instead, the unit must be 
appropriate for bargaining. 29 U.S.C. 159(c). Clearly, the purpose of 
the Act today is not merely to encourage collective bargaining for its 
own sake but, rather, to encourage collective bargaining that can 
meaningfully address the workplace concerns of a group of an employer's 
employees that shares a community of interest.
    In BFI, however, the Board failed to recognize the obstacles 
created by forcing two different businesses to bargain over the terms 
of employment for a group of employees only one of them directly 
controls. Proposed contract terms that might be crucial to one of the 
joint employers, and for which it might be willing to make significant 
concessions, might be irrelevant to, or contrary to the interests of, 
the other. Moreover, some issues that might be significant to the 
union, and which might be acceptable to the direct employer if 
negotiating alone, likely will be barriers to any agreement in a joint-
employer situation because the direct employer will not agree to be 
bound to certain terms when its contract with the other joint employer 
can be terminated on short notice. It belies logic to assume that, 
simply because unions want to have both businesses at the bargaining 
table, more effective bargaining will result. Indeed, precisely the 
opposite is true.
    Viewed in practical terms, the Board's new standard is plainly 
intended, and will inevitably result in changes in the way the two 
businesses negotiate with one another and structure their own business 
relationship, far more than it will facilitate how an employer and its 
employees negotiate and order their employment relationship. Congress 
has made the latter the focus of the Act and its regulation of the 
proper function of the Board. Congress, however, in no way has 
authorized the Board to unnecessarily interfere, impair, or invalidate 
business to business relationships. Yet, under the Board's new 
standard, a general contractor easily could be deemed the joint 
employer of its subcontractor's employees and, if the subcontractor's 
employees are unionized, the general contractor and now joint employer 
could be limited in terminating its relationship with the 
subcontractor, and have an obligation to bargain with the union before 
doing so.
    The problems for effective bargaining caused by forcing two 
different business entities into a bargaining relationship are clear 
because:

          [T]he interests of [the] employers will [ ] necessarily 
        conflict. Unlike joint employers that have explicitly or 
        tacitly agreed to a common undertaking, here the employers are 
        buyer and seller--roles that are complementary in some respects 
        and clearly conflicting in others. Each derives some benefit 
        from the other. However, only the user employer derives the 
        ultimate profit from the work of the employees; the supplier is 
        merely one of many resources utilized in the user's enterprise. 
        The structure of the relationship between these employers is 
        voluntary and contractual. . . . Requiring that the employers 
        also engage in involuntary multiemployer bargaining injects 
        into their relationship duties and limitations beyond those 
        established and allocated in their agreement, creating severe 
        conflicts in the underlying business relationship and rendering 
        impossible the productive collective bargaining the majority 
        envisions.

    M.B. Sturgis, 331 NLRB 1298, 1320-21 (2000) (Member Brame, 
dissenting) (citations omitted). Although Sturgis involved true multi-
employer unit considerations, the Board's new joint-employer test would 
result in nothing more than deeming a multi-employer unit a joint-
employer unit by adjudicatory fiat. And, regardless of whether the 
Board decides to call two different business entities a ``joint 
employer'' even though one does not exercise direct control over the 
other's employees, the practical problems that will arise in collective 
bargaining are no less real than those that exist in what the Board 
currently recognizes as a multi-employer unit.
            3. The BFI Joint-Employer Test, in Practice, Will 
                    Eviscerate the Protections Afforded in Section 
                    8(b)(4) of the Act
    Congress fundamentally re-structured the NLRA in 1947 with the 
passage of the Taft-Hartley amendments. Taft-Hartley Act, Pub. L. No. 
80-101, 61 Stat. 136 (1947). The amendments, for the first time, 
delineated certain actions by unions that would henceforth constitute 
unfair labor practices. Chief among these was a new prohibition against 
unions engaging in secondary boycotts. The statutory prohibition and 
resulting protections are contained in Section 8(b)(4) of the Act, as 
amended. 29 U.S.C. 158.
    The Act reflects the understanding of Congress that employees and 
unions are entitled to, and will, engage in various activities 
including handbilling, picketing and striking to influence employers 
through the economic pressure attendant to such activities. However, 
Congress has also expressly recognized, in particular by enacting 
section 8(b)(4), that the right to exercise such economic leverage is 
not unlimited, and must be closely regulated. When the immediate target 
of that economic pressure is the employer with whom the employees have 
a direct employment relationship and/or a labor dispute, that employer 
is deemed to be the ``primary employer'' and the handbilling, picketing 
and striking is thus deemed to constitute legitimate primary activity. 
When, however, the target of the economic pressure is an employer that 
has a business relationship with the primary employer, that employer is 
deemed to be a ``secondary'' or ``neutral'' employer, and activity is 
deemed to be ``secondary'' and outlawed by section 8(b)(4).
    In enacting section 8(b)(4) Congress made clear that direct, 
primary activity was legitimate and lawful. It made equally clear, 
however, that secondary pressure aimed against neutral employer with 
the object of causing that employer to adversely alter its business 
relationship with the primary employer is unlawful. The prohibitions 
against secondary activity in section 8(b)(4) are designed to protect 
secondary or neutral employers from being enmeshed in the labor 
disputes of the primary employer.
    The Board's new joint employer standard would destroy the concept 
of ``neutrality'' by finding the secondary employer to be a joint 
employer whenever the primary employer is economically dependent on the 
secondary employer. That would be so even though the secondary employer 
has no ability or authority to control the employees' terms and 
conditions of employment or to remedy the union's labor dispute. Under 
the proposed standard, the secondary employer would become a joint 
employer with the primary employer and the protections that Congress 
specifically added to the Act through the enactment of section 8(b)(4) 
would become meaningless.
            4. The BFI Joint Employer Test Will Impose Massive Costs on 
                    Businesses That Do Not Directly Control the Daily 
                    Operations of the Other Joint Employer
    Saddling a putative joint employer with all of the duties and 
responsibilities required of direct employers under the Act could have 
enormous financial and time-consuming consequences. For example, large-
scale franchisors who retain only the control required to protect their 
brand, trade name and trademark could be drawn into hundreds of 
collective bargaining relationships where they have little or no 
involvement with the workplace. Additionally, joint employers with 
limited involvement in the workplace would be required by section 
8(a)(5) to execute bargaining agreements and subject themselves to 
contractual and unfair labor practice liabilities without having any 
control over day-to-day operations at myriad locations throughout the 
country. Rather than accept such liabilities with no control over the 
workplace, or engage in endless bargaining across the country, many 
companies undoubtedly will opt to cancel subcontracts or franchise 
arrangements, or subcontract overseas, thus displacing small businesses 
and the millions of jobs that small businesses create. The impact upon 
the economy of the Board's misguided new standard will be as 
consequential as it is harmful.
                            iii. conclusion
    The rationale that led the Board, three decades ago, to adopt a 
direct control standard remains fully applicable today. No new facts or 
industrial developments justify abandoning that test, and the language, 
legislative history and purpose of the Act militate against the 
purported ``standard'' the Board adopted in BFI. That new standard 
sweeps too broadly and will enmesh separate businesses with different 
interests in bargaining relationships that will render meaningful 
negotiations far more difficult, result in far greater situations of 
impasse in negotiations, and not benefit employees. It would create 
massive uncertainty throughout large segments of American industry and 
would cause significant economic upheaval. Moreover, it is not 
justified by the reason the Board identified for the change because 
contingent workers are already afforded the full protection of the Act.
    The Board's adoption of the new standard is particularly troubling 
given that it creates a host of practical and legal issues without 
recognizing them, much less addressing them or providing guidance as to 
how the amorphous standard might apply. Companies will learn for the 
first time that they are supposedly the joint employer of workers who 
are employed by wholly separate businesses when they face prosecution 
by the Federal Government for unfair labor practices they did not 
commit, or that only the employer of a group of workers' could have 
committed. Without prior notice, the Board can subject them to 
bargaining obligations and liabilities, and deprive employees of the 
right to decide that they want a union to represent them in their 
dealings with this newly discovered employer.
    The Amendment would restore the standard for determining when a 
particular group of workers is, for purposes of the Act, jointly 
employed by more than one company. The Board had used that standard 
consistently for more than 30 years and it is a standard that gave the 
term ``employer'' its ordinary meaning, not a ``far-fetched'' one that 
serves short-sighted political goals but undermines the Act. Congress 
should act quickly to restore the labor stability that the Board's BFI 
decision has thrown into turmoil before that decision causes the 
serious damage that will otherwise be its inevitable consequence.

    The Chairman. Thank you, Mr. Kisicki.
    Mr. Rubin.

STATEMENT OF MICHAEL RUBIN, PARTNER, ALTSHULER BERZON LLP, SAN 
                         FRANCISCO, CA

    Mr. Rubin. Thank you, Senator Alexander, Senator Murray, 
and members of the committee. Thank you for giving me this 
opportunity to testify about the practical impacts of the 
National Labor Relations Board's Browning-Ferris' decision.
    I would like to focus on why the Board's joint employer 
standard is entirely consistent with the purposes of the 
National Labor Relations Act and why the Board reached the 
proper result on the actual facts of that case.
    I've had more than 30 years of experience representing low-
wage workers in industries like warehousing, garment 
production, and janitorial services. In those industries and in 
others where the use of perma-temp employees has become 
increasingly common, violations of State, Federal wage and hour 
and discrimination laws are rampant. Often, those violations 
can be traced to the economic pressures that result when a 
company that in the past would have employed those workers 
directly instead decides to obtain its workers through a 
staffing agency and then tries to contract away to the staffing 
agency all responsibility for legal compliance.
    Particularly in low-wage industries, staffing agencies and 
labor services contractors are frequently undercapitalized, and 
they operate on the tightest of profit margins. Even when they 
are caught breaking the law, they often lack the resources to 
pay significant back-pay awards, and they almost always lack 
the ability to provide reinstatement or meaningful injunctive 
relief. They also know that at the very first sign of workplace 
dissent, not to mention union organizing activity, their 
staffing contract is likely to be terminated, leaving them and 
their workers without work.
    The statistics cited by the Board dramatically illustrate 
the recent upsurge in labor outsourcing. Between 1990 and 2008, 
the number of workers hired through staffing agencies doubled 
from 1.1 million to 2.3 million. Last year, the number was 
almost 3 million, and it is expected to jump to almost 4 
million by 2022.
    Not surprisingly, studies have shown a strong correlation 
between labor outsourcing and high levels of employment law 
violations, as well as lower wages, limited or no benefits, and 
tremendous job insecurity. Fifty years ago, there would have 
been no question that a worker performing conveyor belt or 
assembly line work in a plant like Browning-Ferris would be 
considered the employee of the company that owned and operated 
that plant. Fifty years ago, it was unusual for a company like 
Browning-Ferris even to consider contracting out its core 
operational functions.
    In the Browning-Ferris case, the Board recognized that 
although Browning-Ferris had contracted out its in-plant 
recycling work, it continued to control crucial terms and 
conditions of the plant workers' employment. Browning-Ferris 
required Leadpoint's workers to meet its own pre-employment 
screening standards. It trained them how to do their jobs. It 
reserved the right to reject any worker offered by Leadpoint 
for any reason or no reason at all.
    Browning-Ferris also set the pace of the conveyor belts 
that the workers worked on. It decided when to allow the 
workers to take breaks. It established safety and productivity 
standards. It decided when overtime would be required and how 
many workers would be required to work that overtime, and it 
gave job instructions to those workers, both directly and 
through their supervisors. It also placed a cap on the hourly 
rate that any Leadpoint worker could be paid, and it prohibited 
Leadpoint from increasing any worker's wages without its 
express approval.
    On these facts, it should have come as no surprise that the 
Board found that Browning-Ferris and Leadpoint were both 
statutory employers of the in-plant workers for purposes of 
collective bargaining. It makes sense that a company with the 
power to determine or co-determine workplace conditions should 
have a corresponding duty to engage in collective bargaining 
over those conditions.
    The Board's ruling was entirely consistent with the 
longstanding collective bargaining policies of the Act and with 
decades of common law authority, including the right to control 
language in the restatement of the law of agency which has set 
forth the common law standard since before the National Labor 
Relations Act was enacted. To limit the definition of employer 
under the NLRA to accompany whose control is actual, direct, 
and immediate, as the proposed Republican bill would do, would 
be to impose a harsh standard that would undercut the goal of 
encouraging meaningful collective bargaining, and it would be 
far more restrictive than the common law standard or other 
workplace statutes, like the Fair Labor Standards Act, the 
Equal Pay Act, and many State law statutes.
    Certainly, the proposed bill's change in the definition of 
employer would have seriously negative impacts on workers, 
leaving those most in need of statutory protection without any 
meaningful remedy, temporary at-will workers. It would also 
hurt small business owners, because it would make them solely 
responsible for collective bargaining, even when they lack 
meaningful authority to fulfill their statutory 
responsibilities.
    There's no need for such a change, because any company that 
wants to avoid responsibility for bargaining can simply give 
its supplier companies greater independence in controlling 
wages, hours, and working conditions.
    We've seen the practical impacts of the modern fissured 
workplace in industry after industry, warehouse workers, 
garment workers, performing piece rate work for fly by-night 
contractors----
    The Chairman. Could you wind it up soon, Mr. Rubin?
    Mr. Rubin. I will. Thank you--who compete based on low 
labor costs. The NLRA's central promise is to promote 
collective bargaining as an alternative to labor strife. Before 
Browning-Ferris, those workers had no realistic opportunity to 
bargain for improved conditions with a company that could 
actually co-determine their terms and conditions of employment.
    Thank you.
    [The prepared statement of Mr. Rubin follows:]
                  Prepared Statement of Michael Rubin
    Let me begin by thanking the committee Chair, Senator Alexander, 
Ranking Member Senator Murray, and the other committee members for 
giving me this opportunity to testify about the Board's recent 
Browning-Ferris decision and its practical impacts in the modern 
workplace. Based on my more than 30 years of experience representing 
low-wage workers in industries where the use of staffing agencies and 
labor services contractors has become pervasive, I will principally 
address why the Board's joint employer test under Browning-Ferris is 
critical to protecting the rights of workers and to achieving the 
stated purposes of the National Labor Relations Act, and why the Board 
reached the only proper result given the facts of that case.
    I am a lawyer in private practice in San Francisco who frequently 
represents low-wage workers in wage-and-hour, discrimination, and other 
labor and employment cases. My clients have included warehouse workers, 
janitors, security guards, restaurant employees, and concession stand 
hawkers, among others. In my experience, especially in recent years, it 
has become far easier to prove that low-wage workers' fundamental 
statutory rights have been violated than to obtain a meaningful remedy 
that will make those workers whole and prevent future violations. Often 
this is because the company that ultimately controls their wages, 
hours, and working conditions has contracted away (or tried to contract 
away) its legal duty to comply with State and Federal employment law.
    In the low-wage economy in which many of my clients are employed, 
wage-and-hour violations, discrimination, and other unlawful conduct is 
rampant, yet the workers whose rights are violated rarely complain or 
join together to enforce their rights. There are several reasons why 
that is so. Often, the workers' direct employer is an undercapitalized 
temp agency or labor services subcontractor. Even when that direct 
employer has plainly violated the NLRA or other workplace statute, it 
may be judgment-proof or unable to pay a significant back pay award or 
other money judgment. An injunction or reinstatement order against such 
a company--whether it supplies garment workers in Los Angeles, janitors 
in Texas, or warehouse workers in California or Illinois--may be 
worthless, because the ``user'' company can simply terminate its 
contract, leaving the supplier company and its workers without any work 
at all. Labor services contracts are almost always at will, terminable 
upon short notice; and user companies can and do terminate their 
suppliers' contracts at the first sign of legal claims filing or labor 
organizing efforts. The user company then simply re-bids the job to the 
next supplier company that promises to keep its labor costs low enough 
to win the bid.
    If the only company that can be held responsible for back pay or 
reinstatement in this increasingly common scenario is a staffing 
company whose labor services contract can be terminated at will, the 
workers' statutory right to overtime pay, a fair wage, and protection 
from discrimination, retaliation, and other unfair labor practices 
becomes little more than an empty promise.
    The statistics cited in Browning-Ferris and elsewhere dramatically 
illustrate how rapidly the composition of the American workplace has 
changed. Between 1990 and 2008, the number of workers employed through 
temp agencies doubled from 1.1 million to 2.3 million. A year ago, the 
number was close to three million workers, or roughly 2 percent of the 
American workforce. That number is expected to rise to almost four 
million by 2022. It should come as no surprise that in industries in 
which such outsourcing is common, studies have shown significantly 
higher levels of employment law violations, lower wages, and job 
insecurity.
    This increasingly fissured nature of the America workplace was the 
source of the problem facing the Board in Browning-Ferris. Fifty years 
ago, there would have been no question that the workers who perform 
conveyor belt or assembly line work were ``employees'' of the plant 
owner. But 50 years ago, it was unusual for any company even to 
consider contracting out the core job functions required to operate its 
business. Just as the Board now has to consider the workplace impacts 
of social media and other technology that no one dreamed possible in 
the 1930s, so was it required in Browning-Ferris to evaluate the 
parties' bargaining obligations in light of their actual workplace 
relationships, consistent with its statutory duty to ``adapt the Act to 
changing patterns of industrial life,'' as the Supreme Court required 
in NLRB v. Weingarten.
     Browning-Ferris arose in the context of an election petition filed 
by a Teamsters local seeking to represent approximately 240 workers. 
The union alleged that those employees were jointly employed by 
Browning-Ferris and Leadpoint Business Services, its labor services 
contractor. The Board began by tracing the history of the joint-
employer doctrine under Board law. It concluded that although the 
standards governing joint employment under the NLRA had been fairly 
consistent between at least the Greyhound case in 1964 (which the 5th 
Circuit had enforced) and an earlier Browning-Ferris case in 1984 
(which the 3d Circuit had enforced), that standard had been 
significantly narrowed by a series of Board decisions starting in the 
mid-1980s that--without explanation or apparent justification--made it 
much harder to prove joint employer status by adding requirements that 
were never part of the original common law test. Under those cases, 
which the Board overruled in Browning-Ferris, the General Counsel had 
been required to prove not only that the user company had the right to 
control the affected workers' terms and conditions of employment, but 
that it actually exercised that control, and did so in a manner that 
was both ``direct'' and ``immediate.'' \1\
---------------------------------------------------------------------------
    \1\ See, e.g., TLI, Inc., 271 NLRB 798 (1984), enf 'd mem. 772 F.2d 
894 (3d Cir. 1985); Laerco Transportation, 269 NLRB 324 (1984); 
Airborne Express, 338 NLRB 597 (2002); AM Property Holding Co., 350 
NLRB 998 (2007), enf 'd in relevant part sub nom. SEIU Local 32BJ v. 
NLRB, 647 F.3d 435 (2d Cir. 2011).
---------------------------------------------------------------------------
    The Board in Browning-Ferris found no basis for those additional 
requirements ``in the common law, or in the text or policies of the 
Act,'' and it supported that conclusion with citations to more than two 
dozen prior cases as well as the First and Second Restatements of 
Agency, which set forth the basic common law test that has been in 
effect since well before the NLRA was enacted.
    Turning to the evidentiary record (as is required in these fact-
specific cases), the Board conducted a detailed review and concluded 
that Browning-Ferris and Leadpoint were joint employers of the 
recycling plant workers for purposes of collective bargaining. Many 
facts supported this conclusion. Although the companies' contract 
stated that Leadpoint was the workers' sole employer, Browning-Ferris 
in fact dictated many of the terms and conditions of those workers' 
employment. Browning-Ferris had the absolute right under its contract 
to terminate the entire Leadpoint workforce, without cause. Browning-
Ferris provided training to the workers, required them to undergo 
rigorous pre-employment screening, and prohibited Leadpoint from 
sending it any worker whom Browning-Ferris declared ineligible for re-
hire. Browning-Ferris also retained the contractual right to reject any 
worker sent by Leadpoint ``for any or no reason,'' and twice it told 
Leadpoint to remove workers from its plant for violating workplace 
rules.
     Browning-Ferris also co-determined workplace conditions by 
controlling the speed of the conveyer belts, setting productivity 
standards for the workers, deciding when to stop the conveyer belts to 
permit breaks, and establishing safety standards that the workers had 
to satisfy. It was solely responsible for determining when and how many 
shift workers would be required to work overtime. It conducted pre-
shift meetings with Leadpoint supervisors every day to tell them what 
work was required on each shift, and its managers gave direct 
instructions to those workers concerning job tasks and quality control. 
Browning Ferris also placed a cap on what those workers could be paid 
and required Leadpoint to obtain its express approval before increasing 
any worker's wages.
    Based on these facts viewed as a whole, the Board concluded that 
Browning-Ferris and Leadpoint were both statutory ``employers'' of 
those workers for purposes of collective bargaining. Those two 
companies ``share[d] or codetermine[d] . . . matters governing the 
essential terms and conditions of employment'' and ``possess[d] 
sufficient control over employees' essential terms and conditions of 
employment to permit meaningful collective bargaining.''
    That outcome of Browning-Ferris should have come as no surprise. 
Under the Board's former joint-employer test, which required proof that 
a company exercised actual control that was both direct and immediate, 
Browning-Ferris might have been able to continue dictating the most 
crucial terms and conditions of the workers' employment, while avoiding 
any obligation to bargain over those terms and conditions by using 
Leadpoint as an intermediary. That would not have been the proper 
result, given the Board's statutory mandate to protect the right of 
employees to engage in concerted activity and to bargain collectively 
with their employers--the entities that can meaningfully determine, or 
co-determine, terms and conditions of employment. The Board's ruling in 
Browning-Ferris ruling was entirely consistent with prior Board law and 
considerable Federal appellate authority, and it was completely in line 
with the Restatements of Agency--which State the common law standard 
and which the Board quoted at length in its ruling--and with prior 
rulings of the U.S. Supreme Court under other common law statutes.
    A ``joint'' employer, whether under the NLRA or any other State and 
Federal workplace statute, is simply an ``employer''--as defined by 
applicable statute or common law doctrine--in circumstances where more 
than one entity (or individual) satisfies the legal definition of 
``employer.'' No person or entity can be a ``joint employer'' without 
first being an ``employer.''
    The standards for determining who is an employer differ from 
statute to statute and from jurisdiction to jurisdiction. For example, 
the NLRA, ERISA, and the Internal Revenue Code adopt different variants 
of the common law ``right to control'' test, adapted to suit the 
purposes of those statutes,\2\ while the FLSA, Family and Medical Leave 
Act, and the Agricultural Workers Protection Act adopt the more 
protective ``suffer or permit'' standard that was derived from the 
State child-labor statutes of the early part of the 20th century.\3\ 
Because the definition of ``employer'' can vary, it is possible for a 
particular labor services contractor to be in a joint-employer 
relationship for purposes of providing FMLA leave, but not with respect 
to a claim for NLRA retaliation; just as a worker may be an 
``employee'' for purposes of minimum wage and overtime protections, but 
not for purposes of the right to collectively bargain; or under 
California, but not Texas employment law.
---------------------------------------------------------------------------
    \2\ See 29 U.S.C. 152(2) (NLRA); 29 U.S.C. 1002(5) (ERISA).
    \3\ See 29 U.S.C. 203(g) (FLSA); 29 U.S.C. 2611(3) (FMLA); 29 
U.S.C. 1802(5) (AWPA).
---------------------------------------------------------------------------
    If the recycling plant workers in Browning-Ferris had been denied 
minimum wage payments or overtime under the FLSA, or had been deprived 
of rights under the California Labor Code (which incorporates, in part, 
the same suffer-or-permit standard as the FLSA), they would surely have 
been able to establish that Browning-
Ferris was their ``employer'' within the meaning of those laws. FLSA 
cases going back to at least United States v. Rutherford in 1947 make 
that clear.
    Even though the common law standard under the NLRA is not as 
protective of worker rights as the suffer-and-permit standard under the 
FLSA and other Federal labor statutes, the proposed Republican bill 
would make the NLRA standard far less protective still, allowing 
companies to avoid bargaining over workplace conditions they have the 
authority to control, simply by funneling that control indirectly 
through an at-will supplier. To limit the definition of ``employer'' 
under the NLRA to a company whose control over essential terms and 
conditions is ``actual, direct, and immediate'' would be to create a 
standard that is far less protective than the common law itself, and 
that would undermine the right to bargain collectively by imposing 
restrictions that are entirely inconsistent with Congress' broad 
delegation of authority to the Board to construe the NLRA in light of 
evolving workplace conditions.
    Enacting the proposed narrow definition of ``employer'' would have 
seriously negative impacts not only on workers, but on small business 
owners as well. First, of course, it would leave without remedy the 
workers most in need of statutory protection, those who are most 
susceptible to exploitation because they are temporary at-will 
employees without union representation or collective voice. But it 
would also leave small business owners in the untenable position of 
being solely responsible for labor law compliance and collective 
bargaining even when they lack the authority or means to fulfill that 
legal responsibility. And such a change is not necessary, because any 
user company that does not want to be responsible for bargaining over 
the workplace conditions it controls can simply restructure its 
relationships to give its suppliers greater independence and leeway in 
controlling wages, hours, and working conditions.
    The pressure to cut labor costs while meeting productivity quotas 
inevitably results in a race to the bottom, where the supplier company 
often can only make a decent profit by violating its workers' right to 
legally mandated wages and other workplace protections. We have seen 
this scenario repeated in low-wage workplaces throughout the country, 
and in a broad range of industries--with the resulting heavy burden on 
social services and State and Federal tax receipts.
    In a recently completed case involving warehouse lumpers in 
southern California, for example, where I was one of the attorneys for 
the plaintiffs, hundreds of workers were employed in four Walmart 
warehouses, unloading and re-loading trucks for deliveries to Walmart 
distribution centers throughout the country. Walmart owned the 
warehouses and all of the contents of the trucks. A subsidiary of 
Schneider Logistics, Inc. operated the warehouses. The workers were 
hired by two labor services contractors. By contract, all 
responsibility for legal compliance rested solely with the labor 
services contractors. Yet the facts set forth in the district court's 
joint employer rulings showed that Walmart and Schneider had retained 
for themselves--the contractual--the right to control almost every 
aspect of those warehouse workers' employment, both directly and 
indirectly.
    The violations we found in those warehouses were extensive. But the 
only reason the workers were eventually able to obtain relief--through 
a $22.7 million settlement that resulted in many class members 
receiving tens of thousands of dollars each as compensation--was 
because of a series of court rulings that found the warehouse workers 
had established a likelihood of success in proving that Walmart, 
Schneider, and the staffing agencies were the workers' joint employers. 
The two staffing agencies were undercapitalized (which is why they 
could only afford to pay a combined 7.5 percent of the total settlement 
amount). They were pressed past the point of lawfulness by the economic 
and operational pressures imposed by Walmart and Schneider. They had no 
ability to make the workers whole or to provide any meaningful 
injunctive relief. Nor could they push back by forcing Walmart or 
Schneider to pay them more money or ease productivity or operational 
standards. Only because the Federal courts focused on the actual 
working relationships in those warehouses, as the Board did under the 
NLRA in Browning-Ferris, were the workers able to be compensated for 
past violations, to obtain higher wages and significant benefits, and 
hopefully, to have deterred future violations.
    We have seen the practical impacts of the modern fissured workplace 
in industry after industry: garment workers performing piece rate work 
for fly by-night contractors who compete almost solely based on low 
labor costs; restaurant workers whose immediate employer declares 
bankruptcy after the workers seek back pay for Federal and State 
overtime violations; and sports arena hawkers who nominally work for a 
staffing agency but are told by the sports arena's managers what to 
sell, where to sell it, what they can and cannot say, what they must 
wear, and how they can appear. Without a meaningful opportunity to 
pursue remedies against all joint employers having a right to control 
essential working conditions, many of these workers would be left 
remediless, despite their statutory ``right'' to minimum labor 
standards protection. And despite the NLRA's central promise of 
promoting collective bargaining as an alternative to labor strife those 
workers would have no opportunity to bargain for improved conditions 
with the company that in fact co-determines the terms and conditions of 
their employment.
    Judge Frank Easterbrook famously noted in the Seventh Circuit case 
of Reyes v. Remington that if the joint employer standards are properly 
enforced, the inevitable result (assuming economically rational actors) 
will be a significant decrease in workplace violations and a 
corresponding increase in worker protection, because companies with the 
ability to control workplace conditions will also have the incentive to 
ensure legal compliance. Similarly, under the NLRA, the inevitable 
result of Browning-Ferris is that the purposes of the NLRA will be 
furthered, not undermined, because the companies having the ability to 
control workplace conditions will be required to bargain over those 
conditions, allowing their employees to act collectively for the 
purposes of mutual aid and protection in furtherance of the ultimate 
goal of labor peace.

    The Chairman. Thank you, Mr. Rubin, and thanks to all of 
you. We'll now have a 5-minute round of questions, and I'll 
begin.
    Mr. Kisicki, 40 years ago when I was a young lawyer, I 
represented a company called Ruby Tuesday. They only had 10 
stores. I owned a little bit of it. It wasn't worth much then. 
I could understand then the issue of what direct control might 
be over a Ruby Tuesday franchisee. I'm not involved with it 
anymore and haven't been for some time--but the company has now 
grown to 800 restaurants. Some are franchises, and some are 
owned by the parent company.
    I'm trying to figure out how I could advise the 
headquarters of Ruby Tuesday or any other restaurant company 
how they could not have unexercised potential to control 
hiring, firing, wages, all these decisions, or how they could 
not have indirect control of all these decisions. It would 
cause me to suggest to them that if they wanted to avoid 
liability, they should simply own all their stores rather than 
allow them to be franchised. What would you advise them?
    Mr. Kisicki. I'm afraid that I'm not going to try and 
advise Ruby Tuesday. It sounds like you could take care of that 
yourself, Senator. I would like to, however, observe that 
you're absolutely right, that the lack of clarity in this area 
makes it extremely difficult for us as counselors to----
    The Chairman. Wouldn't a franchisor have an unexercised 
potential to do about anything with a franchisee? Over a period 
time, they certainly would.
    Mr. Kisicki. They certainly can terminate the franchise 
contract, which then----
    The Chairman. They could say, ``If you don't do this, I can 
terminate the contract.'' That seems to me to be de facto, 
unexercised potential to control any franchisee.
    Mr. Kisicki. The test that the NLRB has adopted allows for 
just that. We just don't know.
    The Chairman. Based on your experience and knowledge of 
companies, would you not think that as a result of that 
liability or that uncertainty that the tendency for a lot of 
large companies would be to own their own stores rather than to 
allow franchisees to own stores?
    Mr. Kisicki. Yes, Senator. Because of potential liabilities 
under various other labor and employment laws, in particular, 
and concerns about protecting their interest, many companies 
would be inclined to try and extend their power and control.
    The Chairman. Ms. Stockeland, let me ask you. You started 
your company 9 years ago. You've got 11 franchisee 
establishments. Would you have been able to grow so quickly 
without relying on the franchise model?
    Ms. Stockeland. No. The franchise model really gave me the 
opportunity to take my brand and to expand it and to create 
jobs and give opportunities to other potential entrepreneurs 
around the country. I did not want to run a company-owned 
business from a remote location in North Dakota and manage 
those employees. Franchising really gave me the vehicle to 
expand my brand throughout the United States.
    The Chairman. How would it change your business if instead 
you owned all 11 sites, and what would your employees think 
about having you set their schedules, pay, and benefits instead 
of the person who hired them?
    Ms. Stockeland. It would be really disheartening, both to 
the employees of those franchises and to the franchisees 
themselves. Those women who own my franchises around the 
country got into the MODE business model because they want to 
own a business and control both their business and their 
employees. To take that away from them and make them virtually 
the middle man, middle manager, would be very disheartening to 
them.
    The Chairman. Mr. Kisicki, the UCLA Labor Center's Victor 
Narro stated in an article last month,

          ``The NLRB has the power to influence the Department 
        of Labor and other Federal agencies to cover other 
        areas of worker law. It's very easy to see a possible 
        scenario where you're using the same joint liability 
        standard. You could argue that in court and go before a 
        judge or you could try to get the Department of Labor 
        to change its definition.''

    We've noticed through a leaked document from the 
Occupational Health and Safety Administration that it is 
beginning to use a similar joint employer definition. Do you 
believe the Department of Labor or the EEOC could merely adopt 
this much broader joint employer standard without going through 
the rulemaking process? Why do you suppose that OSHA is going 
around trying to figure out whether some employer is a joint 
employer when its job is really worker safety?
    Mr. Kisicki. The only answer I have for that, Senator, is 
it appears to be part of a concerted effort by labor and its 
allies to hold incredible leverage over employers by being able 
to use Federal agencies to step outside of the bounds for which 
they were created by Congress, to protect, and try and go after 
other areas that then give labor leverage in various ways in 
our economy.
    I don't understand OSHA's reach, and I certainly think it 
is possible that other Federal agencies will try the same thing 
and try and extend the NLRB's BFI decision, or Browning-Ferris, 
to their statutes to try and expand the scope of liability.
    The Chairman. Thank you.
    Senator Murray.
    Senator Murray. Mr. Rubin, let me start with you. We all 
know that we have a lot of workers today who are struggling 
with stagnant wages, poor working conditions on the job, and 
you, as representative, have worked with a lot of them. 
Oftentimes, those workers have very little recourse to try and 
join together to improve their working conditions, even as some 
of the major corporations are making massive profits.
    Today we have some colleagues who want to continue to 
advocate for a return to a very narrow standard that has 
perpetuated some of those problems for the working families. 
Could a return to that old standard, as advocated in the 
Protecting Local Business Opportunities Act, have a negative 
impact on small businesses and their employees?
    Mr. Rubin. Absolutely. First of all, the standard that the 
Board in Browning-Ferris adopted is the old standard. It's the 
common law standard. It's the standard that has been in effect 
for the first--quite a few decades after the Board was enacted. 
To go back to a standard that requires actual direct and 
immediate control in this era, given the large number of 
contingent workers, would certainly hurt the workers, but even 
more, it would hurt the contractors.
    The contractors are caught in vice-like pressure between 
the contractors that hire them and their obligation to comply 
with the law. They have no real power to meaningfully bargain. 
They're often under-capitalized.
    In the garment industry and the warehouse industry, where 
I've had extensive experience, they have no choice but to keep 
the contractor that hires them happy. They need to get the next 
job. They're more interested in getting those contracts than in 
legal compliance because they know the workers are powerless. 
The workers fear retaliation. They know that their entire 
contract will be terminated if the workers begin to organize or 
complain about working conditions.
    A return to the old standard, the addition of actual, 
direct, and immediate, would harm small businesses. It would 
deprive them of the opportunity to become truly independent, to 
become true entrepreneurs, because if the larger companies back 
off and let them control their own workforces and bargain for 
themselves, then they're much better off.
    Senator Murray. In its decision on BFI, the Board noted its 
Supreme Court mandated responsibility to adapt the National 
Labor Relations Act to the changing patterns of industrial 
life. In your testimony, you touched on these, especially the 
current fissured nature of the workplace that you're talking 
about. In your practice, what real-world issues have you seen 
with current work arrangements, and what impact will this 
decision have on those arrangements?
    Mr. Rubin. This will help a great deal. It would help both 
the workers, the local economies, and the contractors that 
employ them. The reality is that in the low-wage industries 
where my clients often work, the workers are absolutely 
powerless. They have to take whatever the temp agencies or 
staffing agencies give them.
    They know if they complain--this happened in my warehouse 
workers case. We had a situation where a Walmart-owned 
warehouses. It had another company, Schneider, operate them. 
Schneider hired two grossly under-capitalized labor services 
contractors. The workers, as soon as they complained, were 
terminated by bringing a lawsuit and by making joint employer 
allegations, not under the Browning-Ferris standard, but under 
the far more protective FLSA and State law standard.
    It's important to bear in mind that what the Board has done 
here is just bring the NLRA in compliance with common law. 
There are plenty of statutes out there passed by this Congress 
that are far more protective and establish joint employer 
liability much more quickly. In that circumstance, the workers 
had no opportunity in these warehouses to complain.
    By bringing a joint employer claim under the FLSA and State 
law, we were able to ensure that they kept their jobs, they got 
raises, they were compensated for the violations. Otherwise, 
you've got a very vulnerable workforce subject to exploitation 
because they know if they do anything to organize, their jobs 
are gone and their co-workers' jobs are gone. There's group 
pressure to keep your mouth shut and just take whatever the 
employer dishes out.
    Senator Murray. The Supreme Court has said the Board has a 
responsibility to adopt the Act to the changing patterns of 
industrial life. What you're talking about with major 
corporations who are actually controlling the franchises, 
controlling workers' pay, controlling their working conditions, 
is vastly different than what I heard Ms. Stockeland talk about 
with her franchisees.
    Mr. Rubin. Absolutely. That's not the problem. What she's 
doing with her company is great, the way she describes it. The 
problem is with the massive use of temp agencies, staffing 
agencies, contract workers that compete among each other in a 
race to the bottom, based on labor costs alone.
    By contracting out this work, the companies are able to 
save a tremendous amount in labor costs. We've seen it in case 
after--in the warehouse case, there was a jump of $8 per hour 
or so between what the direct employees were making and what 
the perma-temps were making. In cases around the country, we've 
seen that disparity, because all the temp agencies have to 
compete on is labor costs, and, therefore, they have a great 
incentive to cut it to the bone or below the legally required 
minimum.
    Senator Murray. Thank you.
    The Chairman. Thank you, Senator Murray.
    Senator Isakson.

                      Statement of Senator Isakson

    Senator Isakson. Thank you, Mr. Chairman.
    Mr. Martin, if I got your numbers right, you've been in 
business 83 years, and you have 140 employees. Is that right?
    Mr. Martin. Yes.
    Senator Isakson. You have 287 contractors with whom you do 
business to construct houses?
    Mr. Martin. Yes.
    Senator Isakson. They average 15 employees or independent 
contractors per contractor?
    Mr. Martin. Approximately, yes.
    Senator Isakson. If the indirect standard were applied, as 
has been portended by some of the testimony today, that means 
you would go from employer responsibility for 140 people to 
4,305. Is that about right?
    Mr. Martin. If all of them were considered employees.
    Senator Isakson. You'd be doing no more business. You'd be 
doing the same business. Could you stay in business adding that 
many employees to your responsibilities?
    Mr. Martin. The biggest problem--there's all sorts of 
problems with it. One of the biggest problems is we schedule 
subcontractors to work on our jobs. If we had to schedule 
subcontractors and their workers, the logistics of that, doing 
it over statewide, would be unsurmountable. The other problem 
is I would have to gear up my human resources department to 
such a degree it would quadruple it, quadrupling our cost in 
trying to manage our employees.
    I would be very concerned about staying in business with 
doing the same amount of homes with 4,000 or, even if you were 
very conservative, 200 to 300, which is still double my size. 
It would be very difficult.
    Senator Isakson. Which would probably mean you would have 
to consider selling your company. Is that not correct?
    Mr. Martin. Yes, I'd probably have to sell to a----
    Senator Isakson. Somebody like Ryan or Riley or one of the 
big----
    Mr. Martin. Right, DR Horton, Centex.
    Senator Isakson. That had the critical mass to hopefully 
absorb that? Is that not correct?
    Mr. Martin. Right.
    Senator Isakson. The second question--when you get a 
subcontractor to do HVAC or grading work or sheet rock or 
whatever, you require probably two things of that contractor. 
One is a bond, and second is insurance. Is that correct?
    Mr. Martin. We require insurance. We don't require a bond, 
not typical in residential construction.
    Senator Isakson. Beyond that requirement, in residential 
construction, the work schedule is determined by the weather, 
by other conditions, and not determined by you. You determine 
what you need done, but they have to do it within the confines 
of that product. Is that not right?
    Mr. Martin. That's correct. We have a critical path that we 
try to stick to, given the weather and homeowner involvement.
    Senator Isakson. You don't pour concrete when it's below 32 
degrees, right?
    Mr. Martin. No. It doesn't get below 32 degrees too much in 
Texas, but you----
    Senator Isakson. But you never know.
    Mr. Martin [continuing]. Never know.
    Senator Isakson. Thank you for--I was in the business for 
33 years----
    Mr. Martin. I knew you were.
    Senator Isakson [continuing]. And I appreciate homebuilders 
very much. I couldn't have educated my kids had it not been for 
homebuilders building houses to sell, and I appreciate that 
very much.
    Mr. Martin. Same here.
    Senator Isakson. Mr. Rubin, I want to make sure I get this 
right, and I certainly don't want to say something that's not 
correct in what you said. I was listening to your testimony. 
You talked about the economic pressures--you were talking about 
staffing companies, first of all, talking about the economic 
pressures on those staffing companies because they have the 
tightest of margins. That was your quote, if I'm not mistaken.
    Mr. Rubin. That's part of it, that plus the quotas, the 
productivity requirements, the auditing, the real time. Yes, 
it's one of a number of factors--but great economic pressures. 
That's correct.
    Senator Isakson. If the company that was getting the 
staffing company to provide independent contractors all of a 
sudden was a co-employer, they might have a deeper pocket. Is 
that not correct?
    Mr. Rubin. In many cases, they do. As long as they hire a 
sufficiently capitalized contractor and ensure that the 
contractor doesn't commit any unfair labor practices, they 
don't have anything to fear from the Browning-Ferris decision. 
It only applies in the narrow circumstances where there could 
be a Board proceeding, and there are only two circumstances 
where that can happen.
    The first is where there are unfair labor practices 
committed. If there are no unfair labor practices, then there's 
no problem at all, no matter what the standard is. And, second, 
it only arises if there is a request for bargaining by a 
majority of the employees of the contractor, and there the 
question is simply is there going to be meaningful bargaining 
without the larger company.
    It's not as much a deep pocket problem as it is what's the 
point of having collective bargaining unless you can 
meaningfully affect the terms and conditions. That's why you 
have to include the company that can share or co-determine the 
essential terms and conditions of employment.
    Senator Isakson. Don't take any offense to this statement, 
but as somebody who has been on the other side--and I respect 
lawyers, especially my own, so I have nothing against lawyers. 
Is a reasonable fear by a lot of franchisors that they might 
all of a sudden be the deeper pocket that trial lawyers would 
go after because the franchisee had a smaller pocket?
    Mr. Rubin. Not because of the NLRA. The concern that 
franchisors would have about the deep pocket would be under 
statutes like the FLSA or others that have the suffer or permit 
test which is going to make them liable as a joint employer far 
before the NLRA.
    The back pay awards under the National Labor Relations Act 
are usually not very large. Discrimination claims, wage and 
hour claims--those are the claims where the deep pocket might 
be a concern. This decision has nothing to do with that, and 
the standard is far less protective of workers' rights than the 
standard under those other Acts.
    Senator Isakson. Mr. Chairman, could I ask unanimous 
consent that a letter from the Asian American Hotel and Owners 
Association be entered into the record?
    The Chairman. It will be.
    [The information referred to may be found in Additional 
Material.]
    Thank you, Senator Isakson.
    Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman.
    We've heard a number of claims that the Board's Browning-
Ferris decision would be bad for small businesses, and, in 
fact, the title of today's hearing, ``Stealing the American 
Dream: The NLRB's Joint Employer Decision.'' It's a pretty--
it's a provocative title, I would say.
    Mr. Rubin, how does the joint employer standard under the 
NLRB's Browning-Ferris decision differ from the traditional 
interpretation of the law which was used prior to 1984, a 
period where countless small businesses and businesses 
flourished and the middle class expanded?
    Mr. Rubin. It does not differ. The new standard goes back 
to the common law standard, to what the standard had been as 
set forth in numerous Board cases and Court of Appeals cases. 
The point I made in my opening statement and my prepared 
remarks is it's completely consistent with a restatement of 
agency in its comments which set forth that standard. The 
Board, at great length, went through that law.
    Senator Franken. Mr. Martin, your company has been in 
existence for 83 years, 51 years under the standard that we're 
talking about now. I don't understand how this would be the 
death of small business or of business ownership.
    Mr. Rubin, in your testimony, you cite figures showing that 
in industries where outsourcing is common, studies have shown 
significantly higher levels of employment law violations, lower 
wages, and job security. These figures confirm what I've been 
hearing in Minnesota from subcontracted janitors across the 
Twin Cities area who have been fighting to bargain for better 
working conditions.
    Can you tell us about what your 30 years of experience 
representing struggling low-wage workers have shown you about 
the fissured workplace? What do you think has been the effect 
of narrowing the definition of joint employer during the 
Reagan-Bush era decisions? What effect have these long-term 
pressures been on workers' wages and the opportunities for 
Americans to work their way to middle-class life?
    Mr. Rubin. It's had a significant decreased effect on--
wages were lower, there were fewer benefits. I've experienced 
this in case after case. Workers fear complaining, bringing 
lawsuits. They can't find attorneys who would pursue claims. 
They have no right to bargain. The percentage of bargaining in 
these industries is extremely law, and large companies are 
encouraged because of the weak laws, the formerly weak laws, to 
exert more and more control.
    The reason it's hard as a small business person is that the 
large companies not only dictate productivity and price and so 
many other elements, but because of modern technological 
advances, they can audit the workplace more. It's not just GPSs 
and bar codes anymore. They know exactly in many industries--
warehousing, in particular, deliveries--where any product is at 
any time, what any worker is doing at any time. Workers have to 
press bump bars after they finish every particular task.
    There is much more detailed control over what the workers 
do. The larger companies know about it, and they're pressuring 
their subcontractors to cut labor costs to the bone, knowing 
that the workers can't complain.
    Senator Franken. What we've seen in the last 31 years is 
really a flattening of the median wage, if not lowering, and we 
hear on the campaign trails, the Presidential campaigns, talk 
about the middle class and getting into the middle class, those 
who are aspiring to be in the middle class. I hear from workers 
that they can't afford to be a good parent.
    You have--we talk about the woman who worked as a 
housekeeper in a hotel, people in warehouses, janitors. Their 
wages make it impossible for them--I hear from them, saying, 
``I can't make enough money to be a good parent.''
    A single parent who has to take--this isn't their only job. 
They do two jobs. They don't make enough money so that their 
kid can go to camp in the summer, and they can't be home with 
their kid because they're working two jobs. That's because 
they're getting such low wages from these subcontractors who 
are being controlled by the contractor.
    This isn't about your business, Ms. Stockeland. This is 
about a different thing. To say that this--we're killing the 
American Dream with this--the American Dream worked pretty good 
before 1984. We're not trying to kill the American Dream. We're 
trying to stir the American Dream.
    The Chairman. Thank you, Senator Franken.
    Senator Roberts.

                      Statement of Senator Roberts

    Senator Roberts. Thank you, Mr. Chairman. Thank you for 
holding this hearing.
    Thank you all for being here today. I want to point out 
that 96 percent of the businesses in Kansas are small 
businesses. That's the answer in terms of economic development 
for our State. With those folks being our job creators, we need 
to act as partners with businesses and not against them to 
ensure high employment and economic growth across our State and 
the Nation.
    This new standard delivered by the National Labor Relations 
Board seems to stand in the way of opportunity and growth. 
Millions of franchisors, franchisees, contractors, 
subcontractors, temporary staffing firms will be harmed in 
addition to those who wish to be employed by one of those 
industries.
    I've heard from folks all around Kansas asking me what this 
means for their business. That means uncertainty, because that 
means they can't really predict the future, and that's a pretty 
good question. The uncertainty this new standard brings is 
open-ended.
    In fact, just yesterday, I had a chance to hear from a 
woman in Wichita who recently opened her first business as a 
franchisee. She opened the doors 10 weeks ago. The endeavor of 
this concept began 6 months ago, and the experience she needed 
to start began a lifetime ago working with our local businesses 
in the community. She got a lot of help.
    As a franchisee and a new business owner, she looked for a 
strong brand name that would do well in her community. She 
enjoyed the franchise model, which included the foundation from 
which to launch her business.
    When asked if she would still have opened her dream store 
if this standard had been in place at that time, she answered, 
``You know, I'm not sure. This would have been a huge red flag. 
I didn't open a store to have others run it.'' The franchisor 
happens to be Ms. Stockeland, and this is a designer outlet, 
and it's an outstanding business.
    She makes a good point. The standard, when applied, 
disincentives young entrepreneurs from startups and would make 
franchisors liable for folks they didn't intend to be liable 
for.
    Ms. Stockeland, you remarked in your testimony when you 
enter into an agreement with a franchisee, they believe they 
are signing up to own and operate their own business. Is that 
correct?
    Ms. Stockeland. That is correct.
    Senator Roberts. Are you exploiting anybody?
    Ms. Stockeland. I am not.
    Senator Roberts. I didn't think so. You do this because you 
have confidence in them to use your trademark, your business 
model, and the reputation of the franchise you have strongly 
built. I see that you hope to open 75 stores by 2024. Is that 
correct?
    Ms. Stockeland. That is correct.
    Senator Roberts. That's a wonderful goal, and I wish you 
the best of luck in this opportunity. It's not a matter of 
luck. It's a matter of expertise. Do you think the possibility 
of this standard applying to your new franchisees will impact 
the number of entrepreneurs that contact you and, therefore, 
negatively impact the road that you're trying to take?
    Ms. Stockeland. Absolutely, and it will also impact the 
interest to take those phone calls by me.
    Senator Roberts. I appreciate that very much.
    Finally, a store owner in Overland Park--which is the 
fastest growing community we have in the State of Kansas, full 
of small business people and exactly the people that were 
described by the distinguished Senator when he was in business 
himself. He told me, ``Look, I bought a business model, not a 
business manager.'' I fear when potential franchisees hear of 
this standard, they will choose not to invest into business in 
their community or in what could turn out to be a family-run 
business.
    I don't know why we continue with all of the Federal 
agencies involved with this regulatory overkill that makes it 
almost impossible to progress. I just had an old boy call me 
out in western Kansas, who said, ``I don't feel governed. I 
feel ruled.'' And that's the problem. I don't care if it's 
energy, education, small business, farming and ranching, or 
whatever, the regulatory overkill is just unbelievable. I just 
don't know why we continue down this road.
    Ms. Stockeland, thank you for your example, and I hope 
you're able to continue with the way you want to run your 
business.
    Ms. Stockeland. Thank you.
    Senator Roberts. Thank you all for your time.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Roberts.
    Senator Warren.

                      Statement of Senator Warren

    Senator Warren. Thank you, Mr. Chairman.
    Historically, if an employer violated the rights of its 
workers through, for example, an illegal firing, the employer 
would be on the hook for damages. Today, though, some giant 
companies have figured out that they can hide behind complex 
arrangements like subcontracts or franchises to dodge their 
legal responsibilities toward their workers.
    I just want to pull this together about how this works. A 
big parent company controls every tiny detail of what the 
workers do, including how much they get paid, how they're 
trained, and when they have bathroom breaks.
    When, for example, an employee doesn't get paid their 
guaranteed overtime or when the employees want to exercise 
their legal right to collective bargaining, the big company 
steps back and dumps all the legal responsibilities and all the 
costs on the subcontractors. That way, the big company get all 
the benefits of having a bunch of employees with none of the 
responsibilities that go with it. Small companies can't do 
that. They're still on the hook to their employees, but not the 
big guys.
    Mr. Rubin, you've spent a long time representing workers 
who get hurt when their legal rights are violated, and the big 
parent companies that are making the money throw up their hands 
and say, ``Don't look at me. The problems are for the 
subcontractor.'' How do we get to a point where little 
companies have a whole bunch of legal obligations to their 
employees, but big companies can duck out on these basic 
obligations for their workers?
    Mr. Rubin. The laws had softened--and that's one of the 
things that this new Board decision strengthens again--to give 
large companies the opportunity not only to contract out the 
work, but to contract out their legal responsibility when 
things go wrong, when the law is violated. That's precisely 
what has happened with contingent workers in the modern 
economy.
    Senator Warren. What's happened is the NLRB has changed the 
standard through a series of case-by-case decisions. What's 
been the consequence of narrowing the definition of an employer 
over the last 30 years?
    Mr. Rubin. It's meant that there is far less meaningful 
bargaining, because companies that control terms and conditions 
aren't brought to the bargaining table. There is far less 
responsibility. What happens in practice is that at the first 
sign of complaint on the workplace floor, the larger companies 
simply terminate--all of these are at-will contracts. They 
terminate the subcontractor. They terminate the workers.
    That's why in our warehouse workers case, getting an 
injunction that required--to preserve the workers' jobs 
resulted in better wages and benefits for the first time and 
made a huge difference for these workers getting up to the 
middle class.
    Senator Warren. For these giant corporations, what I'm 
hearing you say is that, basically, this change in the rule--
the earlier change in the rule at the NLRB--has just triggered 
a race to the bottom that has squeezed workers.
    Mr. Rubin. Absolutely. It's squeezed workers, and it's also 
squeezed the small companies that employ the workers. The only 
companies that benefit from this new arrangement, from the race 
to the bottom, are the ones who can get the work done for the 
large corporations without having any legal responsibility for 
the consequences.
    Senator Warren. Into this comes the NLRB last August.
    Mr. Rubin. Right.
    Senator Warren. The NLRB finally acknowledged the problem 
that it had created back in the 1980s, and it began closing 
this loophole by broadening the definition of who is an 
employer so that workers' rights would be protected under those 
circumstances. My Republican colleagues didn't seem to have a 
problem when the NLRB narrowed the definition, but now that the 
NLRB is going back to the original approach that it had used 
for many decades, they want to pass legislation to stop the 
NLRB. How would that affect workers?
    Mr. Rubin. It would be devastating to the workers. It would 
result in a greater race to the bottom than we are already 
experiencing. With a bill that passes that makes us even more 
public, more companies, more large companies, would be inspired 
to do precisely what these other companies have done to the 
great disadvantage of the types of workers I represent.
    Senator Warren. All right. Thank you, Mr. Rubin.
    This is pretty simple. The law says that an employer has 
certain legal obligations to its employees, like collective 
bargaining or responsibility when an employee gets hurt, and 
small employers have to abide by those rules. Some big 
corporations dodge the law by pretending that they are not 
employers. They don't fool the NLRB or much of anyone else, and 
now the NLRB has called them out on this.
    It is no surprise that giant corporations that use this 
scheme and their Republican friends don't like what the NLRB is 
doing. Let's be clear. The NLRB is following the law and 
standing up for American workers, which is exactly what the 
NLRB, by law, is supposed to do.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren.
    Senator Hatch.

                       Statement of Senator Hatch

    Senator Hatch. Thank you, Mr. Chairman.
    Mr. Kisicki, actually, the assertion that this is a return 
to an old standard--it isn't, is it?
    Mr. Kisicki. No, Senator. In fact, it's quite a bit of an 
overstatement by the Board majority in this decision, because 
there was, in fact, no standard that the NLRB applied 
consistently at any time. In fact, it did not start even 
adjudicating cases where there was a dispute about what was and 
was not a joint employer until the 1960s.
    This idea that somehow this standard existed is incorrect. 
In fact, the NLRB was so confused itself at times that it at 
times referred to entities as single employers when it, in 
fact, was intending to refer to a joint employer relationship. 
A single employer was essentially where one company is not 
truly independent of another, and they operate together. It's 
almost an alter ego theory under the law.
    Senator Hatch. Let me ask you this. In 2014, the NLRB 
finally issued a decision in a case that had been pending at 
the Board for over 10 years called CNN America. The Board found 
CNN to be a joint employer of employees provided by a 
contractor, TVS. Despite the fact that the Board had certified 
TVS as, ``the employer,'' some 20 years earlier, as the Board 
now found that CNN was a, ``joint employer,'' CNN then owed 
back pay to hundreds of highly compensated employees.
    If the NLRB's own certification of employer status can be 
overturned and significant liability imposed, how can any 
employer in America feel confident that this liability isn't 
looming over them as well? And just to add another question to 
it, how many employers have the resources to engage in 10 years 
of litigation before the NLRB?
    Mr. Kisicki. Senator, let me take your second question 
first, which is how many employers can afford this. I don't 
know, but I don't think it's many, certainly not small 
businesses that are the engine of growth in this economy and 
have been for decades now. Those companies cannot afford the 
hundreds of thousands of dollars--it's not cheap to try and 
litigate a case with the NLRB, because the NLRB is the Federal 
Government, and they do the work. The unions don't have to 
spend the money on this. It is done by Federal taxpayer 
dollars.
    I also want to correct a comment that my colleague, Mr. 
Rubin, made, that there's no issue if there's not an unfair 
labor practice violation. That's absolutely untrue. The fact is 
the NLRB files complaints routinely against employers--this is 
its practice--if there is a dispute of fact that, if they 
accept the employee or the union's version of the facts, would 
constitute a ULP, not that they, in fact, have concluded that 
it's likely that the employer actually violated the law.
    Let's go then to the issue that you raised with CNN, and 
that's certainty that's provided by the NLRB in labor 
relations. That's why this Act exists. Again, with all due 
respect to my colleague, Mr. Rubin, we've heard a lot about 
other situations. I haven't heard anything about how those 
other situations actually involved employees exercising their 
rights under the NLRA.
    It is a different law. It has a different standard for 
determining who is an employer, and that's absolutely necessary 
if the NLRB is to give effect to the purpose that motivated the 
statute in the first place. That purpose is to protect the 
stability of labor relations in America. Stability has been 
tossed to the wind in this last term by the NLRB, and this case 
is just one of them. The CNN case that you just mentioned, 
Senator, is another.
    If employers cannot rely upon the Federal Government 
agency's determination that the employer of a group of 
employees--that is their obligation. The NLRB has to define the 
employer, not an employer, but the employer. If they cannot 
rely upon that, and 10 years later, the NLRB can come along and 
just decide, ``We're going to change our mind,'' and now you're 
liable for millions of dollars of back pay.
    Senator Hatch. Not very consistent.
    Mr. Martin, I appreciate your testimony today. I heard you 
make the point that the, ``big guys will get bigger,'' and the, 
``small guys will go out of business,'' under the NLRB's 
redefinition of joint employers. Exposure to joint employer 
liability under the NLRB's new standard stifles many small 
business models. They're successful business models, and I know 
many small business owners who got their start and were able to 
grow their businesses from contracts with local family-owned 
businesses.
    How will this new rule impact local business creation, and 
how will this ruling stifle opportunities for our Nation's 
plumbers, electricians, and tradesmen, one of which I was at 
one time?
    Mr. Martin. Like I said, this new indirect----
    Senator Hatch. I was a member of the AFL-CIO, too.
    Mr. Martin [continuing]. This indirect test just provides 
so much instability that it is hard to go forward, and it's 
just--to repeat, you cannot--companies like ours do not have 
the legal resources to fight the NLRB if they come to me and 
say, ``Because you're in direct control, you're a joint 
employer.'' I can't fight that. I don't have the funds to do 
that, which means I go out of business, as do subcontractors. 
They have the same problem.
    Senator Hatch. Thank you, Mr. Chairman. Sorry I went over a 
little bit.
    The Chairman. Thank you, Senator Hatch.
    Senator Baldwin.

                      Statement of Senator Baldwin

    Senator Baldwin. Thank you, Mr. Chairman, and I want to 
thank the witnesses today.
    It's important to briefly mention the underlying statute 
that we're discussing today. In 1935, Congress enacted the 
National Labor Relations Act to protect the rights both of 
employees and businesses, to encourage collective bargaining, 
and to curtail practices that harm workers, businesses, and the 
economy at large. Congress gave the authority to the National 
Labor Relations Board to revise administrative decisions and to 
adjust for changing workplace realities, and the Supreme Court 
has reaffirmed that authority of the NLRB. In my view, that's 
exactly what the Board has done in this recent decision.
    I have such great respect for small business owners in 
America, and this hearing gets to the heart of the very matter 
of what it means to be a small business owner. More 
specifically, does that small business owner actually have the 
ability to manage their workforce, or is that autonomy an 
illusion? The small business owners that I speak to from the 
State of Wisconsin are a very proud and independent lot, and 
they are risk takers and innovators. They provide livelihoods 
for millions across the Nation.
    I recently met with a group of Wisconsin small business 
owners, both franchisors and franchisees, and they have been 
following this decision, and they're concerned about the impact 
of the joint employer decision and what sort of impact it would 
have on their businesses. I want to get into some of the 
specifics today.
    We've heard a lot of discussion about stability, bright 
line clarity, sort of all or none. It seems to me that one 
would want to have the ability to look at, say, each franchise 
agreement as unique and look at these issues on a case-by-case 
basis.
    Mr. Rubin, is the new joint employer standard a blanket 
ruling that says in all cases, these will be considered joint 
employers, a franchisor and a franchisee, or an independent 
contractor or none, or is this a case-by-case analysis 
depending upon the relationship between the two?
    Mr. Rubin. Right. It's a case-by-case analysis, which is 
how the Board adjudicates, which is how the Board accommodates 
the law to evolving conditions in the workplace. The reason 
stability is furthered by this ruling is simply--and in 
responding to my colleague--because if you require every 
company that can meaningfully affect terms and conditions to be 
at the bargaining table, you can have a meaningful collective 
bargaining agreement, and that's what furthers the goal of 
achieving labor peace.
    Yes, case by case is the way the Board has always done it, 
the way it's done it in the past, and, obviously, is the way 
courts do it as well.
    Senator Baldwin. Under the NLRB ruling, the Board states, 
and I'm going to quote,

          ``Moreover, as a rule, a joint employer will be 
        required to bargain only with respect to such terms and 
        conditions which it possesses the authority to 
        control.''

    If I am a franchisor, and I do not possess the authority to 
control wages, hours, hiring, firing, or disciplining, can I be 
forced to bargain over those terms and conditions?
    Mr. Rubin. No, and the Freshii decided by the General 
Counsel's Division of Advice just last April, both under the 
old standard and the new standard, concluded that a franchisor 
was not responsible for an unfair labor practice retaliation by 
a franchisee precisely, Senator Baldwin, because the franchisor 
did not maintain those elements of control over terms and 
conditions.
    Senator Baldwin. In looking at the Freshii case that you 
just referred to, as you said, it was a determination--or the 
General Counsel issued a memorandum of advice.
    Mr. Rubin. Advisement. That's right.
    Senator Baldwin. Can you tell the committee a little bit 
more about how the Freshii situation was different than the 
situation in Browning-Ferris'?
    Mr. Rubin. Sure. In Freshii, the franchisor had nothing to 
do with personnel policies. All of its guidance was entirely 
optional. The franchisee used its own employee handbook. It 
didn't use the Freshii handbook. Freshii controlled only 
aspects or had input only to aspects pertaining to the product 
itself. There was no auditing. The franchisee trained its own 
staff. There was no consultation before the individuals were 
fired by the franchisee.
    By contrast, in Browning-Ferris, Browning-Ferris retained 
the right itself to terminate any employee. It set a cap on 
wages. It determined when the workers could work. It told them 
where to work. It decided when they could have breaks. It 
decided what the speed of the line was. There's a world of 
difference between those cases.
    As you point out, in case-by-case adjudication, every one 
of these differences matters, and that's why you need an 
experienced administrative agency that is familiar with the 
modern workplace to evaluate the facts and decide on which side 
of the line a particular case falls.
    Senator Baldwin. Thank you.
    Mr. Rubin. Thank you.
    The Chairman. Thank you, Senator Baldwin.
    Senator Casey.

                       Statement of Senator Casey

    Senator Casey. Thank you, Mr. Chairman. I wanted to, first 
of all, note that the title of the hearing is, I think, 
misleading. I won't go into the analysis of that. Stealing is a 
crime, and it's even a violation of the Ten Commandments. We're 
nowhere near that in this hearing.
    I wanted to go back to the fundamentals, not just of the 
decision and the implications of it, but also the reality of 
what we see in the real world.
    Mr. Rubin, you had maybe the best summation of what the 
reality is for workers. Looking at page 2 of your testimony, 
you say,

          ``In the low-wage economy in which many of my clients 
        are employed, wage and hour violations, discrimination, 
        and other unlawful conduct is rampant. Yet the workers, 
        whose rights are violated, rarely complain or join 
        together to enforce their rights.''

    Then you go on to say later in terms of the advantage that 
the prior cases allowed, and I'm quoting here,

        ``that the employer was able to kind of have it both 
        ways, that they were able to have the advantage of 
        dictating the terms and conditions while avoiding the 
        bargaining about those same terms and conditions.''

    That's just the way I see it.
    I also think it's not--this traditional standard that we're 
going back to now made a lot of sense. It spoke directly to 
this question of the control you have of the work and how much 
control you have.
    Then the conditions set forth that had to be met, direct or 
indirect control over significant terms and conditions--that's 
a reasonable inquiry when you're a fact-based analysis. No. 2, 
the joint employer would have the ability to control. You have 
to make a determination about that. And third, that that joint 
employer was necessary for meaningful collective bargaining.
    It makes sense in terms of the reality of the workplace 
today, the reality of the economy today, with--gosh, I guess 
it's doubled in terms of the number of temp workers. Also it's 
not such a--it's not a test that is so constraining that it 
doesn't reflect some flexibility that comes with making a fact-
based determination. It makes a lot of sense.
    I wanted to ask you, Mr. Rubin, one particular question on 
the question of control. It's always difficult to pose a 
hypothetical, but could you kind of walk through the lengths to 
which a company like Browning-Ferris or companies like it would 
go to control subcontractors?
    Mr. Rubin. Sure. First of all, under the old standard, it's 
so easy for a company to circumvent the direct, actual, 
immediate standard. All you have to do is set up a company, 
hire a company, and instruct that company to tell the workers 
what to do.
    Browning-Ferris did far more than that. Browning-Ferris was 
so involved--there were 240 workers inside this plant, sorting, 
cleaning the recycling line. They were working on a conveyor 
belt. What Browning-Ferris did is it controlled them by setting 
the speed, the productivity levels, deciding when to stop the 
line so they could take breaks. The mandatory terms and 
subjects of bargaining were almost all controlled directly and 
indirectly by Browning-Ferris.
    The reality of the situation was that if Browning-Ferris 
was dissatisfied with a worker, even if that worker had passed 
the Browning-Ferris screening criteria, Browning-Ferris could 
get rid of him. If the workers began to organize, Browning-
Ferris could get rid of the contractor all together. The old 
standard was susceptible to manipulation and abuse, and the 
ones that were hurt were the contractors squeezed in the middle 
and certainly the workers.
    Senator Casey. My time is up. Thank you very much.
    Mr. Rubin. Thank you.
    The Chairman. Senator Isakson has questions, so I would say 
to Senator Baldwin and Senator Casey--I've consulted with 
Senator Murray--we'll go to a second round if any of you have 
further questions.
    Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    I have a question I want to ask Mr. Martin. Before I do, I 
also wanted to engage Senator Warren with regard to her 
statements regarding big businesses. I listened to her 
testimony. I looked around at Senator Baldwin, who has Kohler 
in her State, and we have Hershey in Pennsylvania and Boeing in 
Washington State and TVA in Tennessee and Coca-Cola in Georgia. 
Big business is not necessarily a bad thing in America.
    We have to be very careful about castigating people 
generically. Rather we ought to call out people because they 
actually violated the law or violated the intent of it.
    My question is this, Mr. Martin, have you ever heard of a 
lady named Ebby Halliday?
    Mr. Martin. No, sir.
    Senator Isakson. Do you do any business in Dallas?
    Mr. Martin. I do some small business in Dallas.
    Senator Isakson. Some construction. Ebby Halliday is 
probably the most famous woman real estate broker in the United 
States of America. She's 93 years old. She started out as an 
independent contractor in Dallas and built one of the most 
successful businesses in the United States of America based on 
the model of incentive, compensation through sales and 
commissions, and the independent contractor model.
    One of the things I have concern about is if you construe 
the indirect responsibility or indirect control too liberally 
to business, you'll do away with most all small business. Would 
you agree with that?
    Mr. Martin. Yes, sir.
    Senator Isakson. If you do away with most small businesses, 
the title of this hearing comes into play, because stealing the 
American Dream of business ownership is exactly an appropriate 
title. Ebby Halliday could not have done in Dallas what she did 
if that law was in place in its application today, and there 
are thousands of others in sales businesses, construction 
businesses, and agricultural businesses that operate as 
independent contractors and things like that who could not as 
well.
    I just wanted for the record--there is an application about 
stealing the opportunity for ownership that pays attention to 
exactly what we talked about today. I appreciate the time, Mr. 
Chairman. I yield back.
    The Chairman. Thank you, Senator Isakson.
    I'll go to Senator Murray and then Senator Baldwin and then 
Senator Casey.
    Senator Murray. Mr. Chairman, I'll just make a remark, that 
I think all of us understand, that big businesses--there are 
good big businesses and no one is denigrating them. There are 
great small businesses. We all want them to survive.
    What the important point about this ruling is that we do 
have some corporations who are completely disconnected from the 
workers that they control. They don't have to hold any 
liability before this hearing on any kind of poor working 
conditions or poor standards or anything, because they had a 
franchise owner that was carrying all the liability.
    This is not fair to franchise owners themselves, who can't 
control their labor market, because somebody else is telling 
them how to do it, and they're taking all the liability for it. 
I just want to make that point, because it's really important 
to this ruling and how we go forward.
    I do want to thank all of our witnesses today for your 
testimony, and I appreciate you being here today.
    The Chairman. Thank you, Senator Murray.
    Senator Baldwin, do you have any further questions?
    Senator Baldwin. One more, and I appreciate the opportunity 
to get to it.
    I indicated that I had met with a group of franchisors and 
franchisees recently, specifically about this case. One of the 
concerns I heard from them was in regard to the ability of the 
franchisor to provide training to help their franchisees be 
successful, but also to protect their brand. There was a 
concern that the new standard might limit this ability.
    We had a back and forth about the Freshii case and the 
memorandum of advice on Freshii. We see in that case that the 
franchisor provided an operations manual with mandatory and 
some suggested specifications, standards, operating procedures 
and rules that were prescriptive.
    In addition, all franchise owners and managers were 
required to undergo a 4-week training period before a new 
franchise could open. The franchise agreement also stated that 
Freshii could terminate the franchise agreement for 20 
different iterated reasons, including franchisee's failure to 
comply with the operations manual.
    Based on this information, do you believe that the 
franchisors that I met with in the State of Wisconsin should be 
concerned that their training programs could lead to being held 
as joint employers in and of themselves?
    Mr. Rubin. I don't think that should be a concern, no. I 
don't think that that would be a problem, the training by 
itself. In my experience in dealing with employees of 
franchisees, the only time we get into a joint employer issue 
is when the franchisor exercises far more control than in the 
Freshii example or the example that we heard from my fellow 
witness this morning.
    Many franchisors control every detail of what goes on in 
the workplace, including not only how the product is presented 
to the customer, but what the employees do, how they do it, 
when they do it, and a range of activities that they closely 
monitor in real time.
    Senator Baldwin. Thank you.
    Ms. Stockeland. Senator Baldwin, may I speak?
    Senator Baldwin. Please feel free.
    The Chairman. Sure.
    Ms. Stockeland. Thank you. I'm new to this. I just want to 
say that there's been some discussion about how--I feel Senator 
Franken brought it up, and I think Senator Murray also, that 
you are applauding small business and are excited and don't 
feel that this applies to me.
    I would say that what Mr. Rubin just said is case in point. 
He said that he doesn't think that an operations manual should, 
would--excuse me, I'm nervous. He said that he doesn't think 
that they should have concern over that, and that's just the 
point. There's no definition here, and so who decides if a 
franchisor is big or small? Where does that line come? Who 
decides that, and when is that decided?
    That uncertainty is what really gives me cause to pause and 
look at further expanding my business, because I don't want 
that liability of having to run and operate employees and those 
labor standards across the franchise systems that I have.
    Thank you very much.
    Mr. Rubin. I would like to respond. I believe the Senator 
asked for my opinion, so I prefaced it with I think. The way we 
analyze issues as they arise on a case-by-case basis is we look 
to precedent, and we look to things like advice memos. Where we 
have an analysis in a case like Freshii, that guides us. I can 
say with confidence that that would not be a problem for you 
and your franchisees.
    Senator Baldwin. Thank you.
    The Chairman. Senator Casey.
    Senator Casey. Thank you, Mr. Chairman.
    Just one point on this question of franchises. I don't 
think this decision is directed that way--directed at 
franchises in any way. In fact, if you look at--the NLRB 
majority decision even explicitly speaks to this question when 
it says the decision is not on franchises.
    I'm reading now--this is page 20, footnote 120 of the 
decision--

          ``None of those situations''--meaning franchise 
        situations--``are before us today, and we decline the 
        dissent's implied invitation to address the facts in 
        every hypothetical situation in which the Board might 
        be called on to make a joint employer determination.''

    I think even the decision itself is explicit on the 
question of franchises.
    The Chairman. Thanks to all of you. I don't have a 
question. I'll just make a closing comment. I thank all four of 
you for coming. We appreciate your comments, and if you have 
anything else you would like to say, we'd be glad to receive it 
if you'll give it to us in the next few days.
    My thought about this is I think Stealing the American 
Dream is pretty accurate, and this is why I think so. There are 
780,000 franchise operations in the country. The new joint 
employer standard, according to observers like Victor Narro of 
the UCLA Labor Center, no longer requires direct control over 
the essential terms and conditions of employment. If you have a 
franchise agreement or a contractual relationship, depending on 
the industry, that's enough to show you have influence over 
working conditions.
    It's hard for me to see how there could be any franchise in 
the country over which the franchisor would not have some 
indirect or unexercised potential to control. If that is the 
case, it seems to me the inevitable consequence of a decision 
like this is to greatly reduce the number of franchise 
opportunities in America. People like Ms. Stockeland will think 
twice before opening a new franchise. That will reduce the 
growth of new jobs in America. That will reduce, in my opinion, 
the growth of opportunities to move up the economic ladder.
    We obviously have some strong differences of opinion on 
this committee about it. We have 45 Senators who like to 
restore the law to the way it was before the Browning-Ferris 
decision, and I hope other Senators will join.
    I thank the witnesses once more. The hearing record will 
remain open for 10 days. Members may submit additional 
information and questions for the record within that time if 
they would like.
    The committee will stand adjourned.
    [Additional Material follows.]

                          ADDITIONAL MATERIAL

   Prepared Statement of the Independent Electrical Contractors (IEC)
    Chairman Alexander, Ranking Member Murray and members of the 
committee, Independent Electrical Contractors (IEC) would like to 
express its concern with the recent interpretation of the joint 
employer rule by the National Labor Relations Board (NLRB) in the case 
commonly referred to as ``Browning-Ferris.'' IEC opposes this new, 
broad interpretation and urges the U.S. Congress to pass the Protecting 
Local Business Opportunity Act (S. 2015/H.R. 3459), which would codify 
the previous standard that has stood for over 30 years.
    The Independent Electrical Contractors is an association of over 50 
affiliates and training centers, representing over 2,100 electrical 
contractors nationwide. While IEC membership includes many of the top 
20 largest firms in the country, most of our members are considered 
small businesses. Our purpose is to establish a competitive environment 
for the merit shop--a philosophy that promotes free enterprise, open 
competition and economic opportunity for all. IEC and its training 
centers conduct apprenticeship training programs under standards 
approved by the U.S. Department of Labor's (DOL) Office of 
Apprenticeship. Collectively, in the 2015 school year, IEC will train 
more than 8,000 electrical apprentices.
    IEC is deeply concerned about the NLRB's new joint employer 
standard and the impact it could have on the electrical contracting 
industry. The new standard presents a litany of potential problems and 
complications for doing business by making contractors potentially 
liable for individuals they do not even employ. Moving forward, almost 
any contractual relationship our members enter into may trigger a 
finding of joint employer status that would make them liable for the 
employment and labor actions of their subcontractors, vendors, 
suppliers and staffing firms. In addition, as we understand it, the new 
standard would also expose one company to another company's collective 
bargaining obligations and economic protest activity, to include 
strikes, boycotts, and picketing.
    It's clear to see just how this broad and ambiguous new standard 
increases the cost of doing business. It makes it more difficult for 
companies to continue to do great work within the community and provide 
well-paying jobs to more electricians. It's unclear if our members 
could put language into any contracts that would insulate them from 
being considered a joint employer, nor do we know just how much their 
insurance costs will go up in an attempt to shield them from this 
increased liability.
    This new standard also prevents electrical contractors from working 
with certain startups or new small businesses that may have a limited 
track record. For example, one IEC member will sometimes take on 
certain small businesses as subcontractors, which will often times be 
owned by minorities or women, and help mentor them on certain projects. 
With this new standard, they are now less likely to take on that risk. 
Many of our members that do contracting work with the Federal 
Government may now be less likely to bid on Federal contracts over $1.5 
million, under which the Federal Acquisition Regulation (FAR) system 
mandates they contract with small businesses.
    In conclusion, IEC urges Congress to consider the negative 
consequences this new standard has on businesses and the communities 
they serve, and pass the Protecting Local Business Opportunity Act.
    Thank you.
                                 ______
                                 
               Associated Builders and Contractors 
                                       (ABC), Inc.,
                                        September 15, 2015.

    Dear Chairman Alexander, Senators Kline, Isakson, and Roe: On 
behalf of Associated Builders and Contractors (ABC), a national 
construction industry trade association with 70 chapters representing 
nearly 21,000 chapter members, I write to thank you for introducing the 
Protecting Local Business Opportunity Act (S. 2015/H.R. 3549), which 
will help restore the ``joint employer'' standard that has been in 
place for over 30 years and bring stability back into the economy for 
contractors and subcontractors across the country.
    On August 27, 2015, the National Labor Relations Board (Board or 
NLRB) issued its decision in Browning-Ferris Industries altering the 
``joint employer'' standard under the National Labor Relations Act. The 
standard is used to determine when two separate companies are 
considered one employer with respect to a group of employees for 
purposes of liability and bargaining obligations under the National 
Labor Relations Act. Prior to this decision, companies were only deemed 
joint employers when they both exercised ``direct and immediate'' 
control over the ``essential terms and conditions of employment.'' In 
Browning-Ferris, however, the Board overturned 30 years of precedent to 
impose a new standard expanding the definition to include those 
employers who have 'indirect'' control and ``unexercised potential'' 
control. The two Republican members who dissented in the case explained 
the potential consequences of such a change, stating that the rule 
will,

        ``'subject countless entities to unprecedented new joint-
        bargaining obligations that most do not even know they have, to 
        potential liability for unfair labor practices and breaches of 
        collective bargaining agreements, and to economic protest 
        activity, including what have heretofore been unlawful 
        secondary strikes, boycotts and picketing.''

    The Board's decision will disrupt hundreds of thousands of business 
operations throughout the country and threaten the ability of 
hardworking Americans to achieve the American dream of owning their own 
business. Thank you again for introducing this much-needed legislation, 
and we urge Congress to quickly pass it.
    Sincerely,

                                             Geoffrey Burr,
                                Vice President, Government Affairs.

                          American Hotel & Lodging 
                               Association (AH&LA),
                                      Washington, DC 20005,
                                                   October 5, 2015.

U.S. Senate,
Washington, DC 20510.

    Dear Senator: On behalf of the American Hotel & Lodging Association 
(AH&LA), the sole national association representing all sectors and 
stakeholders in the U.S. lodging industry, including owners, REITs, 
chains, franchisees, management companies, independent properties, 
suppliers, and State associations, I urge you to cosponsor and support 
S. 2015, the ``Protecting Local Business Opportunity Act'' sponsored by 
Senator Lamar Alexander (R-TN). This commonsense legislation would 
address decisions made by the National Labor Relations Board (NLRB), 
which undermine the National Labor Relations Act (NLRA) and create 
unnecessary uncertainty within the employer community.
    The lodging industry is one of the Nation's largest employers. With 
1.9 million employees in cities and towns across the country, the hotel 
industry generates $176 billion in annual sales from more than 5 
million guestrooms at 53,432 properties. It's particularly important to 
note that this industry is comprised largely of small businesses, with 
more than 55 percent of hotels made up of 75 rooms or less.
    For more than three decades, the joint employer standard has been 
one of the cornerstones of labor law, protecting small businesses from 
undue liability involving employees over which they do not have actual 
or direct control.
    Unfortunately, through its Browning-Ferris Industries decision, the 
NLRB has completely re-written the joint employer standard by including 
``indirect'' and ``potential'' control into its decision. In doing so, 
the NLRB has ignored years of legal precedence and has created an 
environment of uncertainty that will put pressure on primary companies 
to assert more authority over small businesses to limit new potential 
liabilities under Federal labor law.
    As the minority members of the NLRB correctly state in their 
dissenting opinion,

          ``The number of contractual relationships now potentially 
        encompassed within the majority's new standard appears to be 
        virtually unlimited'' . . . ``creates uncertainty where 
        certainty is needed . . . and provides no real standard for 
        determining in advance when entities in a business relationship 
        will be viewed as independent and when they will be viewed as 
        joint employers.''

    The ``Protecting Local Business Opportunity Act'' will bring much-
needed certainty back into labor law, reversing the new ambiguous and 
senseless joint employer standard included in the NLRB's Browning-
Ferris Industries decision. Thank you for your consideration of this 
critical legislation.
            Sincerely,

                                         Brian C. Crawford,
                                      Vice President, Government & 
                                                 Political Affairs.

                       Asian American Hotel Owners 
                               Association (AAHOA),
                                           October 6, 2015.
Hon. Johnny Isakson,
U.S. Senator,
131 Russell Senate Office Building,
Washington, DC 20510.

    Dear Senator Isakson: We are writing on behalf of the Asian 
American Hotel Owners Association (AAHOA). As you may know, AAHOA 
represents more than 14,000 small business owners nationwide. Our 
members own more than 40 percent of all hotels in the United States and 
employ over 600,000 workers, accounting for nearly $10 billion in 
annual payroll. As small business owners, our members consistently 
contribute to the economy through job creation, tourism promotion, real 
estate development, and community investment.
    We understand that the Senate Committee on Health, Education, 
Labor, and Pensions will soon hold a hearing entitled, ``Stealing the 
American Dream of Business Ownership: The NLRB's Joint Employer 
Decision.'' We strongly urge you and your colleagues to overturn the 
regime recently manufactured by the National Labor Relations Board, 
which upended the previous three-decade long legal standard.
    Nearly 70 percent of the over 2 million guest rooms owned by AAHOA 
members are located in franchised hotels. The franchise business model 
has been essential in creating entrepreneurship opportunities for our 
members, who are nearly all first and second generation Americans. We 
fear the prospects for business ownership will be limited significantly 
if the traditional franchising model becomes fatally altered by 
government intervention.
    As hoteliers, we have come to depend on the franchise model as the 
most favorable means to small business ownership. For many markets in 
the lodging industry, associating with a nationally recognized brand 
determines whether or not a hotel can survive.
    Consequently, we are deeply concerned that the NLRB's intrusion 
into business relationships will cause franchisees to lose control of 
our businesses. Under the expanded definition of joint employer status 
concocted by the NLRB, franchisors may be coerced to undertake 
additional liability; thus, compelled to exert more control over the 
daily operations of franchisees' businesses to avoid legal action. 
Franchisees, like the vast majority of AAHOA members, would lose 
independence in decisionmaking and may effectively become employees of 
franchisors.
    Further, an added role for franchisors may also cause increases in 
royalties and licensing fees, or lead to demands to share in the net 
profits of the business. These outcomes are unsustainable for the 
lodging industry and frankly threaten to undo the entrepreneurial 
success of AAHOA members. Ultimately, under this new joint employer 
standard, AAHOA members may be discouraged to grow our businesses, 
create new jobs or invest in our local communities.
    The expansion of joint employer status may collapse the franchising 
model and extinguish aspirations of business ownership. Consequently, 
many good American jobs may be lost, or never created, because as 
entrepreneurs, we do not want to simply manage someone else's hotel.
    We strongly urge you to consider the tremendously adverse impacts 
on franchisees and workers when deliberating policy proposals 
associated with the NRLB's new definition of ``joint employer.''
            Respectfully,
                                               Jimmy Patel,
                                                     2015 Chairman.

                                               Bruce Patel,
                                                     Vice Chairman.

                                             Bhavesh Patel,
                                                         Treasurer.

                                              Hitesh Patel,
                                                         Secretary.

                                               Chip Rogers,
                                                   President & CEO.

                        Chamber of Commerce of the 
                          United States of America,
                                      Washington, DC 20062,
                                                  October 20, 2015.

Hon. Lamar Alexander, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20515.

    Dear Chairman Alexander: The U.S. Chamber of Commerce, the world's 
largest business federation representing more than 3 million businesses 
and organizations of every size, sector, and region, appreciates this 
opportunity to provide a statement for the record as part of the 
committee's October 6, 2015 hearing entitled, ``Stealing the American 
Dream of Business Ownership: The NLRB's Joint Employer Decision.'' The 
Chamber supports S. 2015, ``Protecting Local Business Opportunity Act'' 
(S. 2015 or PLBOA) as a commonsense solution to restore the 
longstanding and unambiguous ``joint employer'' standard under the 
National Labor Relations Act, which has allowed employers to develop 
business models that have led to increased flexibility, 
competitiveness, and growth. We look forward to working with you and 
your colleagues to pass this critical legislation.
                    i. the browning-ferris decision
A. The Joint Employer Standard Existing Prior to BFI Provided Clarity 
        and Certainty
    PLBOA is, of course, necessary because of the National Labor 
Relations Board's (NLRB or Board) controversial 3-2 ruling in Browning-
Ferris Industries (BFI) on August 27, 2015. In BFI, the NLRB upended 
decades of precedent to change its standard for determining whether two 
businesses are ``joint employers'' of certain workers. For over 30 
years prior to BFI, the Board maintained a clear test for determining 
whether two separate companies were joint employers: does the alleged 
joint employer exercise direct and immediate control over the workers 
at issue? This direct control was generally understood to include the 
ability to hire, fire, discipline, supervise and direct. TLI, Inc. 271 
NLRB 798 (1984), enforced 772 F.2d 894 (3d Cir. 1985).
    This test made perfect sense. It ensured that the putative joint 
employer was actually involved in matters that fall within the Board's 
purview, to wit, the employment relationship. It also ensured that such 
companies would not be embroiled in labor negotiations or disputes 
involving employees and workplaces over which they had little or no 
control. This was particularly important because a large company may 
have contractual relationships with hundreds or thousands of 
franchisees, vendors and subcontractors. Indeed, it made sense to 
impute liability--as the now-previous standard did--only in those cases 
in which an employer was in a position to investigate and remedy 
unlawful actions. It is no surprise that prior to the decision in BFI 
this standard had been in existence for over 30 years and had been 
endorsed by reviewing Federal courts of appeal.\1\
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    \1\ TLI and AM Prop. Holding Corp., 350 NLRB 998 (2007) were 
affirmed by the Third Circuit and Second Circuit, respectively.
---------------------------------------------------------------------------
B. BFI's Joint Employer Standard is Ambiguous, Uncertain and Provides 
        no Guidance for Employers
    In BFI, the Board overturned this clear bright-line test in favor 
of an amorphous, ill-defined test which will find joint employment even 
where one company only has the right to exert indirect or potential 
control over the terms and conditions of another company's employees. 
This confusing, multi-factor test provides absolutely no guidance to 
employers on how to structure their relationships so as to avoid joint 
employer liability. Quite clearly, this new test is both uncertain and 
seemingly easy to meet, and will therefore ``subject countless entities 
to unprecedented new joint-bargaining obligations that most do not even 
know they have.'' Browning-Ferris Industries of California, 362 NLRB 
No. 186, slip op. at 21 (2015).
    The new BFI standard is unmoored from the realities of the modern 
workplace, as the very nature of a contractual relationship presupposes 
at least some type of control over the services, results or product 
agreed to. Surely a company (or perhaps the U.S. House of 
Representatives\2\) that contracts with a food service business to 
provide cafeteria services will retain a modicum of indirect control to 
ensure that food quality, prices and speed of delivery are what it 
bargained for in the contract for services. Under BFI, this type of 
reserved and indirect control may be sufficient to establish a joint 
employer relationship between the two parties to the contract. See id., 
at 25-26. As one can easily imagine, these types of contractual 
relationships are myriad and commonplace. According to the dissent, 
``the number of contractual relationships now potentially encompassed 
within the majority's new standard appears to be virtually unlimited.'' 
Id., at 37.
---------------------------------------------------------------------------
    \2\ Washington Post, June 9, 2015 ``Capitol Hill to Run on Dunkin . 
. . at Least on the House Side'' available at http://
www.washingtonpost.com/blogs/in-the-loop/wp/2015/06/09/capitol-hill-to-
run-on-dunkin-at-least-on-the-house-side/.
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    The NLRB claims that the application of BFI is limited in scope--
that it is to be applied on a case-by-case basis and ``does not govern 
joint-employer determinations'' under other labor and employment 
statutes. But this is mere lip service to an employer community which 
finds itself at the mercy of one of the most controversial and 
politically motivated Boards in history. For example:

     This is an NLRB which lacked a constitutional quorum, yet 
continued to issue decisions until being stopped by the Supreme Court 
in a 9-0 decision. National Labor Relations Board v. Noel Canning, 573 
U.S._(2014).\3\
---------------------------------------------------------------------------
    \3\ The U.S. Chamber Litigation Center represented Noel Canning, a 
member of the Chamber, in the Supreme Court, and served as co-counsel 
to Noel Canning alongside the law firm Jones Day.
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     This is an NLRB that has promulgated regulations to speed 
up the union election process, unfairly limiting employers' abilities 
to communicate with employees about the pros and cons of unionization. 
The Board issued this regulation despite the fact that prior to 
issuance, 94 percent of all elections were conducted in 56 days and 
unions won about two-thirds of all elections.\4\
---------------------------------------------------------------------------
    \4\ See U.S. Chamber comments, April 7, 2014, available at https://
www.uschamber.com/sites/default/files/documents/files/
NLRB%202011%200002%20US%20Chamber%20of%20Commerce
.pdf.
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     This is an NLRB which blatantly attempted to force 
employers to post biased workplace notices about unionization, despite 
having no statutory authority to do so. See Chamber of Commerce of the 
United States v. NLRB, 721 F.3d 152 (4th Cir. 2013).
     This is an NLRB which is willing to overturn decades of 
precedent in significant cases in order to, among other things: limit 
employees' abilities to decertify an unwanted union; require employers 
to remit employees' union dues to unions even upon expiration of a 
collective bargaining agreement, thereby providing unions with greater 
leverage at the bargaining table; permit union organizing on employer-
owned email systems; award itself a second bite at the apple when it 
does not like the decision of an arbitrator; and require employers to 
disclose to union officials confidential witness statements made during 
the course of workplace investigations.\5\
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    \5\ See, respectively, Lamons Gasket Co., 357 NLRB No. 72 (2011); 
WKYC-TV, Inc., 359 NLRB No. 30 (2012); Purple Communications, Inc., 361 
NLRB No. 126 (2014); Babcock & Wilcox Construction Co., 361 NLRB No. 
132 (2014); American Baptist Homes of the West d/b/a Piedmont Gardens 
(``Piedmont Gardens''), 362 NLRB 139 (2015).

     This is a Board whose Specialty Healthcare decision--
another case overturning Board precedent--purportedly only made 
``modest'' changes to the law, but has been applied to, among other 
workplaces, dog training facilities and department stores.\6\
---------------------------------------------------------------------------
    \6\ Guide Dogs for the Blind, 359 NLRB No. 151 (2013); Macy's, 
Inc., 361 NLRB No. 4 (2014).
---------------------------------------------------------------------------
    Time and time again, the Board has stretched its legal authority in 
order to advance policy goals that are simply driven by the agenda of 
organized labor. Why should this time be any different? Clearly, the 
time has come to enact legislation that will reign in an out-of-control 
Board, and PLBOA is a vital first step.
                     ii. bfi's impact on employers
    By changing its joint employer standard in BFI, the Board has 
opened up a Pandora's Box of problems that may now potentially befall 
almost any employer who enters into a contract for services with 
another business. Indeed, this new standard is really about expanding 
the universe of potential employers who can be targeted by the NLRB, 
unions, and plaintiffs' bar. Many of these problems were set forth in 
our letter to you dated February 12, 2015, as well as in the Chamber's 
Workforce Freedom Initiative's report ``Opportunity at Risk.'' \7\ 
However, it is worth reiterating that some negative results of this new 
decision include the following:
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    \7\ The WFI report is available here: http://
www.workforcefreedom.com/sites/default/files/
Joint%20Employer%20Standard%20Final_0.pdf. In conjunction with this 
report, on March 20, 2015, the Chamber hosted a conference entitled, 
``The NLRB and the Joint-Employer Standard.'' The conference featured 
commentary from two former NLRB members, Andy Puzder (CEO of CKE 
Restaurants, Inc.), and several small business owners. Additionally, 
after BFI was issued the Chamber hosted a briefing call on September 9, 
2015. Approximately 150 Chamber members dialed-in, which is indicative 
of the significance of this issue.

    1. Corporate Campaigns. Being able to characterize large, well-
known businesses as the ``employer'' of a targeted group of workers who 
are employed by smaller, lesser known businesses, will encourage unions 
to launch very public organizing campaigns in hopes that the larger 
employer will bend to public pressure and recognize the union.
    2. Liability under the National Labor Relations Act. Because joint 
employers are liable for each other's acts and omissions, expanding the 
pool of joint employers will result in increased labor law liability 
for employers, even in cases in which they exert little or no control 
over the workers involved.
    3. Collective Bargaining. If the direct employer is organized, the 
``indirect employer'' would have to participate in collective 
bargaining. Depending on the circumstances, the ``indirect employer'' 
could be dragged into bargaining relationships with hundreds of 
entities over whose day-to-day operations they have no control.
    4. Secondary boycotts. The NLRA's prohibition on secondary boycotts 
means that if a union has a dispute with one employer (e.g., a 
janitorial services company), it cannot entangle other employers in the 
dispute (e.g., the factory owner that contracts with the janitorial 
services company). This distinction will likely be eviscerated under 
BFI 's new standard, allowing unions to picket and demonstrate against 
both entities.
    Worse, the plaintiffs' bar and other enforcement agencies may 
attempt to import the new BFI standard into other areas of employment 
law\8\ such as:
---------------------------------------------------------------------------
    \8\ Note that most employment laws have damages, enforced through 
both agency action and private court action, which exceed those under 
the National Labor Relations Act, some including punitive and 
compensatory damages with jury trials. Hence, there is a built-in 
incentive for the plaintiffs bar to push the envelope in this area of 
the law, relying on the reasoning in BFI.

    1. Threshold employer coverage. Many statutes, such as Title VII of 
the Civil Rights Act of 1964 and the Americans with Disabilities Act 
have small business exceptions and only apply if an employer has a 
certain number of employees. By loosening the joint employer standard, 
employer coverage under such statutes will explode. This would 
essentially eliminate carefully negotiated small business exceptions in 
these Federal statutes.
    2. Discrimination law. BFI's new joint-employer standard will 
encourage both the EEOC and the plaintiffs' bar to stretch the bounds 
of the law in an effort to entangle more employers in discrimination 
lawsuits.\9\ Importantly, compensatory damages are capped under title 
VII, and the caps generally increase as the number of employees 
increases. Thus, the plaintiff 's bar will be encouraged to establish 
joint employer status because doing so could increase the number of 
employees, thereby increasing the amount of available damages.
---------------------------------------------------------------------------
    \9\ See, e.g., Little v. TMI Hospitality, Inc., et al. 2:15-cv-
02204 (C.D. Ill., September 18, 2015)(in a complaint claiming sexual 
harassment and race discrimination, the plaintiff cites to BFI and has 
alleged that the hotel owner and the corporate brand are joint 
employers).
---------------------------------------------------------------------------
    3. Wage and Hour issues. Employers who use subcontractors may be 
liable for the subcontractor's wage-and-hour violations if it is 
determined they are a joint employer of the employee. The Wage & Hour 
Division and the plaintiffs' bar will likely look to see how they may 
take advantage of BFI. It is no secret that the current Wage and Hour 
Administrator, David Weil, has a strong distaste for alternative 
workplace arrangements.
    4. Occupational Safety and Health Administration (OSHA) issues. BFI 
may also provide an opportunity for OSHA to ratchet up fines against a 
parent company for repeated violations. For example, the same safety 
violation occurring at several different franchisees could be 
considered repeat violations if the franchisor is considered to be a 
joint employer with each of the franchisees. Moreover, a recently 
released internal OSHA memorandum reveals that the agency is looking at 
the potential for a joint-employment relationship between franchisors 
and franchisees when investigating workplace safety.
    5. Affordable Care Act Issues. Under BFI, individual companies 
falling well below the employer-mandate threshold and small businesses 
that depend on independent contractors or temporary workers could soon 
have to comply with the employer mandate's requirements. The franchise 
and temporary worker/subcontractor communities will be particularly hit 
hard since they use high numbers of part-time workers that might now be 
considered ``full-time'' under the new definition of full-time work in 
the ACA as 30 hours per week.
         iii. correcting the record of the october 6th hearing
A. BFI Does Not Return to Any Pre-Existing Standard Because Prior to 
        1984, There Was No Standard At All
    There was some discussion at the hearing that BFI is simply a 
return to the NLRB's joint employer standard that existed prior to the 
decisions in TLI and Laerco Transportation, 269 NLRB 324 (1984). In 
reality though, there was no consistent NLRB joint employer standard 
prior to these two decisions. It is notable that in his written 
testimony, Mr. Rubin does not cite to a Board case which established 
this alleged prior standard.\10\ He cannot because there is no such 
case. In fact, a brief examination of NLRB decisions prior to TLI and 
Laerco reveals that the Board had no joint employer standard at all.
---------------------------------------------------------------------------
    \10\ Mr. Rubin cites to Boire v. Greyhound Corp., 376 U.S. 473 
(1964) and NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 
691 F.2d 1117 (3d. Cir. 1982), as ``fairly consistent'' precedents that 
existed prior to TLI and Laerco, but neither of these cases sets forth 
a two-part multifactor test--which relies on indirect or potential 
control--to which BFI supposedly returns. Moreover, use of the modifier 
``fairly'' indicates that the law at the time was unsettled.
---------------------------------------------------------------------------
    One need look no further than the Teamsters Local 350s (the union) 
initial Request for Review in BFI for evidence that the Board did not 
maintain a consistent joint employer standard prior to 1984. In its 
brief, the union argued to the Board that it could find BFI to be a 
joint employer under the then-existing standard, and also under 
multiple ``broader formations'' of the standard. Tellingly, the Union 
did not encourage the Board to return to an allegedly consistent, rock-
steady formulation of the joint employer test announced in some 
prominent Board decision. Instead, the union's brief reads like a 
smorgasbord of various NLRB joint employer standards espoused over the 
years from which the Board could choose. Thus, the union urged the 
Board to adopt any of these joint employer tests with supporting cases:

     ``Indirect control.'' Hoskins Ready-Mix Concrete, 161 NLRB 
1492 (1966).
     ``Unexercised'' or potential control. Jewel Tea Co., 162 
NLRB 508 (1966).
     ``Industrial realities.'' Jewell Smokeless Coal, 170 NLRB 
392 (1968), enfd. 435 F.2d 1270 (4th Cir. 1970).

    In addition to these formulations, the Board also employed the 
``direct control'' test in some cases. See O'Sullivan, Muckle, Kron 
Mortuary, 246 NLRB 164, 165 (1979) (funeral home was not joint employer 
with company who provided it with driving services, because service 
provider was ``solely responsible for hiring, disciplining, and 
discharging its drivers''). Moreover, other pre-1984 cases expressly 
denounced the ``indirect control'' standard. See Walter B. Cooke, 262 
NLRB 626, 641 (1982)(finding ``such indirect control over wages and 
hours to be insufficient to establish a joint employer 
relationship.''). Adding to the confusion, prior to 1984, the Board 
sometimes conflated its ``joint employer'' test with its test for 
``single employer.'' See Parklane Hosiery Co., 203 NLRB 597, amended 
207 NLRB 991 (1973).\11\
---------------------------------------------------------------------------
    \11\ ``Single employer'' is a similar but different labor law term 
of art which addresses the question of whether two supposedly separate 
employers are actually one employer. The test for determining whether 
two entities are actually the same, ``single employer'' involves an 
analysis of the following factors: (1) inter-relation of operations; 
(2) common management; (3) centralized control of labor relations; and 
(4) common ownership or financial control. See, e.g., NLRB v. Browning-
Ferris Industries, Inc., 691 F.2d 1117, 1122 (3d Cir. 1982).
---------------------------------------------------------------------------
    In sum, prior to 1984, the Board did not have a consistently 
applied joint employer test. It examined cases under the direct control 
test, the indirect control test, the unexercised control test, the 
industrial realties test and other tests. Sometimes, the Board applied 
the wrong test altogether. It was not until TLI and Laerco that a 
consistent and cogent joint employer test emerged. Enactment of PLBOA 
is necessary to return to this consistent and coherent standard.
B. The Freshii Memorandum Carries No Legal Weight
    On April 28, 2015, the NLRB's Division of Advice issued a 
memorandum to Region 13 regarding whether Freshii (a franchisor) should 
be responsible as a joint employer for the alleged unfair labor 
practice committed by Nutritionality (its franchisee). The memorandum 
concluded that Freshii and Nutritionality were not joint employers. 
While this was likely welcomed news for both Freshii and 
Nutritionality, the memorandum has no broad application to the employer 
community in general. This is because the Board makes policy through 
its jurisprudence, not through internal advice memoranda. Simply put, 
``advice memoranda do not constitute Board law.'' Kysor/Cadillac, 307 
NLRB 598, 603 (1992). Thus, attempts during the hearing to elevate the 
significance of the Freshii memorandum and downplay the significance of 
BFI were misplaced.
C. BFI Provides No Guidance to Employers
    There was some patronizing comments made during the hearing that 
employers should not be so concerned about BFI because: (1) the ruling 
will only be applied on a case-by-case basis; and (2) it only involved 
``contracting'', so franchisors and franchisees should have nothing to 
worry about. First, ``case-by-case'' applications of rules are 
inherently unpredictable. This very uncertainty of how the new criteria 
could be applied will raise serious concerns in the business community 
about how future workplace contractual relationships between two or 
more employers should be structured. And no employer is going to risk 
energy, time and capitol to volunteer as the Board's next guinea 
pig.\12\
---------------------------------------------------------------------------
    \12\ The Board does not issue advisory opinions or letters, so 
there is no way for an employer to inquire in good-faith as to whether 
a certain contract or relationship makes it a joint employer.
---------------------------------------------------------------------------
    Second, both Senator Franken and Senator Casey mistakenly claimed 
that the franchising industry is not impacted by BFI. Specifically, 
Senator Casey stated, ``I don't think this decision is directed at 
franchises in any way.'' One would think that it should go without 
saying, but evidently it must be said: the franchise relationship is a 
contractual relationship. Therefore, franchisors and franchisees--just 
like any employer entities that enter into service agreements--have a 
great deal to be concerned about the uncertainty raised in BFI. See BFI 
slip op., at 45 (``Of the thousands of business entities with different 
contracting arrangements that may suddenly find themselves to be joint 
employers, franchisors stand out.'').
  iv. the bfi decision is the latest attack on alternative workplace 
                              arrangements
    The need for PLBOA becomes even more apparent when one considers 
other simultaneous efforts by the Board, Department of Labor (DOL) and 
State and local regulators to attack employers whose workforce 
structures do not fit into their ideal world view. Some of these 
efforts include:

     The NLRB has ignored instructions from Federal courts of 
appeals in an attempt to expand its jurisdiction over independent 
contractors.\13\
---------------------------------------------------------------------------
    \13\ 361 NLRB No. 55 (September 30, 2014); 362 NLRB No. 29 (March 
16, 2015).
---------------------------------------------------------------------------
     DOL's proposed changes to regulations regarding 
eligibility for overtime (RIN 1235-AA11).
     DOL's Administrator's Interpretation (No. 2015-1, July 15, 
2015) regarding Independent Contractor classification, which downplays 
the ``control'' factor.
     Proposed legislation in Seattle that would permit labor 
unions to organize independent contractors in certain transportation 
industries.\14\
---------------------------------------------------------------------------
    \14\ http://seattle.legistar.com/
ViewReport.ashx?M=R&N=Text&GID=393&ID=2296991&GUID=
A1841B13-CF4F-4E5A-9409-A613DC6B2B15&Title=Legislation+Text.

    Rather than adapting the law to keep pace with modern competitive 
workplaces, these regulators are trying to force companies to change 
their business models and strategies in order to make workplaces look 
the way they did in the 1930s: every worker is an employee who punches 
in at 9 a.m. and punches out at 5 p.m. and never checks their email 
outside of work. This model--which ultimately increases employer 
costs--will undoubtedly stifle competitiveness and result in stagnant 
economic growth. It also ignores the benefits of such structures for 
the parties involved. In particular, the independent contractor model 
can result in workers who ``have more control over their economic 
destiny.'' \15\ While PLBOA obviously does not address these other 
efforts, it would be a positive step forward for employers whose 
successful business models are under constant regulatory threat.
---------------------------------------------------------------------------
    \15\ Steven Cohen and William B. Eimicke, Independent Contracting 
Policy and Management Analysis, Columbia School of International 
Affairs, at 16 (August 2013).
---------------------------------------------------------------------------
                             v. conclusion
    For the foregoing reasons, the U.S. Chamber supports PLBOA as a 
modest and reasonable solution to the problems created by the NLRB's 
BFI decision. As noted above, plaintiffs' attorneys and other 
enforcement agencies, such as OSHA, are already looking to take 
advantage of the new, broader joint employer standard. And there is no 
doubt that the Board's General Counsel will attempt to apply this new 
standard to the franchising industry in pending litigation.
    We wish to thank you for taking the time to hold this important 
hearing on PLBOA. Please do not hesitate to contact us if we may be of 
assistance in this matter.
            Sincerely,
                                         Randel K. Johnson,
                                             Senior Vice President,
                          Labor, Immigration and Employee Benefits.

                                            James Plunkett,
                                         Director, Labor Law Policy
                                 ______
                                 
     Response by Ciara Stockeland to Questions of Senator Collins 
                           and Senator Scott
                            senator collins
    Question 1. I have spoken to various small employers in Maine 
regarding this issue. They cross-cut different industries. In Maine, 
for example, many of our hotels and motels are locally owned 
franchises. I am concerned about the disincentive that this ruling 
would create for expansion and the addition of new jobs. Ms. 
Stockeland, you are a business owner who could be significantly 
affected by this new rule. How do you believe this ruling will affect 
plans to expand a franchise business and create jobs?
    Answer 1. This new ruling would greatly effect my expansion plans 
and growth strategies for my business. We have had a very distinct and 
methodical growth strategy in place since our inception. With the goal 
of 75 stores by 2024, I am thrilled that through my small North Dakota 
business I continue to have the opportunity to give other entrepreneurs 
the opportunity to also own their own business and thus create jobs in 
their communities. When I think of the implications that this bill 
could have on us as a company, it gives me pause to consider whether or 
not I can afford the risk that 75 units would bring to me and my 
family. The reason I choose the franchise model was so that individual 
business owners in their own communities would have the privilege and 
the responsibility of hiring and managing their own employees. As a 
small franchisor, I cannot afford the liability that could come with 
the responsibility of managing employees that are in businesses miles 
away.
                             senator scott
    Question 1a. For more than 30 years, the business community has 
adhered to a certain set of principles for what constitutes a joint-
employer. During that time, you have been able to achieve substantial 
growth and franchise 11 different locations including one in my home 
State of South Carolina. This rule has the potential to reduce 
profitability for franchisees while at the same time limiting their 
growth. Where does that leave the South Carolinian hoping to get a job 
at one of your franchises?
    Answer 1a. We had the privilege of opening MODE Mt. Pleasant in 
July 2015. Through that opening, that local entrepreneur was able to 
hire two women from her community. We hope to continue to grow our 
brand in the State of South Carolina and with each store opening more 
jobs are created. If I decide, because of the liability that this issue 
affords me, that I will no longer franchise MODE, job opportunities 
will be lost in both the State of South Carolina and other States 
across the country.

    Question 1b. Who manages the employees at those 11 franchise 
locations--you or the franchisee?
    Answer 1b. The franchisee hires the employees in her franchise 
location and manages every single aspect of their duties as employees.

    Question 1c. What affect does the decision in Browning-Ferris have 
on the franchisee's ability to independently manage those employees?
    Answer 1c. This decision greatly effects both me as a small 
franchisor and also each individual franchisee because it essentially 
makes each franchisee a middle manager between myself and their 
employees and creates extensive liability for me as a small franchisor 
in that now I need to anticipate, know and fully control all employee 
relations in the individual MODE stores. It effects the franchisee's 
ability to independently manage their employees because they may no 
longer have direct control over the actions, growth and accountability 
of their own staff.

    Question 2a. It seems like the less independent franchisees become, 
the less likely someone in Charleston, SC would want to open a small 
business and hire employees. It seems to me like the additional 
liability and uncertainty our small businesses will be taking on will 
most certainly dip into their profits, and make it a less attractive 
investment for a lot of people. Do you find that to be the case?
    Answer 2a. I absolutely agree that the additional liability and 
uncertainty we face will make investment in the franchise model much 
less attractive. My franchisees went into business to run their own 
operation and to directly control their business success outcome. Small 
business people creating local jobs and being the direct employer of 
their hires.

    Question 2b. If so, how will that affect the growth potential for 
franchises?
    Answer 2b. This liability and uncertainty will affect the growth 
penitential for franchisees because they will no longer want to open 
their own small businesses, knowing that they are essentially middle 
managers while still taking on the risk of a small business owner.

    Question 3. As any business owner can tell you, one of the worst 
things in the world for your business is uncertainty. Unfortunately for 
many businesses across South Carolina, in particular small business 
owners, the NLRB's actions in redefining the definition and application 
of ``joint employer'' has failed to provide any real clarity and in 
fact, has just provided more uncertainty and questions for employers. 
It might seem obvious, but how do we actually expect businesses to be 
able to prepare for potential litigation, potential increased health 
insurance costs, or any of the other variety of financial challenges 
this rule places on them?
    Answer 3. There is absolutely no way that small business owners 
such as myself and my individual franchisees can prepare for the 
liability that we may incur with this legislation. There are no clear 
definitions and no clear directives. This decision has created a blurry 
line between direct and indirect control and leaves every circumstance 
open to the determination of lawyers. As a small business owner, there 
is a multitude of risk (such as no customers, weather you cannot 
control, inflation, product supply, etc.) that we can never control. 
Why would the government feel it fitting to inflict another unnecessary 
uncertainty onto small business owners? I cannot be emphatic enough 
that this will stunt small business growth in America and small 
business is the driving engine of job creation in the United States.

    Question 4. It's nearly impossible to run a successful operation 
when you have no idea what your costs will be or what you might legally 
be on the hook for. Won't this uncertainty have a direct impact on 
employees as well?
    Answer 4. When my franchisees and I have no idea what costs or 
legal implications will be imposed on our businesses, it absolutely 
slows our growth and job creation.
       Response by Edward Martin to Questions of Senator Collins 
                           and Senator Scott
                            senator collins
    Question 1. I have spoken to various small employers in Maine 
regarding this issue. They cross-cut different industries. In Maine, 
for example, many of our hotels and motels are locally owned 
franchises. I am concerned about the disincentive that this ruling 
would create for expansion and the addition of new jobs. Mr. Martin, 
you are a business owner who could be significantly affected by this 
new rule. How do you believe this ruling will affect plans to expand a 
franchise business and create jobs?
    Answer 1. It is with appreciation that I received your question 
following the Senate Committee on Health, Education, Labor, and 
Pensions hearing entitled, ``Stealing the American Dream of Business 
Ownership: The NLRB's Joint Employer Decision'' on October 6, 2015. I 
agree that the National Labor Relations Board's (NLRB) decision in 
Browning-Ferris will negatively impact the home building industry, 
dampen job creation, and discourage business expansion.
    The Browning-Ferris decision calls into question the very basic 
idea of what it means to be a business. If any basic business act, like 
scheduling, can trigger a finding of joint employment, employers will 
be ill-prepared to determine the appropriate scope of their workforce, 
and consequently, their legal responsibilities to that workforce. 
Because the new ``indirect or potential control'' standard affects 
employers' responsibilities not only at the NLRB, but with other 
Federal agencies such as the Internal Revenue Service, the U.S. 
Department of Labor, or for the purposes of the Affordable Care Act, 
businesses will be forced to re-examine their entire business model if 
the new joint employer standard is left unchecked by Congress.
    I am equally concerned about the new standard's impact on job 
creation. Without the human resources departments typical of large 
firms, small firms will find it challenging to compete under this new 
standard. The broadening of joint employment will lead to a 
centralization of the housing industry, with less competition among 
small firms, higher home prices, and fewer locally based businesses in 
Maine and around the country. If Congress codifies the traditional 
``direct control'' standard, this will lead to more competition among 
firms of all sizes, providing more affordable housing options for 
consumers.
    Thank you for your question. I look forward to working with you as 
S. 2015 moves forward in the legislative process.
                             senator scott
    Question 1. As any business owner can tell you, one of the worst 
things in the world for your business is uncertainty. Unfortunately for 
many businesses across South Carolina, in particular small business 
owners, the NLRB's actions in redefining the definition and application 
of ``joint employer'' has failed to provide any real clarity and in 
fact, has just provided more uncertainty and questions for employers. 
It might seem obvious, but how do we actually expect businesses to be 
able to prepare for potential litigation, potential increased health 
insurance costs, or any of the other variety of financial challenges 
this rule places on them?
    Answer 1. It is with appreciation that I received your questions 
following the Senate Committee on Health, Education, Labor, and 
Pensions hearing entitled, ``Stealing the American Dream of Business 
Ownership: The NLRB's Joint Employer Decision'' on October 6, 2015. I 
agree that the National Labor Relations Board's (NLRB) decision in 
Browning-Ferris creates more uncertainty for employers and will be 
especially challenging for home builders who may be found to be 
employers of other company's workers.
    For example, under the new test adopted in the Browning-Ferris 
decision, Tilson Homes could be considered a joint employer by merely 
scheduling a subcontractor to complete a roofing project at one of our 
job sites. The new ``indirect or potential control'' test is so 
ambiguous that employers, like myself, have an incredibly difficult 
time assessing where our liability ends and where another company's 
begins. Employers in South Carolina and around the country will find it 
difficult to properly prepare for potential litigation and the legal 
responsibilities that come with an expanded workforce. As you note, a 
finding of joint employment could trigger responsibilities under the 
Affordable Care Act, the Fair Labor Standards Act, and other labor 
laws. I strongly believe the new joint employer test will lead to 
centralization of the housing industry, which will negatively affect 
small businesses and housing prices.
    Question 2. It's nearly impossible to run a successful operation 
when you have no idea what your costs will be or what you might legally 
be on the hook for. Won't this uncertainty have a direct impact on 
employees as well?
    Answer 2. I strongly agree the new joint employer standard will 
have a negative impact on employees and job creation. The new limitless 
joint employer standard will not serve to better employees, but create 
such legal uncertainty that employers will scale back and hesitate to 
take on such great risk.
    As you note above, a finding of joint employment could trigger 
responsibilities under the Affordable Care Act, the Fair Labor 
Standards Act, and other labor laws. Because small businesses will be 
ill-equipped to handle such expanded legal liabilities, large 
businesses with sophisticated human resources departments will be in a 
better position to gain market share at the expense of local firms. 
Firms of all sizes, however, will find it challenging to take on such 
an expanded workforce, which could lead to fewer projects completed, 
less job creation, and certainly less competition among firms for 
projects, which is bad for the economy and housing.

    [Whereupon, at 11:38 a.m., the hearing was adjourned.]

                                   [all]
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