[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                   H.R. 3441, SAVE LOCAL BUSINESS ACT

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

                             JOINT HEARING

                               before the

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS


                                and the

                        SUBCOMMITTEE ON HEALTH,
                    EMPLOYMENT, LABOR, AND PENSIONS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, SEPTEMBER 13, 2017

                               __________

                           Serial No. 115-27

                               __________

  Printed for the use of the Committee on Education and the Workforce




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






           Available via the World Wide Web: www.govinfo.gov
                                   or
            Committee address: http://edworkforce.house.gov
            
                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
26-736 PDF                WASHINGTON : 2018                 
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
                COMMITTEE ON EDUCATION AND THE WORKFORCE

               VIRGINIA FOXX, North Carolina, Chairwoman

Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Duncan Hunter, California                Virginia
David P. Roe, Tennessee              Ranking Member
Glenn ``GT'' Thompson, Pennsylvania  Susan A. Davis, California
Tim Walberg, Michigan                Raul M. Grijalva, Arizona
Brett Guthrie, Kentucky              Joe Courtney, Connecticut
Todd Rokita, Indiana                 Marcia L. Fudge, Ohio
Lou Barletta, Pennsylvania           Jared Polis, Colorado
Luke Messer, Indiana                 Gregorio Kilili Camacho Sablan,
Bradley Byrne, Alabama                 Northern Mariana Islands
David Brat, Virginia                 Frederica S. Wilson, Florida
Glenn Grothman, Wisconsin            Suzanne Bonamici, Oregon
Elise Stefanik, New York             Mark Takano, California
Rick W. Allen, Georgia               Alma S. Adams, North Carolina
Jason Lewis, Minnesota               Mark DeSaulnier, California
Francis Rooney, Florida              Donald Norcross, New Jersey
Paul Mitchell, Michigan              Lisa Blunt Rochester, Delaware
Tom Garrett, Jr., Virginia           Raja Krishnamoorthi, Illinois
Lloyd K. Smucker, Pennsylvania       Carol Shea-Porter, New Hampshire
A. Drew Ferguson, IV, Georgia        Adriano Espaillat, New York
Ron Estes, Kansas
Karen Handel, Georgia

                      Brandon Renz, Staff Director
                 Denise Forte, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                    BRADLEY BYRNE, Alabama, Chairman

Joe Wilson, South Carolina           Mark Takano, California,
Duncan Hunter, California              Ranking Member
David Brat, Virginia                 Raul M. Grijalva, Arizona
Glenn Grothman, Wisconsin            Alma S. Adams, North Carolina
Elise Stefanik, New York             Mark DeSaulnier, California
Francis Rooney, Florida              Donald Norcross, New Jersey
A. Drew Ferguson, IV, Georgia        Raja Krishnamoorthi, Illinois
                                     Carol Shea-Porter, New Hampshire
        SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS

                    TIM WALBERG, Michigan, Chairman

Joe Wilson, South Carolina           Gregorio Kilili Camacho Sablan,
David P. Roe, Tennessee                Northern Mariana Islands
Todd Rokita, Indiana                   Ranking Member
Lou Barletta, Pennsylvania           Frederica S. Wilson, Florida
Rick W. Allen, Georgia               Donald Norcross, New Jersey
Jason Lewis, Minnesota               Lisa Blunt Rochester, Delaware
Francis Rooney, Florida              Carol Shea-Porter, New Hampshire
Paul Mitchell, Michigan              Adriano Espaillat, New York
Lloyd K. Smucker, Pennsylvania       Joe Courtney, Connecticut
A. Drew Ferguson, IV, Georgia        Marcia L. Fudge, Ohio
Ron Estes, Kansas                    Suzanne Bonamici, Oregon























                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on September 13, 2017...............................     1

Statement of Members:
    Byrne, Hon. Bradley, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     3
    Norcross, Hon. Donald, Ranking Member, a Representative in 
      Congress from the state of New Jersey......................     8
        Prepared statement of....................................    11
    Takano, Hon. Mark, Ranking Member, Subcommittee on Workforce 
      Protections................................................     3
        Prepared statement of....................................     5
    Walberg, Hon. Tim, Chairman, Subcommittee on Health, 
      Employment, Labor, and Pensions............................     6
        Prepared statement of....................................     7

Statement of Witnesses:
    Granger, Mr. MacDonald, CEO, MacDonald Companies, Kerrville, 
      TX.........................................................    14
        Prepared statement of....................................    16
    Kennedy, Ms. Tamra, President, Twin City T.J.'s Inc. 
      Roseville, MN..............................................    22
        Prepared statement of....................................    24
    Rubin, Mr. Michael, Partner, Altshuler Berzon LLP, San 
      Francisco, CA..............................................    29
        Prepared statement of....................................    31
    Fasman, Mr. Zachary, Partner, Proskauer Rose LLP, New York, 
      NY.........................................................    43
        Prepared statement of....................................    45

Additional Submissions:
    Chairman Byrne:
        Letter dated September 12, 2017 for House Committee on 
          Small Business.........................................    84
    Mr. Norcross:
        Primary case document....................................    10
    Mr. Takano:
        Letter dated July 28, 2017 from the Teamsters, SEIU, UAW, 
          UFW, UFCW, AND USW.....................................    95
        Letter dated September 7, 2017 from AFL-CIO..............    93
        Letter dated September 19, 2017 from United Brotherhood 
          of Carpenters and Joiners of America...................    98
        Slides...................................................    88

 
                   H.R. 3441, SAVE LOCAL BUSINESS ACT

                              ----------                              


                     Wednesday, September 13, 2017

                       House of Representatives,

                 Subcommittee on Workforce Protections,

                             joint with the

        Subcommittee on Health, Employment, Labor, and Pensions,

               Committee on Education and the Workforce,

                            Washington, D.C.

                              ----------                              

    The subcommittees met, pursuant to call, at 10:03 a.m., in 
Room 2175, Rayburn House Office Building, Hon. Bradley Byrne 
[chairman of the subcommittee on Workforce Protections] 
presiding.
    Present: Representatives Byrne, Walberg, Wilson, Roe, Brat, 
Grothman, Stefanik, Allen, Lewis, Mitchell, Smucker, Estes, 
Handel, Foxx, Takano, Courtney, Fudge, Bonamici, Adams, 
DeSaulnier, Norcross, Blunt Rochester, Krishnamoorthi, Shea-
Porter, and Scott.
    Staff Present: Bethany Aronhalt, Press Secretary; Andrew 
Banducci, Workforce Policy Counsel; Courtney Butcher, Director 
of Member Services and Coalitions; Michael Comer, Press 
Secretary; Rob Green, Director of Workforce Policy; Callie 
Harman, Professional Staff Member; Nancy Locke, Chief Clerk; 
Geoffrey Macleay, Professional Staff Member; Kelley McNabb, 
Communications Director; Rachel Mondl, Professional Staff 
Member; James Mullen, Director of Information Technology; 
Krisann Pearce, General Counsel; Molly McLaughlin Salmi, Deputy 
Director of Workforce Policy; Olivia Voslow, Legislative 
Assistant; Joseph Wheeler, Professional Staff Member; Lauren 
Williams, Professional Staff Member; Tylease Alli, Minority 
Clerk/Intern and Fellow Coordinator; Kyle deCant, Minority 
Labor Policy Counsel; Denise Forte, Minority Staff Director; 
Christine Godinez, Minority Staff Assistant; Eunice Ikene, 
Minority Labor Policy Advisor; Stephanie Lalle, Minority Press 
Assistant; Kevin McDermott, Minority Senior Labor Policy 
Advisor; Richard Miller, Minority Senior Labor Policy Advisor; 
Udochi Onwubiko, Minority Labor Policy Counsel; Veronique 
Pluviose, Minority General Counsel; Erin Robinson, Minority 
Policy Fellow; and Kimberly Toots, Minority Labor Policy 
Fellow.
    Chairman Byrne. Good morning. A quorum being present, the 
subcommittees will come to order.
    Let me welcome everybody to a joint subcommittee hearing on 
H.R. 3441, the Save Local Business Act. We look forward to 
hearing from an excellent panel of witnesses who travel led 
from different parts of our country to be here today. We want 
all of you to know, who have come to be here with us, that we 
appreciate the time you have taken away from your jobs and 
businesses to testify.
    To most Americans, the question over who their employer is 
seems to be an obvious answer. It is the person who hired them, 
the one who signs their paycheck. As a former labor attorney, I 
can tell you it used to be very clear in legal terms how you 
become someone's employer. But that is no longer the case since 
the National Labor Relations Board stepped in. Many people 
would be shocked to find out that some company they have had 
zero contact with is also considered their employer in addition 
to the employer that actually hired them and signs a paycheck.
    Now, we all agree there are times when two or more 
employers should be deemed joint employers. Before the NLRB 
stepped in and overstepped, there was a commonsense 
understanding of the circumstances establishing that joint 
employer relationship. Both employers had to have, quote, 
``actual, direct, and immediate,'' close quote, control, over 
the central terms and conditions of employment.
    That standard made sense. But today, business owners and 
their employees face a standard vastly different and far more 
confusing. They face a situation where a group of unelected 
bureaucrats in Washington are interfering with their 
relationship in a way that has created a lot of problems. The 
NLRB's decision, the Obama administration's actions that 
followed it, in addition to a litany of rulings by activist 
judges, have inserted a great deal of uncertainty and confusion 
into the traditional employer/employee relationship. Two 
completely separate employers can be considered joint employers 
if they made a business agreement that, quote, ``indirectly,'' 
close quote, or, quote, ``potentially,'' close quote, impacts 
their employees.
    Indirectly or potentially. What does that even mean? It's 
vague, and it's confusing. Think of it from the employee's 
standpoint. There shouldn't be any room for question on who 
their employer is. As for employers, they should have the 
clarity they need to look out for their employees in the way 
the law requires. Because in order for employees to have strong 
protections in the workplace, it needs to be crystal clear who 
was responsible for providing those protections. If everyone 
is, no one is.
    We are here today because we are determined to provide that 
clarity once and for all and protect jobs and small businesses 
in our communities. I'm proud to say that three of our 
Democratic colleagues, Representatives Chorea, Cellar, and 
Peterson are cosponsors of the Save Local Business Act, and we 
hope to continue to build bipartisan support so we can restore 
commonsense to the joint employer issue.
    This is an issue of great importance to both of our 
workforce subcommittees, which is why this critical legislation 
has been a joint effort with my colleague Mr. Walberg. Chairman 
Foxx has made the Save Local Business Act a top priority for 
the full committee, and this hearing will bring us one step 
closer to moving it through the legislative process.
    I'm going to give Mr. Walberg an opportunity to provide his 
own opening remarks, but before I do, I will yield to, 
Workforce Protections Subcommittee Ranking Member Takano for 
his brief opening remarks.
    Mr. Takano.
    [The statement of Chairman Byrne follows:]

  Prepared Statement of Hon. Bradley Byrne, Chairman, Subcommittee on 
                         Workforce Protections

    To most Americans, the question over who their employer is seems to 
be an obvious answer. It's the person who hired them, the one who signs 
their paycheck.
    As a former labor attorney, I can tell you it used to be very clear 
in legal terms how you become someone's employer. But that's no longer 
the case since the National Labor Relations Board stepped in.
    Many people would be shocked to find out that some company they've 
had zero contact with is also considered their employer, in addition to 
the employer that actually hired them.
    Now, we all agree there are times when two or more employers should 
be deemed ``joint employers.'' Before the NLRB overstepped, there was a 
commonsense understanding of the circumstances establishing that joint 
employer relationship. Both employers had to have ``actual, direct, and 
immediate'' control over essential terms and conditions of employment.
    This standard made sense. But today, business owners and their 
employees face a standard vastly different, and far more confusing. 
They face a situation where a group of unelected bureaucrats in 
Washington are interfering with their relationship in a way that has 
created a lot of problems.
    The NLRB's decision and the Obama administration's actions that 
followed, in addition to a litany of rulings by activist judges, have 
inserted a great deal of uncertainty and confusion into the traditional 
employer-employee relationship. Two completely separate employers can 
be considered joint employers if they made a business agreement that 
``indirectly'' or ``potentially'' impacts their employees.
    What does that even mean? It's vague and confusing. Think of it 
from the employee's standpoint. There shouldn't be any room for 
question on who their employer is.
    As for employers, they should have the clarity they need to look 
out for their employees in the way the law requires. Because in order 
for employees to have strong protections in the workplace, it needs to 
be crystal clear who is responsible for providing those protections.
    We are here today because we are determined to provide that clarity 
once and for all and protect jobs and small businesses in our 
communities. I'm proud to say three of our Democrat colleagues, 
Representatives Correa, Cuellar, and Peterson, are cosponsors of the 
Save Local Business Act, and we hope to continue to build bipartisan 
support so we can restore commonsense to the joint employer issue.
    This is an issue of great importance to both of our workforce 
subcommittees, which is why this critical legislation has been a joint 
effort with my colleague, Mr. Walberg. Chairwoman Foxx has made the 
Save Local Business Act a top priority for the full committee, and this 
hearing will bring us one step closer to moving it through the 
legislative process.
    I'd like to give Mr. Walberg an opportunity to provide his own 
opening remarks, but before I do, I will yield to Ranking Member 
Takano.
                                 ______
                                 
    Mr. Takano. Thank you, Chairman Byrne.
    We are here today to discuss H.R. 3441, the Save Local 
Business Act. But I believe this bill is more accurately 
described as a gift to large corporations that will further rig 
the economy against workers. More and more employees are 
working for a company whose name is not on the front of their 
office building. Instead of hiring employees directly, 
companies are renting employees from staffing agencies and then 
evading responsibility for upholding the rights of those 
workers, even though they profit from their work.
    For decades, joint employment standards have ensured 
workers can hold employers accountable for violating wage and 
hour laws or refusing to collectively bargain. This bill 
represents a significant and dangerous break from that 
precedent. It denies millions of workers the right to hold 
their employers accountable for wage theft and undermines their 
ability to have the responsible parties at the table in order 
to collectively bargain for better wages.
    This bill amends the FLSA and the NLRA to set a very narrow 
standard for who can be considered a joint employer. By setting 
a standard that is far more restrictive than the existing 
economic realities test used under the FLSA, this bill would 
seriously undermine worker protections.
    We'll hear today about a case involving workers at a 
Walmart warehouse that underscores the importance of the FLSA's 
joint employment standards. In this case Walmart contracted out 
the operations of the warehouse to one company, and that 
company, in turn, contracted out the staffing of the warehouse. 
The contractors violated wage and hour laws. And because of the 
joint employment standard under the FLSA, 1700 workers were 
able to bring Walmart and both contractors to the table to 
collect the pay that they had earned. The joint employer 
standard plays an important role in protecting the rights of 
American workers and combating the extreme and crippling 
inequality in our economy, which should be the central focus 
and top priority of this committee. Unfortunately, our focus 
and our priorities have been elsewhere.
    Studies have shown that for every dollar invested in high-
quality early learning programs, there are $7 in economic 
returns. As a teacher, I know that improving early learning -- 
early learning provides more children the opportunity to reach 
their full potential and puts more communities on the path to a 
better future. Yet, this committee has only held four hearings 
or markups on early childhood education since the 112th 
Congress.
    In comparison, as the chart shows, during that same time we 
have had 35 hearings and markups attacking labor unions and 
workers' rights to collectively bargain for better wages and 
working conditions.
    Now, there's a fine line between streamlining the economy 
and targeting workers' rights, and I believe this committee has 
moved well past that line several hearings ago. Even when we 
debate federal wage and hour standards, we're debating policies 
that would put financial stability even further out of reach 
for many workers.
    At no point since 2011, including in the 19 hearings and 
markups we've held on the subject, has this committee 
considered a single policy to raise workers' pay or create a 
fair playing field for millions of hard-working people who are 
struggling to make ends meet. Workers do not have the leverage 
in the workforce. The joint employment standard offers them the 
basic ability to hold both their employer and the joint 
employer liable for wage theft claims.
    This bill would strip workers of one of the few areas of 
leverage they have left. Victims of our two-tiered economy need 
this committee to realign its priorities. As this chart shows, 
a recent study found that wages for the bottom half of earners 
were stagnant from 1980 to 2014. In this same time, income for 
the top 1 percent grew by 205 percent. I'm going to say that 
again, 205 percent.
    So I challenge my colleagues, what are we going to do for 
the bottom half of income earners? I have great respect for 
small businesses, and I know the business owners here today 
will say that joint employer standards cause them uncertainty. 
And I'm not indifferent to your concerns. But I, too, am 
worried about uncertainty. And it's the uncertainty felt by 
millions of American workers who do not know if they'll be able 
to meet their basic expenses and provide for their children. 
This is the type of uncertainty that no one should have to live 
with, and it's the uncertainty that this committee is obligated 
to address.
    Thank you all for being here today, and I look forward to 
your testimony.
    [The statement of Mr. Takano follows:]

Prepared Statement of Hon. Mark Takano, Ranking Member, Subcommittee on 
                         Workforce Protections

    We are here today to discuss H.R. 3441, the Save Local Business 
Act. But I believe this bill is more accurately described as a gift to 
large corporations that will further rig the economy against workers.
    More and more employees are working for a company whose name is not 
on the front of their office building. Instead of hiring employees 
directly, companies are renting employees from staffing agencies...and 
then evading responsibility for upholding the rights of those workers, 
even though they profit from their work.
    For decades, joint employment standards have ensured workers can 
hold employers accountable for violating wage and hour laws or refusing 
to collectively bargain.
    This bill represents a significant and dangerous break from that 
precedent.
    It denies millions of workers the right to hold their employers 
accountable for wage theft and undermines their ability to have the 
responsible parties at the table in order to collectively bargain for 
better wages.
    This bill amends the F-L-S-A and N-L-R-A to set a very narrow 
standard for who can be considered a joint employer. By setting a 
standard that is far more restrictive than the existing economic 
realities test used under the F-L-S-A, this bill would seriously 
undermine worker protections.
    We'll hear today about a case involving workers at a Walmart 
warehouse that underscores the importance of the FLSA's joint 
employment standards. In this case, Walmart contracted out the 
operations of the warehouse to one company, and that company in turn 
contracted out the staffing of the warehouse. The contractors violated 
wage and hour laws.
    And because of the joint employment standard under the FLSA, 17 
hundred workers were able to bring Walmart and both contractors to the 
table to collect the pay they had earned.
    The joint employer standard plays an important role in protecting 
the rights of American workers and combating the extreme and crippling 
inequality in our economy, which should be the central focus and top 
priority of this committee.
    Unfortunately, our focus and our priorities have been elsewhere.
    Studies have shown that for every dollar invested in high-quality 
early learning programs...there are seven dollars in economic returns. 
As a teacher, I know that improving early learning provides more 
children the opportunity to reach their full potential, and puts more 
communities on the path to a better future. Yet, this Committee has 
only held four hearings or markups on Early Childhood Education since 
the 112th Congress.
    In comparison, as the chart shows, during that same time we've had 
35 hearings and markups attacking labor unions and workers' rights to 
collectively bargain for better wages and working conditions.
    There is a fine line between streamlining the economy and targeting 
workers' rights. I believe this committee moved well past that line 
several hearings ago.
    Even when we debate federal wage and hour standards, we're debating 
policies that would put financial stability even further out of reach 
for many workers. At no point since 2011, including in the 19 hearings 
and markups we've held on the subject, has this committee considered a 
single policy to raise workers' pay or create a fair playing field for 
millions of hardworking people who are struggling to make ends meet.
    Workers do not have enough leverage in the workforce. The joint 
employment standard offers them the basic ability to hold both their 
employer and the joint employer liable for wage theft claims. This bill 
would strip workers of one of the few areas of leverage they have left.
    Victims of our two-tiered economy need this Committee to realign 
its priorities.
    As this chart shows, a recent study found that wages for the bottom 
half of earners were stagnant from 1980 to 2014. In this same time, 
income for the top 1 percent grew by 205 percent. I'll say that again--
205 percent.
    So I challenge my colleagues: What are we going to do for the 
bottom half of income earners?
    I have great respect for small businesses and I know the business 
owners here today will say that the joint employer standard causes them 
uncertainty. I am not indifferent to your concerns.
    But I, too, am worried about uncertainty. It's the uncertainty felt 
by millions of American workers who do not know if they will be able to 
meet their basic expenses or provide for their children.
    That is the type of uncertainty that no one should have to live 
with. And it's the uncertainty that this committee is obligated to 
address. Thank you all for being here today, and I look forward to your 
testimony.
                                 ______
                                 
    Chairman Byrne. Thank you, Mr. Takano.
    I will now yield to my distinguished colleague from 
Michigan, Health, Employment, Labor, and Pensions Subcommittee 
Chairman Walberg for his brief opening remarks.
    Mr. Walberg.
    Chairman Walberg. Thank you, Mr. Chairman. And good morning 
to everyone. I, too, would like to extend a warm welcome to our 
witnesses who have traveled from out of state to join us today. 
We appreciate you being here, and have had hearings on this 
issue in the past, and I am excited for this again.
    I listen to my friends and colleagues on the other side 
talk about the things that we should be doing that weren't done 
when they were fully in control with the White House and both 
houses as well. So it is our time now to deal with things that 
I think make a difference in the real world of the American 
dream. This committee has been fighting to roll back the 
extreme joint employer scheme since it first took effect and 
for good reason. It's a threat to jobs, entrepreneurship, and 
local employers across the country.
    We know this new joint employer standard has led to a whole 
host of real world consequences. Because that's exactly what 
we've heard from business owners and their employees in each of 
our districts before this committee. We've all heard the voices 
of local job traders who fear they could lose control of their 
business to larger companies. One small business owner who 
described himself as, and I quote, ``the living definition of 
the American dream,'' warned the committee that he would -- 
and, again, quote, ``virtually overnight become a manager of a 
large company.''
    We've also heard how this new standard has made it harder 
for small businesses to grow and create jobs in their 
communities. Kristie Arslan, the owner of a small gourmet 
popcorn shop, said she was considering opening five new 
locations through franchising but the joint employer threat 
made her expansion plans too risky. She decided she could only 
open one new store instead of five. This is just one concerning 
example of lost jobs and opportunity.
    So many hard-working entrepreneurs who took a risk to start 
their own business now find themselves in the sea of 
uncertainty. And it's not just those in the franchising 
industry. Many small businesses and local vendors rely on 
contracts with larger companies, and they are concerned those 
contracts could soon be harder to come by.
    According to the American Action Forum, the joint employer 
scheme threatens 1.7 million jobs. To protect those jobs, we 
have to restore a commonsense definition of what it means to be 
an employer.
    I'd like to remind some of our critics that the Save Local 
Business Act reflects the same straightforward joint employer 
test that workers and job creators relied on for decades. To be 
someone's employer it makes perfect sense that you need to have 
actual, direct, and immediate control over terms and conditions 
of employment. This clear test does nothing to let employers 
off the hook for their obligations to their employees. What it 
does ensure -- what it does is ensure the actual employer is 
the one held responsible. And that's the way it should be.
    It's time to settle, once and for all, what constitutes a 
joint employer, not through arbitrary and misguided NLRB 
decisions and rulings by activist judges, but through 
legislation. This is obviously an area of labor law that is in 
desperate need of clarity as recognized by at least three of 
our colleagues on the other side of the aisle. This isn't a 
Democrat verse Republican issue.
    The Save Local Business Act is about providing certainty 
for job creators in each and every one of our districts. It's 
about keeping the American dream within reach. I look forward 
to today's discussion.
    And, Mr. Chairman, I yield back.
    [The statement of Mr. Walberg follows:]

   Prepared Statement of Hon. Tim Walberg, Chairman, Subcommittee on 
                 Health, Employment, Labor and Pensions

    This committee has been fighting to roll back the extreme joint 
employer scheme since it first took effect, and for good reason. It's a 
threat to jobs, entrepreneurship, and local employers across the 
country.
    We know this new joint employer standard has led to a whole host of 
real-world consequences, because that's exactly what we've heard from 
business owners and their employees in each of our districts and before 
this committee.
    We've all heard the voices of local job creators who fear they 
could lose control of their businesses to larger companies. One small 
business owner, who described himself as the ``living definition of the 
American Dream,'' warned the committee that he would ``virtually 
overnight become a manager for a large company.''
    We've also heard how this new standard has made it harder for small 
businesses to grow and create jobs in their communities. Kristie 
Arslan, the owner of a small gourmet popcorn shop, said she was 
considering opening five new locations through franchising, but the 
joint employer threat made her expansion plans too risky. She decided 
she could only open one new store instead of five.
    This is just one concerning example of lost jobs and opportunity. 
So many hardworking entrepreneurs, who took a risk to start their own 
business, now find themselves in a sea of uncertainty. And it's not 
just those in the franchising industry. Many small businesses and local 
vendors rely on contracts with larger companies, and they are concerned 
those contracts could soon be harder to come by.
    According to the American Action Forum, the joint employer scheme 
threatens 1.7 million jobs. To protect those jobs, we have to restore a 
commonsense definition of what it means to be an employer.
    I'd like to remind some of our critics that the Save Local Business 
Act reflects the same straightforward joint employer test that workers 
and job creators relied on for decades.
    To be someone's employer, it makes perfect sense that you need to 
have ``actual, direct, and immediate control'' over terms and 
conditions of employment. This clear test does nothing to let employers 
off the hook for their obligations to their employees. What it does is 
ensure the actual employer is the one held responsible. And that's the 
way it should be.
    It's time to settle once and for all what constitutes a joint 
employer--not through arbitrary and misguided NLRB decisions and 
rulings by activist judges--but through legislation. This is obviously 
an area of labor law that is in desperate need of clarity.
    As recognized by at least three of our colleagues on the other side 
of the aisle, this isn't a Democrat versus Republican issue. The Save 
Local Business Act is about providing certainty for job creators in 
each and every one of our districts. It's about keeping the American 
Dream within reach.
                                 ______
                                 
    Chairman Byrne. Thank you, Chairman Walberg.
    I now yield to my distinguished colleague from New Jersey, 
Congressman Norcross, the ranking member pro tempore on the 
Health, Employment, Labor, and Pensions Subcommittee for his 
brief opening remarks.
    Mr. Norcross. Thank you, Chairmen Byrne and Walberg for 
holding this meeting today. And I would like to thank my, 
Ranking Member Mark Takano for what you do each and every day 
for working families, and certainly to the witnesses who you 
will be bringing your experiences to this issue.
    I'd like to start by offering my thoughts and prayers to 
the people of Texas and Florida and all those who have been 
impacted by the devastating storms over the last two weeks. 
There are 60,000 what they call storm break workers in those 
two states restoring power, one of the most dangerous jobs that 
you can imagine.
    But today we're here to consider a bill that attacks 
workers' rights to fight for better wages and conditions. 
Employers have increasingly moved away from direct hiring, 
relying on leased employees, subcontractors, permatemps. 
There's approximately 3 million Americans that are now employed 
by temporary staffing agencies, and one-fifth of all new jobs 
since 2009 have been through those temp agencies.
    Labor and employment laws have long held that there are 
multiple joint employers, when more than one entity controls 
the terms and conditions of employment. This bill would rig the 
National Labor Relations Act and the Fair Labor Standards Act 
to make it nearly impossible for workers to hold joint 
employers responsible for unfair labor practices, wage theft or 
others.
    Research shows that the fissuring of the workforce to 
increase outsourcing is already contributing to wage 
stagnation, and this bill would make that problem even worse.
    The joint employer standard that exists today started out 
in the common law standard as existed for hundreds of years. In 
America, that standard has existed through most of the 20th 
Century and exactly intended to do what it is doing. But when 
the NLRB narrowed that joint employer standard back in 1984, it 
made it easier for companies to evade this joint employer. So 
from 1935 to 1984 it was the same standard. Hundreds of 
decisions were made based on that. And it wasn't until 1984 
that changed.
    In 2015, the NLRB considered a case where workers at 
Browning-Ferris, BFI, Recycling Plant wanted to organize a 
union. These workers were hired by the staffing agency 
Leadpoint to sort recycling materials at the BFI facility. But 
BFI capped their wages and assigned their workers' shifts. BFI 
claimed it wasn't the employer. But here's the problem. If a 
worker had joined the union with Leadpoint as the only 
employer, then Leadpoint wouldn't be able to bargain over 
anything without BFI's permission. Workers wouldn't even be 
able to bargain for better wages because the amount Leadpoint 
could pay was capped by BFI. The NLRB finding: that BFI was a 
joint employer. And this is critical to help raise wages.
    So let's look what happened at the table behind you and on 
the walls showing the disparity in those wages since the 
Leadpoint came into this equation. The wages of workers in 
nearly all the plants that have unions were from $19 to $30 an 
hour, plus healthcare, retirement savings. Leadpoint only made 
$12.50 an hour total package. Without being able to bargain 
with both of their employers, Leadpoint BFI workers and 
hundreds of thousands like them will never see their wages rise 
again. And this isn't the only example. And we've seen these 
trends continue.
    Mr. Chairman, I'd ask for unanimous consent to introduce 
this document which lists three primary cases that the 
carpenters' union has dealt with into the record.
    Chairman Byrne. Without objection, so ordered.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Norcross. Thank you.
    The right to join a union and collectively bargain helps 
workers raise wages. I've lived this. I've fought on behalf of 
workers to raise wages for almost two decades. This bill 
enables corporations to keep wages low by subcontracting out 
the work. They're subcontracting their conscience to put 
profits over people.
    This bill even goes further. It amends the FLSA, the Fair 
Labor Standards Act, to prevent workers from holding employers 
accountable for wage theft, overtime violations or others. It 
immunizes the employers from child labor violations. Under this 
bill, all a company has to do is outsource control of just one 
essential term of employment, just one essential term of 
employment to its subcontracting. You could be -- scheduling. 
This bill relieves that company from any liability of wage 
theft for which it would be responsible.
    This is where I think the crux of what we're discussing 
today comes down to. This bill is pushing for a solution in 
search of a problem when it claims this bill would help 
franchisees. The current joint employer standards do not hurt, 
do not hurt, franchisees in any way. There are approximately 
800,000 franchisees in this country. The NLRB has never found 
one of them was a joint employer, 800,000, and not one decision 
to create a joint employer. It's a remarkable fact. But it's an 
important fact when we're talking about what we're trying to do 
here today.
    That's because the board carefully draws a line between 
what a franchisor maintains its brand, like requiring training 
on how to prepare hamburgers, hot dogs or whatever else that 
the company produces. But they also do something now, the terms 
and conditions, wages, benefits, and hold that subcontractor to 
their exact standards.
    Mr. Chairman, I'm happy to work on legislation that would 
help small businesses and raise wages. This bill does neither. 
It empowers massive corporations and stagnant wages at a time 
when working families need relief.
    I'll remind everybody it's been a decade since a vote was 
taken on the minimum wage. It's been eight years since they 
have received a raise. We should be lifting people up, not 
pushing wages down.
    While we disagree on the merits of the bill, I want to 
thank the chairman for following regular order, and I want to 
thank each of witnesses for traveling to Washington and look 
forward to your testimony.
    Thank you.
    [The statement of Mr. Norcross follows:]

    Prepared Statement of Hon. Donald Norcross, a Representative in 
                 Congress from the state of New Jersey

    Thank you Chairmen Byrne and Walberg for holding this hearing 
today. And I would like to thank my colleague, Ranking Member Mark 
Takano for all you do on behalf of working families.
    I would like to start by offering my thoughts and prayers to the 
people of Texas, Florida, and all the states impacted, particularly 
those who lost loved ones as well as those who remain displaced. I know 
I speak for my Democratic colleagues in stating that we stand ready to 
work with you to ensure that the affected states have the resources 
they need to recover and rebuild.
    Today we consider a bill that attacks workers' rights to fight for 
better wages and conditions. Employers have increasingly moved away 
from direct hiring, relying on leased employees, subcontractors, and 
perma-temps. Approximately 3 million Americans are now employed by 
temporary staffing agencies, and one fifth of all new jobs since 2009 
have been through temp agencies.
    Labor and employment laws have long held workers have multiple, 
``joint employers'' when more than one entity controls the terms and 
conditions of employment. This bill would rig the National Labor 
Relations Act and the Fair Labor Standards Act to make it nearly 
impossible for workers to hold joint employers responsible for unfair 
labor practices or wage theft. Research shows that the fissuring of the 
workforce through increased outsourcing is already contributing to wage 
stagnation, and this bill would make the problem even worse.
    The joint employer standard that exists today is based on a common 
law standard that has existed for hundreds of years. In America, the 
standard that existed through most of the twentieth century did exactly 
what it was intended to. But when the NLRB narrowed the joint employer 
standard under the NLRA in 1984 it made it easier for companies to 
evade joint employer status.
    In 2015, the National Labor Relations Board considered a case where 
workers at the Browning Ferris (BFI) recycling plant wanted to organize 
a union. These workers were hired by the staffing agency Leadpoint to 
sort recyclable materials at BFI's facility, but BFI capped their wages 
and assigned the workers' shifts. BFI claimed it wasn't an employer, 
but here's the problem: if the workers joined a union with Leadpoint as 
the only employer, then Leadpoint wouldn't be able to bargain over 
anything without BFI's permission. The workers wouldn't even be able to 
bargain for better wages, because the amount Leadpoint could pay was 
capped by BFI. The NLRB's finding that BFI was a joint employer is 
critical for these workers to raise their wages.
    [Referencing the chart:] Let's look at what actually happened. This 
table compares what the subcontracted Leadpoint workers were making 
with the wages of workers at nearby plants that have unions. The union 
workers nearby make anywhere from $19 to $30 an hour, plus healthcare 
and retirement savings. The Leadpoint workers only make $12.50 an hour 
with no wages and benefits. Without being able to bargain with both of 
their employers, the Leadpoint/BFI workers, and hundreds of thousands 
like them, will never see their wages rise. And this isn't the only 
example - we have seen similar trends in the telecom and construction 
industries.
    Mr. Chairman, I ask unanimous consent to introduce this document 
into the record.
    The right to join a union and collectively bargain helps workers 
raise wages. I've lived this--I fought on behalf of workers to raise 
wages for over two decades. This bill enables corporations to keep 
wages low by subcontracting out their work. They are subcontracting 
their consciences to put profits over people.
    This bill goes even further. It amends the Fair Labor Standards Act 
to prevent workers from holding employers accountable for wage theft or 
overtime violations. It even immunizes employers from child labor 
violations. Under this bill, all a company has to do is outsource 
control over just one essential term of employment to its 
subcontractors--say scheduling. The bill then relieves the company of 
any liability for any wage theft for which it may be responsible. 
Workers and businesses want stability and predictability. Instead we 
are giving them chaos.
    The Majority [alternative: This bill] is pushing a solution in 
search of a problem when it claims that this bill would help 
franchises. The current joint employment standards do not hurt 
franchises in any way. There are around 800,000 franchisees in America 
and the NLRB has never found that one of them was a joint employer.1 
That's because the Board carefully draws a line between when a 
franchisor maintains its brand--like requiring training on how to 
prepare burgers--and when a franchisor governs terms of employment, 
like wages. This bill would leave countless hardworking Americans 
without a voice in their workplace at a time when Congress should be 
helping to lift up workers by raising wages and improving workplace 
conditions.
    Mr. Chairman, I'm happy to work on legislation that would help 
small businesses and raise wages. This bill does neither: it empowers 
massive corporations and stagnates wages at a time when working 
families need relief. We should be lifting people up, not pushing wages 
down.
    While we disagree about the merits of this bill, I want to thank 
the Chairman for following regular order. I also want to thank each of 
the witnesses for traveling to Washington, DC, and taking the time to 
appear here today.
    I yield back.
     https://www.cnbc.com/2016/01/20/us-franchises-set-to-grow-in-2016-
report.html
                                 ______
                                 
    Chairman Byrne. Thank you, Mr. Norcross.
    Pursuant to committee Rule 7(c), all subcommittee members 
will be permitted to submit written statements to be included 
in the permanent hearing record. Without objection, the hearing 
record will remain open for 14 days to allow statements, 
questions for the record, and other extraneous material 
referenced during the hearing to be submitted in the official 
hearing record.
    Now, it's my pleasure to introduce our distinguished panel 
of witnesses.
    Our first witness is Mr. Granger MacDonald. He is the CEO 
of MacDonald Companies, a group of companies specializing in 
developing, building, and managing multi-family neighborhoods 
in Texas, and is testifying on behalf of the National 
Association of Home Builders.
    And, Mr. MacDonald, let me just say on behalf of all of us, 
we're all praying for the state of Texas. We appreciate you 
being here.
    Now I recognize Representative Lewis to introduce our next 
witness.
    Mr. Lewis. Thank you, Mr. Chairman, for holding this 
hearing and for introducing this very important piece of 
legislation to provide clarity and relief to local businesses 
and job creators across this country who are threatened by this 
joint employer scheme.
    It is my pleasure to introduce a local business owner from 
my state of Minnesota, Ms. Tamara Kennedy who will be 
testifying on behalf of the International Franchise 
Association. She began her career as a secretary and worked her 
way up to owner by working nights in the restaurants while 
studying accounting and managing the books for a previous 
owner.
    Ms. Kennedy now owns and operates nine Taco John's 
franchises, eight of them in the Twin Cities area. She 
epitomizes the American dream of work, investment, and risk. 
But America's economy's tolerance for risk is not unlimited. 
You know, her favorite part of the job is getting to teach 
young people how to be good employees and good teammates, an 
important role franchises play across this nation.
    Ms. Kennedy is serving her second year as a member of the 
International Franchise Association's convention committee and 
will be soon be taking a seat on the IFA board of directors. I 
look forward to hearing about her experiences, and I thank her 
for joining us today.
    Chairman Byrne. Thank you, Mr. Lewis. I will now continue 
with this mornings' introductions.
    Mr. Michael Rubin is a partner at Altshuler Berzon LLP, in 
San Francisco, California. Welcome sir.
    Mr. Zachary Fasman is a partner in the labor and employment 
law department at Proskauer Rose LLP, in New York City. 
Distinguished panel.
    I now ask our witnesses to raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Let the record reflect the witnesses answered in the 
affirmative.
    Before I recognize each of you to provide your testimony, 
let me briefly explain our lighting testimony. You will each 
have five minutes to present your testimony. When you begin, 
the light in front of you will turn green.
    When one minute is left, the light will turn yellow. When 
your time has expired, the light will turn red.
    At that point, I will ask to you wrap up your remarks as 
best as you are able.
    After everyone has testified, members will each have five 
minutes to ask questions of the panel.
    Now, I am not, like, really harsh about the lights. But 
sometimes people go a little bit over. We have a lot of members 
here that want to ask questions. And only so much time for you 
and for them. So if I push you a little bit, please don't take 
it personally. It's because we're trying to keep everything 
moving.
    So when that light turns yellow please start getting to the 
point where you're winding up. Okay. Are we all clear on that? 
Good.
    Also, before you testify, just as Mr. MacDonald is doing, 
press the button for your microphone or we won't hear you good 
Mr. MacDonald thank you look forward to your testimony.

   STATEMENT OF GRANGER MACDONALD, CEO, MACDONALD COMPANIES, 
    KERRVILLE, TEXAS, TESTIFYING ON BEHALF OF THE NATIONAL 
                  ASSOCIATION OF HOME BUILDERS

    Mr. MacDonald. Thank you, Mr. Chairman appreciate being 
here today.
    My business, MacDonald Companies, specializes in developing 
affordable multi-family housing across Texas. We currently own 
and manage 4571 units in 41 different apartment communities in 
25 cities. We directly employ 131 workers from construction 
supervisors, to property managers, to maintenance and repair 
staff, many of whom are full-time, salaried individuals.
    Beyond our regular staff, MacDonald Companies contracts 
with 80 other companies and specialty trades to perform a range 
of services across all of our properties including HVAC work, 
piling, drywall, et cetera. This type of arrangement is not 
unique to the entire construction industry. It's made up of a 
system of building contractors and subcontractors who have been 
this together. For the most builders they don't have enough 
work to hire someone full time to just do tile work for 
example. I might only need a drywaller for a few weeks each 
year.
    These numerous specialized task require a complete project 
we contract with other small companies out of necessity. This 
is why I'm very concerned about the ongoing ambiguity over what 
constitutes a joint employer. A builder can now be considered a 
joint employer if he has indirect or potentially ability to 
exercise control over the workers' subcontractors the question 
of what can deemed indirect control and when it legally 
constitutes joint employment has been left to an open ended 
situation by the NLRB. This threatens to upend the foundation 
of the entire industry.
    For example, we'll schedule a painter or an electrician to 
come to a jobsite at a certain time. Does that trigger a 
finding of joint employment? Do I have indirect control if I 
ask a contractor to bring on extra staff to make up for delays? 
One might think that an indirect or potential control over just 
one factor like scheduling would not justify a finding of joint 
employment. But because of the indirect test, it's so vague, 
the NLRB has not ruled on that possibility. And there is 
nothing stopping the courts from ruling on the basis of just 
one factor.
    Over the last three weeks, I've been overseeing cleanup and 
reconstruction efforts at some of our buildings in the wake of 
Hurricane Harvey's historic devastation. The process of 
rebuilding from a natural disaster is chaotic and time lines 
are anything about predictable.
    I have contractors and subcontractors coming in and out of 
our properties round the clock right now. I may ask a 
contractor to bring on more staff to finish up drywalling that 
has fallen behind so that the next stage of workers can get 
started or tell the cabinet installer that he can't come as 
planned because the replacement floor tiles have not been set 
because of lingering humidity because of the storm damage. Can 
these acts meet the test for indirect control? The expanded 
joint employer test provides no clarity.
    My focus is on getting families back to their homes. We 
have endured and rebuilt from bad storms before, and we're 
doing it again. But this time is with the added worry of 
whether my company will be held liable for the practices of 
contractors, third-party vendors, and suppliers that we've 
hired to help with this important job over whom we have no 
direct control.
    The reality is that the line that once clearly separated 
two employers is so blurry that neither I nor others in the 
industry can see where it lies. The scope of the liability will 
only grow for builders as courts explore and expand the limits 
of the new standard. Exposed to unlimited and unpredictable 
joint employment liability, small businesses will find it 
increasingly challenging to comply and, therefore, compete. 
This is true for residential building firms, the majority of 
which have less than ten employees, as well as specialty 
trades.
    With less competition among small firms, construction 
costs, and subsequently home prices, will rise, particularly 
troubling for those of us who are in the business of providing 
affordable housing.
    The bipartisan Save Local Business Act offers a commonsense 
solution to the ambiguity created by the Browning-Ferris 
decision by affirming that a company may be considered a joint 
employer of a worker only if it directly, actually, and 
immediately exercises significant control over the primary 
elements of employment.
    This is reasonable. I should be held accountable for my 
employees but not for those of another company. Codifying the 
definition will provide the legal certainty every business 
owner needs. I urge the Committee to take swift action to 
advance the Save Local Business Act.
    Thank you.
    [The statement of Mr. MacDonald follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
   
    Chairman Byrne. Thank you, Mr. MacDonald.
    Ms. Kennedy, you are recognized for five minutes.

 STATEMENT OF TAMRA KENNEDY, PRESIDENT, TWIN CITY T.J.'S, INC. 
   ROSEVILLE, MN, TESTIFYING ON BEHALF OF THE INTERNATIONAL 
                     FRANCHISE ASSOCIATION

    Ms. Kennedy. Chairman Byrne, Chairman Walberg, Ranking 
Member Takano, Ranking Member Norcross, and distinguished 
members of the subcommittees, good morning. My name is Tamara 
Kennedy, and I'm the president of Twin Cities' Taco John's, 
multi-unit franchisee based in Minnesota. I'm honored here 
today to speak here on behalf of small businesses throughout 
the nation, and I thank you for your invitation.
    I want to start by recognizing that all of our prayers and 
thoughts are with the people of Florida, Alabama, Georgia, 
South Carolina, Texas, Louisiana, all of whom have been 
affected by the hurricanes of Irma and Harvey.
    Today I'm representing the Coalition to Save Local 
Businesses and its thousands of members who are supportive of 
the Save Local Business Act. I'm appearing before you today 
with over 400 franchise brand leaders coming around Capitol 
Hill urging their Representatives and Senators to take close 
look at this legislation. We consider H.R. 3441 the most 
important federal legislation in franchising in over a 
generation.
    Mr. Chairman, I got my start working as a secretary for a 
Taco John's franchisee. It took me 17 years to realize my dream 
of owning my own business, and in 1999, when my employer 
retired, I bought the restaurants. Today my organization 
operates nine locations, eight in Minnesota and one in central 
Iowa. My business has overcome many challenges, including the 
recession, but we have stayed the course because I believe our 
company has the potential for growth, should the regulatory 
environment allow us the certainty and the flexibility to do 
so.
    Countless people in the franchisee industry start out in 
entry-level positions like mine, as busboys, line cooks or 
cashiers, or as secretaries, working towards their dream of 
someday owning their own business and being their own business 
and being their own boss. The franchise structure has created 
that path.
    As a local business owner, I am very fortunate to have the 
privilege of providing jobs in our neighborhoods. My company's 
values really are about giving people a place to earning a 
living and learn skills at the same time. It's the greatest 
honor a local business can have to pay forward the opportunity 
to learn how to be good employees, good teammates, and 
eventually great leaders in their own right. I'm here today to 
encourage this committee and this Congress to act on the 
legislative solution to address the joint employer problem 
pending before the subcommittees.
    It is important that you know how much I love my brand and 
that partnership that I have with Taco John's. If you've ever 
heard the phrase or used the phrase taco Tuesday, I'm proud to 
say you're using a Taco John's trademark. But now, after two 
years operated under the expanded joint employer standard, the 
impact of my business is clear.
    Joint employee means I must pay more to run my business and 
earn less in return. Franchisors, including mine, have been 
compelled to consider the potential liability risk of the new 
joint employer standard that the National Labor Relations Board 
has imposed. Changing the rules' language with less clear, more 
widely interpreted definitions of joint employer by adding 
words like indirect and even reserved or unexercised control, 
opens up very real concerns.
    Some examples: My franchisor used to provide employee 
management products as options for franchisees. Basic but 
essential tools like job descriptions, performance reviews, and 
employee handbooks, and recruiting tools like banners, fliers, 
and ad copy, used to be available. But due to expanded joint 
employment liability, the company no longer provides most of 
these tools.
    Now I must hire an outside attorney to write an employee 
handbook. That employee handbook cost me $9,000. Just this year 
we no longer have access to a branded job application form from 
the franchisor. I must create my own application or use an off-
the-shelf, non-branded form.
    The reality is that joint employer is impacting my ability 
to recruit employees. Quite simply, we want and need employees 
to consider our business when they're searching for a job. It 
could not be more important today to have a powerful, creative, 
systemwide set of employment tools. I don't blame our brand for 
some of these changes, because I know they're watching what's 
at stake for everyone.
    Our brands are coming under attack for involvement in the 
hiring process which some believe indicates a direct 
relationship with my employees. Those of us running our 
businesses know that's simply not the case. My view and my 
brand's view is that my employees are my employees alone. My 
brand's role is to provide me with tools and never to exert 
control over my employees.
    In its August 2015 decision to expand the joint employer, 
the NLRB removed the clear understanding from a business 
relationship and the now the industry is justifiably struggling 
with this new legal landscape.
    Chairman Byrne, Chairman Walberg, on behalf of the 
Coalition to Save Local Businesses, thank you so much for 
introducing the Save Local Business Act. The expanded joint 
employer standard is simply not working. It's time we provide 
some security to local business owners. Thank you.
    [The statement of Ms. Kennedy follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
   
    Chairman Byrne. Thank you, Ms. Kennedy.
    Mr. Rubin, you're recognized for five minutes.

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

    Mr. Rubin. Thank you. Let me begin by thanking Chairmen 
Byrne and Walberg, and Ranking Members Norcross and Takano for 
this opportunity to testify about the impacts of the Save Local 
Business Act.
    I've been representing low-wage workers for more than 35 
years. My clients include janitors; security guards; warehouse, 
garment, fast food workers; and others. For these workers, and 
for many small businesses operating in a low-wage economy, H.R. 
3441 will have disastrous consequences.
    The bill purports to redefine the term joint employer under 
the NLRA and FLSA. But its practical effect would be to 
completely eliminate joint employer responsibility under those 
statutes. The proposed definition narrows the NLRA's common law 
standard and the FLSA's direct or indirect suffer or permit 
standard so dramatically that no company could meet the 
definition of joint employer once it contracts out any direct 
control over its workers' employment.
    The bill exempts from joint employer responsibility any 
company that does not exercise direct and significant control 
over all essential terms and conditions of its workers' 
employment. That means once an employer has delegated any 
significant control over any terms and conditions of its 
workers' employment, it has ceased exercising direct control 
over those terms and conditions and is no longer a potential 
joint employer.
    Why does that matter? In a low-wage economy, wage and hour 
violations, discrimination, and other unlawful conduct are 
rampant. All too often, though, the injured workers have no 
real ability to enforce their rights, even in the face of 
flagrant violations, especially when their direct employer is 
an under-capitalized labor services subcontractor.
    Mr. Rubin. In case after case, we have seen law-violating 
subcontractors, whether they supply garment workers in Los 
Angeles, janitors in Texas, or warehouse workers in California 
or Illinois, simply declare bankruptcy in the face of a court 
judgment for backpay or other relief, while their owners or 
their owners' relatives or business partners later incorporate 
under another name to carry on the company's same business, 
leaving the judgments unsatisfied.
    The proposed definition of joint employer would leave 
without remedy the workers most in need of statutory 
protection, the at-will, nonunion employees who are most 
susceptible to exploitation.
    It would also leave small business owners in the difficult 
position of being solely responsible for labor law compliance 
and collective bargaining even when they lack sufficient 
authority and control to meet that responsibility. The problem 
faced by small businesses is not that a court might impose 
joint employer liability on the company that shares their 
control over the workforce.
    The problem is the small businesses' economic dependence on 
that larger company may leave it no choice but to accept that 
shared control without correspondingly shared responsibility.
    The proposed bill radically redefines joint employment 
under the FLSA and NLRA, abandoning the statutory directly or 
indirectly suffer-or-permit standard that has been key to 
effective FLSA enforcement since 1935, and rejecting the common 
law of agency-based NLRA standard. Under the proposed bill, it 
would be easier to prove a company's responsibility for 
wrongful acts committed by an employee against a stranger under 
the traditional common law master-servant standard than to 
prove that company's own responsibility for wage and hour 
violations committed against its own employees. This turns the 
purposes of the FLSA and the common law standard on its head.
    There's no need for these changes. Any lead company that 
does not want to be responsible for bargaining over workplace 
conditions it controls can simply restructure its relationships 
to give its suppliers greater independence in controlling 
wages, hours, and working conditions.
    In my law practice, I've seen the destructive impacts of 
the fissured economy and the critical need for meaningful labor 
enforcement in many industries. Let me briefly share one 
example as mentioned by Representative Takano.
    In a case we settled a few years ago in southern 
California, hundreds of warehouse workers were employed in four 
warehouses, loading and unloading trucks for deliveries to 
Walmart distribution centers. Walmart owned the warehouses and 
their contents. It contracted with a subsidiary of Snyder 
Logistics to operate the warehouses, and Snyder, in turn, 
retained two labor services contractors to hire the workers. By 
contract, all responsibility for legal compliance rested with 
the contractors, yet Walmart and Snyder retained and exercised 
control over almost every aspect of those workers' employment.
    We ended up settling that case for $22.7 million. Class 
members got tens of thousands of dollars in recovery and 
significant injunctive relief that stopped those violations, 
that increased the wages and allowed health benefits for the 
first time for those workers only because the courts made 
preliminary findings of --
    Chairman Byrne. Mr. Rubin, you're beginning to run over. 
Can you wind up, please?
    Mr. Rubin. Absolutely.
    The proposed bill would have required a completely 
different result in that case. None of those defendants would 
have been a joint employer under H.R. 3441. The new narrow 
definition would have left those workers and millions like them 
almost completely without recourse.
    I'd be pleased to answer your questions.
    [The statement of Mr. Rubin follows:]
    
    
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    Chairman Byrne. Thank you, Mr. Rubin.
    Mr. Fasman, you're recognized for five minutes.

 STATEMENT OF ZACHARY D. FASMAN, PARTNER, PROSKAUER ROSE LLP, 
                          NEW YORK, NY

    Mr. Fasman. Chairman Byrne, Chairman Walberg, Ranking 
Member Takano, Ranking Member Norcross, and members of the 
committee, thank you for inviting me to testify today. I'd like 
to address my remarks to the legal issues that are before this 
committee.
    As this committee knows, beginning in 1984, the National 
Labor Relations Board and the courts instituted a standard in 
which the courts determined whether two separate entities were 
joint employers by applying exactly the standard set forth in 
this bill. The accepted test was, and should be, whether the 
alleged joint employers' control over employment issues was 
direct and immediate. The NLRB and the courts properly 
distinguished direct and immediate control from situations 
where the alleged joint employers' supervision was limited and 
routine.
    And I want to emphasize for the committee this is not a new 
standard. This is the traditional standard that was followed by 
the NLRB and the courts in hundreds of cases for more than 30 
years. This bill will simply restore the law to where it was 
before the NLRB's decision in Browning-Ferris. Now, why is this 
important? The key for me is that the traditional standard is 
based upon facts, the actual conduct of the parties, as opposed 
to hypothetical, after-the-fact legal conclusions about 
indirect or potential but unused authority. The traditional 
standard affords stability and predictability by asking a 
factual question: Who actually makes employment decisions?
    I want to emphasize that this standard does not prevent 
collective bargaining. It allows collective bargaining between 
unions and the employer that actually hires, fires, 
disciplines, supervises, and directs the employees. In 
Browning-Ferris, the NLRB abandoned the facts and actual 
conduct and created a new test based upon whether the alleged 
joint employer has the potential to control aspects of the 
workplace either directly or indirectly, whatever that means, 
even though it's never exercised that authority.
    In other words, the Browning-Ferris test is not based upon 
the parties' actual conduct but turns on after-the-fact legal 
conclusions about who has what potential authority. That test 
is not based upon the common law. Indeed, in my view, it is no 
test at all.
    As the dissent in Browning-Ferris observed, virtually every 
business that subcontracts part of its operations falls into 
this category. Contracting parties will always have the 
potential economic control over the relationship, even though 
they've never exercised it. And that's the key problem with 
Browning-Ferris. It makes virtually every business that 
subcontracts any of its operations into a joint employer.
    This standards negates freedom of contract and allows 
imposition of joint employer liability after the fact through 
administrative determinations about the level of potential or 
indirect control retained but never exercised by the joint 
employer. It destroys any level of predictability on thousands 
of vital commercial relationships.
    For me, as someone who's negotiated many contracts, the 
justification of this standard, because it is allegedly 
necessary for meaningful collective bargaining, makes no sense. 
In fact, to me, it's just the opposite. Adding in an employer 
that has potentially conflicting interests that is a third 
employer or second employer into the bargaining sessions will 
make it much more difficult to reach agreements, not easier. 
And I can tell you from experience it's difficult to reach 
agreements between one union and one employer, let alone 
multiple employers who have conflicting interests.
    Applying such a broad definition of joint employer also 
undermines the Taft-Hartley Act where Congress confined labor 
disputes to a dispute between the primary employer and outlawed 
secondary boycotts, outlawed secondary picketing and 
involvement of a broader series of employers. A joint employer 
could easily be -- under this standard, under the Browning-
Ferris standard, might easily be considered sufficiently 
related to the primary employer to allow picketing at the joint 
employer's facilities. And that's contrary to Taft-Hartley.
    A slightly different question is raised under the Fair 
Labor Standards Act which does have different definitions. But 
under that act there's a crying need for a definition of joint 
employer. As I've said in my written comments, there were 9,000 
Fair Labor Standards Act lawsuits filed in 2016 alone. That's 
not 9,000 total in the courts. That's 9,000 new lawsuits. And 
there has never been a clear definition of joint employment 
under that act.
    There is a crying need for a clear definition. And my 
colleague on the panel has cited a case called Salinas v. 
Commercial Interiors where the Fourth Circuit, in 2017, goes 
through all the different standards, itemizes them, comes up 
with a clearly unworkable new test. That goes on all the time. 
And it's time for Congress to --
    Chairman Byrne. Mr. Fasman, you're going to have to wind up 
too.
    Mr. Fasman. Let's get a definition that works. And, in my 
view, this one would work under that act.
    [The statement of Mr. Fasman follows:]
  
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
    
    Chairman Byrne. Thank you, Mr. Fasman. I'm a lawyer. We 
just can't help ourselves. We can't stick to the timeframe. I 
understand it. But I do appreciate all your testimony. That was 
excellent for all of us.
    Now we get to the time period where it's question-and-
answer time from the members of the committee. Let me remind 
the members of the subcommittees and the witnesses, each member 
gets five minutes. So however many people he asks, it's just 
five minutes for that one member. And we're going to try to 
stick to that as close as we can, because we have a lot of 
members here today.
    We'll start off our questioning from the distinguished 
chairwoman of the committee, Dr. Foxx from the great state of 
North Carolina.
    Dr. Foxx, five minutes.
    Mrs. Foxx. Thank you, very much, Mr. Chairman. I want to 
thank all of our members for being here and certainly thank our 
panelists for being here today. Their testimony has been great.
    Mr. Fasman, I want to start with you, because I think you 
gave such a wonderful statement at the beginning about the 
traditional standard being based on facts. You know, I think 
that's so important that we continue to talk about that, and 
that the Browning-Ferris decision based on potential authority 
and on intent, not action. I think too many times in our 
culture these days there is this decision to judge people on 
intent and not action. And I thank you so much for making this 
so succinct.
    It's been suggested that the BFI standard is not as broad 
as some claim and that business owners should not worry about 
it. Do you agree?
    Mr. Fasman. Chairwoman Foxx, thank you for your comments. I 
don't agree. I think that the potential in this standard, to 
use the standard's own terms, is amazingly broad. The potential 
to control a relationship, I think basing a decision upon that, 
sweeps everything into the standard. So I would not agree with 
that.
    Mrs. Foxx. So your concern is that the potential 
application of this expanded standard is far reaching. Is there 
anything in BFI that serves to limit its application so 
business owners we have here today should not be concerned? 
And, on the other hand, would the joint employer standard in 
Save Local Business Act be limited in such a way as to assuage 
business owners' concerns?
    Mr. Fasman. Well, I think there is nothing in BFI that 
suggests a limitation. And that, indeed, is the problem, as the 
dissent observed in BFI. And the standard in this bill restores 
the law to what it was and the law that we've lived under for 
30-plus years. So I think that people should take some comfort 
in that. There are many, many decisions applying the standard 
that's in this bill.
    Mrs. Foxx. Thank you very much.
    Mr. MacDonald, my husband and I were in the construction 
business for many years several times in our lives. And we did 
a lot of subcontracting with people. So I understand a little 
bit about your business.
    Does your company have any way to control all the actions 
of your vendors or subcontractors that you could be held liable 
for under expanding joint employer definitions?
    Mr. MacDonald. Well, thank you very much. And I'm glad that 
you got out of the business and found good work. It was a good 
move.
    You know, under Browning-Ferris, it's so overly broad, and 
it doesn't provide employers with clarity so we know where 
we're headed. We all agree that there needs to be some common 
sense guidelines. And that's what we're not seeing currently. 
Essentially, we're working under a scenario where you'll know 
it when you see it if it's bad. I mean, which doesn't give 
anyone any certainty as to what's going forward or where we're 
headed with all this.
    And we don't have the opportunity to direct every single 
task with our subcontractors. We don't set the price. We don't 
do anything like that. And we certainly don't do any more than 
just scheduling our folks when we need a task done, which is -- 
you know, this morning at breakfast I got a menu. I selected 
something. The gentleman brought it to me. I asked him to 
hurry. You know, was I scheduling him? He didn't bring me what 
he wanted to bring me for breakfast. You know, it seems 
facetious, but it's really the same thing.
    Mrs. Foxx. Right.
    Well, Ms. Kennedy, I would like to know if you would have 
been able to have gained the same level of experience as an 
employer without the franchise help? And would you have been as 
eager to have become a franchise owner yourself if you knew the 
franchiser would have had such a level of control over your 
business?
    Ms. Kennedy. Thank you. No. There's no way that I could 
have gained that experience without following the path that I 
did through the course of franchising. It is one of the true 
quintessential American products, franchising is. It gives us 
the opportunity to learn all of the many important parts of 
running a business but gives us the security of knowing that 
we're working with a proven process. So it limits the risk that 
we take when we go into business for yourself.
    It's important to remember that same path that I followed, 
I hope more people can. And that's what we're risking here if 
we don't get this fixed.
    Mrs. Foxx. Thank you, Mr. Chairman.
    Thank you, lady and gentlemen.
    Chairman Byrne. Thank you, Madam Chairwoman. The chair now 
recognizes the ranking member of the full committee, the 
gentleman from Virginia, Mr. Scott, for five minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Rubin, you have a copy of the bill in front of you?
    Mr. Rubin. Yes.
    Mr. Scott. On page 2, line 8, it says a person may be 
considered a joint employer ``only if such person directly,'' 
then goes down to exercises essential control over the central 
terms of employment, including hiring/firing, determining rates 
of pay and benefits, day-to-day supervision, assigning work 
schedules, positions and tasks and administering discipline. To 
be called a joint employer, you would have to do all of those.
    Mr. Rubin. Under the language of the bill, you have to do 
all of those, which is why --
    Mr. Scott. So if you do everything, if you hire, fire, 
determine rates of pay, but you don't assign individual work 
schedules, you would not be a joint employer under this 
definition. Is that right?
    Mr. Rubin. That is right.
    Mr. Scott. Now, exactly how would your right to negotiate 
wages as a union work if the person who hires, fires, and 
determines rates of pay and benefits is not at the table?
    Mr. Rubin. You can't. And contrary to Mr. Fasman's 
testimony, and as the Board made clear in Browning-Ferris, and 
later in Miller and Anderson, it's only if the companies that 
can actually control the essential terms and conditions are at 
the table that you can have meaningful bargaining.
    Mr. Scott. Now, in Ms. Kennedy's testimony, she said that 
the franchisor used to have employee handbooks, a job 
application form, and helping recruiting employees. Would 
anybody doing that ever be considered a joint employer?
    Mr. Rubin. Well, in the Freshii case, the advice memorandum 
by the Boards' general counsel made clear that a franchisor 
would not be liable for making available handbooks and other 
materials as long as they're optional. The circumstances that 
Ms. Kennedy described would not, under the Board's current 
view, trigger joint employer liability, which is why, of the 
800,000 franchisees, none have ever been found in a joint 
employer relationship.
    Mr. Scott. Ms. Kennedy, in light of the fact that of 
800,000 franchisees, none of the franchisors have ever been 
held joint employment. And I'm trying to find out what the 
problem is that you are articulating. Did lawyers help prepare 
your testimony and interpret the laws, give you advice on that?
    Ms. Kennedy. No.
    Mr. Scott. Who prepared your testimony?
    Ms. Kennedy. I did.
    Mr. Scott. Now, why did you think that -- where did you get 
the idea that a franchisor might become a joint employer?
    Ms. Kennedy. We are taking a look at all of the many 
written articles that are out there in not only the franchise 
space but in all the business magazines, and trying to 
understand how our relationship is changing right now with our 
franchisor, and trying to determine where we're going to head 
as a partnership.
    Mr. Scott. But are lawyers helping you get through that?
    Ms. Kennedy. No.
    Mr. Scott. Okay. Well, I think that most of the lawyers are 
suggesting, as Mr. Rubin said, that there's 800,000 
franchisees, and not a single franchisor has ever been declared 
a joint employer. And so we're trying to find out what the fear 
is. If they are joint employers, they will be responsible for 
what they did. If they are controlling the wages, then they 
would have to be subject to the NLRB.
    Mr. Rubin, if there is an OSHA violation created by the 
franchisor, would the franchisor be a joint employer under 
present law or under the bill?
    Mr. Rubin. Under the present law governing OSHA, yes. Under 
the bill, absolutely not. Because under the bill there is no 
joint employer anymore.
    Mr. Scott. And if there is a wage -- if there's a failure 
to pay overtime directed by the franchisor, under present law 
would they be a joint employer for that purpose?
    Mr. Rubin. Yes. And there are many examples of that. But 
under the current bill, they would not be a joint employer 
because there are no more joint employers who control every 
single term and condition directly and actually.
    Mr. Scott. And how does the bill return us to the 
traditional definition of employer?
    Mr. Rubin. It doesn't at all. The traditional definition of 
employer, under the FLSA, is directly or indirectly suffers or 
permit. It's a completely different standard, the most worker-
protective standard ever enacted by this Congress.
    And under the National Labor Relations Act, the Supreme 
Court said you return to the common law standard. So if you 
actually read the Browning-Ferris opinion, you see them 
extensively quote from the Restatement of Agency, 1933, 1958, 
which states the legal standard, which the Board adhered to.
    And the test in Browning-Ferris, despite what I'm hearing 
about perspective, and indirect, is very clearly stated in the 
context of collective bargaining. If they are -- they have to 
be employers within the meaning of the common law, which 
includes direct and indirect and if they share or codetermine 
those matters governing the essential terms and conditions of 
employment.
    That is the standard that has always been applied. That 
goes back to the beginning of the National Labor Relations Act. 
That is the standard that should continue. And, of course, 
these are fact-based inquiries.
    Chairman Byrne. Mr. Rubin, we're going to have to wind up.
    Mr. Rubin. I'll end it there.
    Chairman Byrne. Thank you, Mr. Scott.
    Mr. Byrne. Thank you, Mr. Scott. The chair now recognizes 
the chair of the Subcommittee on Health, Employment, Labor, and 
Pensions, Mr. Walberg, for five minutes.
    Mr. Walberg. Thank you, Mr. Chairman, and thanks again to 
the witnesses.
    Ms. Kennedy, thanks for grabbing the whiplash by the tail 
of franchisee and going for the American dream, as you have. 
And we applaud you and congratulate you.
    You spoke about receiving less assistance and help from 
your franchisor due the expanding joint employer standards and 
the fear that these programs will create unintended joint 
employer liability.
    Could you further explain why this type of assistance is so 
critical to the franchisee and to all business owners, and 
especially, first time business owners who are in the franchise 
system?
    Ms. Kennedy. Thank you. I'll be glad to.
    What's important to remember is that at the heart of 
franchising is someone's idea, I make really good tacos. But 
that doesn't make me an expert in legal matters. It doesn't 
make me an expert in construction. It doesn't make me an expert 
in all of the things that it takes to run a business.
    When you join a franchise, when you choose to partner with 
a franchise, you get some of the support in those areas that 
you're looking to learn more about. It lessens the risks and it 
creates the opportunity to grow faster, become more profitable, 
and put more people to work.
    It is, for me, probably one of the most important parts of 
this is to try to understand that my employees are my 
employees. And I get to pick them. I get to watch them grow and 
move on and, through our company, on to better things. And my 
employer doesn't have any role in that employment process other 
than to supply me with what I desperately need right now, which 
is really good recruiting tools and training tools to keep 
people growing into what they're going to become.
    And where we're at now is, does that make them potentially 
indirectly responsible for part of the employment process.
    Mr. Walberg. We'll go on with that. What problems may 
develop and be created in an expanding joint employer standard 
that isn't reined in? What additional problems would you see?
    Ms. Kennedy. Goodness. Trying to wait to see whether or not 
we want to use the court system to decide whether or not there 
was indirect control, whether or not there is reserved and 
unexercised control, means that I'm not going to be able to 
open restaurants as often as I'd like to and at a speed that I 
think that I could, because I'm not sure whether or not I'm 
eventually not really going to be an owner.
    If I'm in some way just a middle manager because my 
franchisor is somehow indirectly responsible for my employees. 
And that's, that's concerning.
    Mr. Walberg. Thank you. Mr. Fasman, your written testimony 
noted that bringing two or more alleged joint employers to the 
bargaining table in a union contract negotiation may result in 
conflicts of interest between the two employers.
    Do you think this would result in better deals for 
employees, and would it promote labor peace?
    Mr. Fasman. Chairman Walberg, I don't think it would 
promote labor peace at all, and I don't think it would promote 
better deals for employees. I don't think it would promote 
deals. Because you would have two employers with differing view 
points pointing fingers at each other saying, ``It's your 
responsibility. No, it's your responsibility.'' And nothing is 
likely to get done in those circumstances.
    So, no, I don't think it's a better deal at all.
    Mr. Walberg. Okay. Mr. MacDonald, you spoke about shortages 
of workers in especially construction trades. And we hear about 
that all over our districts, all across the country.
    It seems to me that one of the driving forces to get 
workers into specialty trades would be the potential to own 
their own business some day after they learn the process.
    Do you think the expanding joint employment standard could 
take away that incentive and how might this impact the 
construction industry?
    Mr. MacDonald. Well, it would be an extreme negative 
impact. You know, most of our smaller subcontractors now are 
the ones that do the majority of the work. They are people that 
have under 15 employees total in their shop. They are the great 
American dream. They are the guys who started off as a 
journeyman and made their way to a master status and then 
started their own companies. And with their own sweat and 
blood, have gotten it done.
    And they're not out trying to do anything but a good job. 
Most of the people in the construction industry, the homeowners 
that I represent are just like myself. I started off in a 
pickup truck with a toolbox. And we've built a very good 
company. We've been blessed and we've gotten a lot done. And 
we've made a lot of good, safe affordable housing for Americans 
because of it.
    With the storm that we've had in Texas and it's occurred in 
Florida, we're going to be short in Texas alone, somewhere 
between 10 and 20,000 construction workers just to put people 
back in the home where they were, not to accelerate to a new 
level, just to bring us back to where we were.
    And anything that we do that stymies the effort to keep 
people in business, to keep people going is just going to make 
it more and more impossible to put people back at home and back 
at work.
    Mr. Walberg. Thank you. My time has expired. I yield back.
    Mr. Byrne. Thank you, Chairman Walberg. The chair now 
recognizes the ranking member of the subcommittee on Workforce 
Protections, Mr. Takano, for five minutes.
    Mr. Takano. Thank you, Mr. Chairman. Mr. Rubin, in your 
testimony you mentioned a case you litigated involving 
warehouse workers in a Walmart-Schneider facility.
    That case hits close to home. In fact, the facilities in 
question are in my congressional district.
    The case of these workers takes what, to many, seems like a 
technical, legal debate, and puts a face to the workers who are 
protected by our joint employer laws. I want to give you a 
chance to share a little more about the facts of the case.
    Mr. Rubin. Sure, 1700 workers, many earn far less than the 
minimum wage, they earned money based on a bogus piece rate, 
where because the company up the ladder paid the labor services 
contractor on a piece rate for truck loaded or unloaded, the 
contractor in turn paid the workers, depending on how many 
trucks were loaded or unloaded, on a shift among the four 
warehouses at the same time.
    So no worker had any idea what any other worker was doing 
in terms of loading or unloading, whether those numbers were 
accurate.
    Many of the workers had to sign their pay stubs when they 
went to work in the morning and the supervisors filled those in 
later with whatever hours the supervisors claimed should be in 
there. The workers had to show up hours before the work began. 
They weren't paid for those hours. The workers were often sent 
home early when there weren't enough trucks to unload. They 
weren't paid for those hours. There was a whole series of 
egregious labor violations that went on for decades in those 
warehouses and that was the basis of the lawsuit.
    And the control was exercised by Walmart and by its 
operator by dictating the terms and conditions of employment, 
acting indirectly through the next level down. Indirect simply 
means you're using someone else as your agent. You're telling 
that next company down what to do, how to do it. Your 
instructions are carrying through to the workers. So the 
ultimate responsibility was held to be shared by all of the 
companies.
    Mr. Takano. So that's a horrible situation for those 
workers, terrible working conditions, being cheated out of 
their pay.
    What remedy would they have had if this bill were to pass?
    Mr. Rubin. They would have no remedy at all. Their only 
recourse would be against the labor services contractor, who as 
we found out when we finally entered into settlement 
negotiations, had only enough money to pay, I think, it was 
about seven percent of the total settlement combined over a 
period of years.
    What happens in real life, when you're talking about the 
facts, is that as soon as there's a threat of labor organizing, 
as soon as there's a threat of a wage-and-hour lawsuit, the 
company up the ladder terminates its contract with the small 
business. If small businesses are concerned, the concern should 
be based on the fact that they have no job security.
    What happens is they lose their contracts and the workers 
lose their jobs as soon as one worker complains. So if a worker 
complains, not only is that worker out of a job, but all of his 
or her coworkers are out of jobs, too, because the labor 
services contract is terminated.
    Mr. Takano. So let me get this right. So right now, I mean 
the law gives some protection to these workers, but if we pass 
this new bill, remedies go away for those workers, and you're 
telling me that even the small business, that the contractor, 
the contractor with the big business becomes even more 
vulnerable under this law?
    Mr. Rubin. That's why I don't understand why this is called 
the Save the Small Business Act. The small businesses are the 
ones who are caught in the squeeze. They're the ones who are 
hurt by this language because they will bear full 
responsibility even if they don't have full responsibility.
    Mr. Takano. So this really should be called the Screw 
Workers and Screw Small Businesses Act.
    Mr. Rubin. Not for me to say.
    Mr. Takano. I'm sorry for using such a word.
    Mr. Rubin. That's the effective impact.
    Mr. Takano. So I'm curious about as to whether this bill 
creates perverse incentives that could harm franchisees or 
smaller businesses that operate as subcontractors for larger 
firms. Under this bill could franchisors or warehouse owners 
exercise exceptionally broad control over the labor relations 
of its franchisees or subcontractors but enjoy immunity from 
liability for employment law violations associated with that 
control?
    Mr. Rubin. Yes, that's exactly what can and would happen.
    Mr. Takano. Ms. Kennedy, did any of your, did you -- you 
didn't ever recall consulting any lawyers, but did you ever 
read any articles about this possibility that your franchisor 
could exercise far more control over your operations but yet 
put all the liability for violations onto you?
    Ms. Kennedy. I have read information about that. But I 
would, I'm always --
    Mr. Takano. Did you ever talk to your own attorney, not the 
franchisor's attorneys?
    Ms. Kennedy. I do have counsel --
    Mr. Byrne. Let me just interrupt for a second.
    Mr. Takano. Wait, wait, Mr. Chairman, this is my time.
    Mr. Byrne. Well, I'm going to just -- I'm going to give you 
your time. The communication between an attorney and client is 
privileged and, I don't think you mean to insert yourself into 
that privilege and get her to divulge --
    Mr. Takano. No, Mr. Chairman, I'm not. I just want to know 
if she's --
    Mr. Byrne. I don't think she should be asked --
    Mr. Takano. -- consulted her own attorney or the company's 
attorney --
    Mr. Byrne. We should not be asking her about what her 
attorney told her. That's inappropriate.
    Mr. Takano. But, Mr. Chairman, this is my time.
    Mr. Byrne. I'm going to let you have your time, I'm just 
saying --
    Mr. Takano. But it is my time, Mr. Chairman.
    Mr. Byrne. -- she has a recognized privilege and we cannot 
invade that privilege here.
    Mr. Takano. Okay. Well, Ms. Kennedy, have you consulted 
your own attorney about this -- not, not -- the franchisor's 
attorney?
    Ms. Kennedy. Yes.
    Mr. Takano. Okay. Well, I'd be interested to know just 
whether or not, whether you have any advice on whether the 
company's control, the franchisor's control would leave you in 
a more vulnerable situation, more liable?
    Ms. Kennedy. I don't know that I have any information or 
advice that I want to share about that today. I don't think 
that that's really what I'm here to talk about. It hasn't 
happened. I can't speak to what has happened.
    What I am most concerned about is, is that it could happen. 
If we don't find a way to bring this language back into what is 
my reality, which is defining what is direct, immediate control 
over employees. It's the language that we've always worked 
under. Those employees that I have, I'm proud of, and they work 
for me. And when we open -- when we use these words like 
indirect or reserved, unexercised control, that's where the 
danger is.
    Mr. Takano. Thank you for your response, Ms. Kennedy. Thank 
you.
    Mr. MacDonald. Mr. Chairman, if I might --
    Mr. Byrne. We got to follow the protocol here.
    Let me make sure I say this for everybody here who is not 
an attorney. It is not appropriate to ask somebody to tell us 
what an attorney has -- their attorney has told them. They have 
an attorney-client privilege, and it's not appropriate for the 
House of Representatives to try to invade that privilege.
    Ms. Fudge. Then they can say no.
    Mr. Byrne. Well, they are not lawyers and they don't have 
their lawyers here with them to give them that advice. And I 
think it would not be responsible for those --
    Ms. Fudge. And you cannot be their lawyer.
    Mr. Byrne. I'm not trying to be their lawyer.
    Mr. Takano. Mr. Chairman --
    Mr. Byrne. But I --
    Mr. Takano. Mr. Chairman --
    Mr. Byrne. Let me finish, let me finish what I'm saying.
    Now, those of us that are lawyers understand this is a very 
serious thing. And some of us are officers of the court, 
whether we're these folks lawyers or not. And we've got to be 
careful -- and I don't think it's the intention of anybody on 
this panel to try to invade the attorney-client privilege. But 
it is a privilege. It is recognized by the courts. And we 
should not be invading that privilege.
    If they want to consult their attorneys to come back to us 
and give us an answer, that's a different thing. But to ask 
them without their attorneys being present to give us 
information about what their attorneys have told them, I don't 
think is appropriate.
    Mr. Takano. Well, Mr. Chairman, I was merely trying to 
clarify whether such communication had taken place, whether she 
had her own attorney, whether she had consulted her own 
attorney or whether she was being guided by the franchisor's 
attorney.
    I wanted to make sure that her interest as a small business 
owner was being represented, as opposed to receiving guidance 
from the franchisor's interest. And because the law, the way 
this law is written is so perversely against both workers and 
small business people.
    Mr. Byrne. Mr. Takano, you are welcome to ask the questions 
that you want to ask, and they can give you the answers. But 
when we're wandering into a situation where we might be asking 
a non-lawyer to make a decision about whether or not they're 
going to give up a privilege that is recognized by the courts, 
I think it is appropriate for us to--
    Mr. Takano. Well, I have no intention of asking for any 
privilege to be waived, merely whether or not the 
communication, whether she had consulted her own attorney 
versus the franchisor's attorney.
    Mr. Byrne. Thank you.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Wilson, for five minutes.
    Mr. Wilson. Thank you, Chairman Byrne. And thank you all 
for being here today, particularly Ms. Kennedy. I appreciate 
the opportunities you provide.
    The International Franchise Association gives such 
opportunities, and then from that, you help develop -- and the 
members help develop -- small businesses that provide entry-
level jobs for people to have first time employment and prove 
themselves and succeed. In fact, in South Carolina we 
particularly recognize this. U.S. Senator Tim Scott had his 
first job at a Chick-fil-a franchise in North Charleston. And 
so how wonderful it was that he had that opportunity. And so I 
want to thank you for what you do.
    In regard to that, in your testimony you provided several 
examples how the joint employer standard has increased the cost 
for you to run your business.
    You mentioned that you now provide job application forms, 
employee handbooks and recruitment materials that were 
previously provided by the franchisor.
    Could you elaborate as to how the cost of the joint 
employer standard is reducing job creation and growth?
    Ms. Kennedy. Thank you very much. I'd be glad to.
    The one thing that I can tell you for sure is we keep track 
in the restaurant business, my restaurant business, of every 
penny and how it is spent, and we find that the most valuable 
way to spend our resources on something that I'm passionate 
about, which is education and helping our young people get 
started in their work life.
    In order to do that we need good tools. We need to provide 
them with training documents, standard structures that help 
them learn different parts and different skills of the 
restaurant business. It's not as simple as just becoming a 
cashier and running a cash register. It's about food safety. 
It's about understanding how to direct employees and manage 
money and manage inventory. And those skills, given the 
opportunity to learn them, can help them run any business in 
the world.
    The costs for me to do that have gone up substantially. I 
have to source, find, pay for, and produce many of the items 
that I used to get from my franchisor. Simple things like ``Now 
Hiring'' banners, flyers that go on bags and on trays, all of 
those pieces and products that I use to let people know that I 
am looking for really great people, cost me more money to go 
produce.
    My handbook, the $9,000 was just a start. Every time 
there's a change in the work environment, I have to update that 
handbook. That's expensive, and it's definitely not something 
that I'm an expert at. And so I have to pay to get the legal 
representation that I feel I need to make sure that I'm 
complying with all of the many pieces of legislation and work 
rules that I'm responsible for.
    Mr. Wilson. Well, again, thank you so much. I know 
personally the opportunities you provided -- my third son 
Julian began at Ruby Tuesday, and did great work. And then my 
youngest son started at Atlanta Bread Company serving. So, what 
great opportunities you provide.
    Equally, Mr. MacDonald, I appreciate the National 
Association of Home Builders.
    In fact, I, in my real estate practice, was a member of the 
Columbia Area of Home Builders Association, and I still pay my 
dues.
    Mr. MacDonald. Thank you.
    Mr. Wilson. I know -- well, they are very persistent.
    But I appreciate the jobs created. And it's family-run 
businesses that span generations such as yours.
    You discussed in your testimony how small local businesses 
are negatively impacted by the expanded joint employer rule, 
and that without having the resources of larger companies 
resulting in higher home prices for consumers.
    Can you explain how the housing market would be negatively 
impacted by the expanded joint employer mandate?
    Mr. MacDonald. Absolutely. And thank you for the question. 
It is exactly where you were headed there, that we have small 
companies, small companies don't have the access to in-house 
lawyers, to in-house H.R. personnel, and all that it takes to 
be in business. So we have to rely upon what we can glean from 
the street or what we have to do in the way of hiring outside 
counsel on our own.
    And frankly, and all due respect to Mr. Rubin, he's the 
first attorney that I've heard that's willing to opine as to 
what's going to happen in labor law after Browning-Ferris. I 
can't find an attorney who says, ``you need to do this, this 
and this.''
    The attorneys that I have consulted have said, ``I can't 
answer the question yet until there's more case law.'' We all 
know that case law means much more legal expense, many more 
problems for small business owners.
    So who's going to succeed here? It's only going to be the 
big builders, the larger people who have larger volume and can 
afford to have staffs of attorneys to deal with these issues.
    The smaller subcontractors, the smaller contractors are 
just not prepared. And can't be.
    Mr. Wilson. And final, again, home builders are great 
citizens and corporate citizens and business leaders of our 
America. We appreciate the home builders association. Thank 
you.
    Mr. MacDonald. Thank you, sir.
    Mr. Byrne. Thank you, Mr. Wilson.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Norcross, for five minutes.
    Mr. Norcross. Thank you, Chairman.
    Common law to 1935 when the NLRA was passed. From 1935 to 
1984, 46 years working off the same decision, getting decisions 
from the Board, clarifying where it was. Then we had 1984 to 
2015, only 31 years. And here we are from 2015 to 2017, or as I 
call it, ``back to the future.'' Because what has happened is 
we went back to where we were for 46 years of decisions, 46 
years. 800,000 franchisees, not one has been considered a joint 
employer.
    So I listened to the testimony and I'm trying to make sense 
how is it that we can work together to address the issues that 
we're here hearing from you.
    And the first thing that comes to mind is, Mr. MacDonald, 
you mentioned that the franchisees or -- excuse me -- the joint 
employer decision is hurting the construction industry.
    How would you reflect on that in the last two years, 
companies have grown, those who are starting? There's an 
increase of construction companies. Isn't that the exact 
opposite of what you suggested?
    Mr. MacDonald. Well, it's the indecision that's going to 
put an end to it. We're only seeing an --
    Mr. Norcross. Well, you mentioned that this would keep 
people from going into business.
    Mr. MacDonald. Yes, sir. And it will keep people --
    Mr. Norcross. But it increased.
    Mr. MacDonald. Would you like for me to answer the 
question?
    Mr. Norcross. No, but you --
    Mr. MacDonald. The answer to the question is that we went 
through an extreme period of negative growth in the 
construction industry in 2008, 2009, and 2010 and we've seen a 
rebirth of housing starts. Housing starts have almost doubled 
in that period of time, and that's what -- it is a simple 
supply and demand issue.
    I will also say that the protection of workers and labor in 
our industry is really based on supply and demand. I will tell 
you right now --
    Mr. Norcross. Well, thank you. I don't --
    Mr. MacDonald. -- because of the shortage of labor that 
we're having --
    Mr. Norcross. I want to keep --
    Mr. MacDonald. -- nobody wants to treat an employee poorly.
    Mr. Norcross. Excuse me. My time. I would like to keep a 
narrow focus of what I was asking you, because the employee is 
not going to be impacted by the joint decision whether or not 
he is going to go to work for somebody, and that's the problem 
that we're having.
    The fact of the matter is, particularly in construction, 
the job site safety, it's everybody working together. You're 
not going to throw that on another employee. That's where all 
the liability comes in. And that's, quite frankly, the reason 
why the deaths on the job has been decreasing, because 
everybody works together.
    I just want to make sure that when we looked at what's 
going on here, instead of going back to the decisions of 46 
years, we're going all the way back beyond what it used to be. 
So the idea of having precedents and predictability, you're 
going beyond that.
    And I just want to follow-up with my last question. When I 
looked at AT&T now, the retail stores, almost 60 percent of 
their stores are operated by one of two very, very large 
subcontractors. Completely contradicting what you're telling us 
today.
    Mr. Rubin, I was wondering if you could talk about, in a 
broad sense, the different tactics that are used to erode the 
employer's obligations to employees and how they might vary 
depending on the industry.
    Mr. Rubin. Varies depending on the industry and the 
creativity of the dominant company. There are lots of ways to 
do it. The AT&T example is one. We know through the 
Communication Workers how they're able to structure the 
relationships so that they maintain their control.
    Mr. Norcross. Because in the construction industry, the 
fact of the matter is joint employers is not happening all that 
often.
    Mr. Rubin. Very rarely. Of the 9,036 cases identified by 
Mr. Fasman that were filed under the FLSA in that one year, I 
bet no more than two or three included a joint employer 
allegation. It is a rarely advanced theory but a critically 
important theory, which is why we need to preserve it.
    It's not just that the law went through a 46-year period. 
Under the Fair Labor Standards Act this would change law going 
back 81 years since the FLSA was enacted. Even with the NLRA, 
this notion of direct and immediate didn't come into play until 
2002 in the Airborne Express footnote. So in fact, it's not 
even 1984.
    The standard that was rejected in Browning-Ferris was, in 
fact, the 2002 standard, it's a period of only 13 years.
    Mr. Norcross. Thank you.
    We need to sit down and work together because these facts 
are completely opposite of each other. We don't need to go all 
the way back. We need to sit down and have a reasonable 
discussion and work this out. I yield back.
    Mr. Byrne. Thank you, Mr. Norcross.
    The Chair now recognizes the gentleman from Tennessee, Dr. 
Roe, for five minutes.
    Mr. Roe. Thank you, Mr. Chairman. And I want to thank the 
minority staff for their well wishes and flowers you sent me 
during my recent surgery and continued recovery. So thank you 
for that. I appreciate that very much.
    You know, uncertainty, when you have an uncertainty, that 
creates a situation where people react. And Ms. Kennedy pointed 
out clearly that the uncertainty of this particular definition 
of the NLRB, what is the joint employer status, created a chain 
of effect where she then had to go and create her own book, 
which cost $9,000 and a continuing recurring cost. That cost 
could go in -- that money could go into expanding your 
franchise, increasing wages, growing your business where it is, 
de novo where it is. So the uncertainty is done. And the fact 
that something hadn't happened doesn't mean it won't.
    And so I know exactly -- in my business -- I'm a small 
business person. And I know I've reacted when ERISA law 
changed. We would do certain things. The fact that it hadn't 
happened didn't mean that it wouldn't happen.
    So I'd like to ask you, Ms. Kennedy -- and thank you all, 
all of you, for being here -- how much involvement does your 
franchisor have in your daily affairs of your business and 
employees? For example, does your franchisor sign the paychecks 
or hire employees or decide what hourly -- what hours someone 
would work?
    Ms. Kennedy. They do not have any involvement in any of the 
day-to-day interactions with my employees.
    Mr. Roe. And yet this uncertainty has caused them to change 
the relationship they had with you. Am I correct on that?
    Ms. Kennedy. I believe you are correct.
    Mr. Roe. And that change created, what, an added expense 
for both you and the franchisor?
    Ms. Kennedy. Absolutely.
    Mr. Roe. Am I correct on that?
    Ms. Kennedy. You are.
    Mr. Roe. I think the uncertainty is important. And, look, 
this is great for employment of attorneys who have differences 
of opinion. And everything is arguable, I've found out. Not 
matter how it's said.
    So, Mr. Fasman, we've seen an age of e-commerce and the 
importance of an expedited delivery. What limitations does the 
new joint employer standard put on companies who may be 
exploring innovative delivery services or new partnerships with 
other businesses to satisfy growing consumer demand for rapid 
product delivery?
    Mr. Fasman. Well, that's a very good question. And I think 
it goes back to exactly what you were, what you were saying, 
Congressman, and that is, that it's very difficult to 
understand exactly what a contractor can do and cannot do under 
this standard because it's not based upon the facts of the 
relationship. It's based upon potential or indirect control 
that's a question that's only answered in retrospect. That is, 
I don't know what potential control could be. And as you said, 
Mr. Rubin and I can argue about potential control in any 
relationship. And that's properly how we made our living for a 
long period of time.
    But I mean, those things are not, they're just not clear. 
And structuring a relationship, a commercial relationship is 
vital in the areas that you've spoken about. And that's why 
basically saying, ``let's go by the facts, let's not go by 
potential and unreserved or unexercised control'' is so 
important.
    Mr. Roe. I want to thank Mr. Byrne for this, to try to put 
some clarity to this.
    I had -- not a franchise business, but I was in my business 
myself the entire time before I came to Congress, over 30 
years. And we contracted -- a medical practice. And we 
contracted cleaning services. And we didn't do that ourselves. 
We contracted that. I expected certain standards to be met in 
cleaning the office so it would be presentable the next day. I 
didn't exercise direct control over that. If we had been a 
franchise I would have been caught in that uncertainty. What do 
I do.
    And I think that uncertainty is clear and it's costing 
millions, if not billions of dollars to comply with this 
uncertainty. And if you've got that many people, 700 and 
something thousand franchises, 9 million employees, it is a 
gigantic number.
    Mr. Rubin, just a question. Yes or no. Was that $22.7 
million dollar settlement a class action lawsuit or just not?
    Mr. Rubin. It was a class and collective action under state 
and Federal law.
    Mr. Roe. So what was your fee out of that $22.7 million? 
How much of that did the workers not get?
    Mr. Rubin. The workers got up to $80 thousand --
    Mr. Roe. No, I didn't ask that.
    Mr. Rubin. -- based on the amount of --
    Mr. Roe. I said what percent of that $22.7 million went to 
you and your firm, not to the affected workers.
    Mr. Rubin. In order to litigate that -- I don't know 
exactly how much our firm made but there were 5 different --
    Mr. Roe. Twenty-five percent?
    Mr. Rubin. -- there were five different firms who had to 
work on it, who put in more time than we were paid, if you do 
it on an hourly basis.
    Mr. Roe. Twenty to thirty percent? Forty percent? How much?
    Mr. Rubin. No, no, no, no, no. I think it was probably in 
the low 20's. But we were paid less than our hourly -- had we 
been billing on an hourly rate, our fee would have been more 
than twice the amount we ultimately received.
    Mr. Roe. I yield back.
    Mr. Byrne. Thank you, Dr. Roe.
    The Chair now calls on the gentlewoman from Ohio, Ms. 
Fudge, for questioning for five minutes.
    Ms. Fudge. Thank you very much, Mr. Chairman.
    Thank you all for being here today.
    Mr. Rubin, before I give you the balance of my time to 
respond to Mr. MacDonald, who just shared with us a 
communication between he and his lawyers that has now said that 
you're an outlier in your thought process, and to address the 
question that was just asked by my colleague: Of course, we 
know lawyers get paid. I mean, this is ridiculous. But let me 
just make a couple of comments and then I'm going to turn over 
my time to you, sir.
    First, we have heard ad nauseam about the decision in 
Browning-Ferris. As my colleague said, we've had 35 hearings 
about this. It is interesting that every time my colleagues 
across the aisle don't like a law, they call it uncertain, 
ambiguous, unsustainable. Just because you don't like it 
doesn't mean you don't understand it. And they clearly 
understand it.
    And I just want to remind our Chairwoman Foxx that intent 
is a standard that has been accepted in American jurisprudence 
for generations. It did not start here.
    And lastly, I just have to say this: I am trying to figure 
out for the life of me what Tim Scott has to do with what we 
are talking about today. So he worked at Chick-fil-a. So what? 
I mean, did he bring it up because he's black? Did he bring it 
up because he thinks Tim Scott might support his position?
    I take great offense to using a U.S. Senator, who happens 
to be my friend, in something so ridiculous.
    My time is now yours, Mr. Rubin.
    Mr. Rubin. Thank you. In response to the questions about 
uncertainty, first a bit of background.
    I try to be well versed in the law. Before I started 
practicing I was a clerk for a Supreme Court justice. I try to 
be well versed in the facts because my job as a litigator is to 
discover and know the facts and apply the facts. And I try to 
understand cases like the Browning-Ferris decision and the 
Freshii advice memorandum by actually looking to see what's 
written in those opinions, what standards are applied.
    You start with the Browning-Ferris decision. It actually 
simply reiterates the standard that I quoted before about 
sharing the essential terms and control over the terms and 
conditions. The standard itself is not objectionable.
    What people seem to be complaining about, Mr. MacDonald and 
others, Ms. Kennedy, is that they have been advised that 
there's some uncertainty. But in each of the instances they've 
described to me there's no way a litigator would pursue their 
case on a joint employer basis, which is why of the 9,000 FLSA 
cases only a handful were ever pursued under joint employer 
basis.
    What were the facts in BFI? We have to focus on them. BFI 
owned the plant. It set the shifts. It told the employees where 
to work. It capped their wages. It decided when they would have 
to work overtime. It decided how many workers would be working 
overtime. It decided when to stop the assembly line for breaks. 
It controlled the line speed. It had the right to veto any wage 
hike or wage change the lead point offered. It trained the 
workers. It had the power to fire and, in fact, it did 
terminate two workers that it didn't want, and it had the power 
to fire the entire work force.
    Those are the facts of Browning-Ferris. And any lawyer 
looking objectively at those facts under the standard that has 
been part of the National Labor Relations Act would conclude 
that party should participate in collective bargaining, 
Browning-Ferris that is, because it had the right to affect 
terms and conditions of employment.
    And certainly we haven't talked a whole lot about the Fair 
Labor Standards Act, but the Fair Labor Standards Act --
    Ms. Fudge. Mr. Rubin, if I could just interrupt you one 
moment. I really would like to yield the last of my time to our 
ranking member, if you would allow me to do that, sir.
    Mr. Scott. Thank you. Mr. Rubin, I think you can finish up 
that statement, but include in that, if you have a Fair Labor 
Standards Acts violation and somebody comes in and says, ``I'm 
not an employer under this definition,'' and then the other guy 
comes in and says, ``I'm not an employer under this definition 
either,'' is it possible that nobody is responsible?
    Mr. Rubin. Wow. In fact, as I look at the language of the 
Act, that is possible.
    Imagine this circumstance: Company A is in charge of 
hiring. Company A and B share responsibility for firing. And 
company B also sets wages. The worker says, who is my employer 
under this definition? Well, does either company, A or B, 
control the essential terms, which are then listed? There are 
nine of them in the conjunctive? No.
    So in that case there may be no employer.
    Mr. Scott. So if there's a finding that I wasn't paid 
overtime, nobody owes it?
    Mr. Rubin. Neither company is a joint employer and arguably 
neither is an employer at all. The uncertainty, this language 
explodes uncertainty to the point where every single case, 
where any element, any term or condition of employment is 
shared, there's going to be litigation over whether either 
company could be --
    Mr. Byrne. Mr. Rubin, you're going to have to wrap up 
again.
    Mr. Rubin. I think I've answered the question.
    Mr. Byrne. Okay good. Thank you. Thank you.
    All right. The Chair now recognizes for questions, for five 
minutes, the gentlewoman from New York, Ms. Stefanik.
    Ms. Stefanik. Thank you, Mr. Chairman.
    Mr. Fasman, in the amicus brief submitted by Microsoft in 
the Browning-Ferris case, Microsoft argued that the NLRB's new 
standard will discourage companies from implementing policies 
and initiatives that go above and beyond their legal 
requirements.
    For example, market leaders with complex supply chains will 
be penalized simply for implementing policies on responsible 
product sourcing or human rights, as well as labor and 
environmental standards.
    In this Congress, I've worked on the Millennial Task Force, 
which I chair with my colleague, Mr. Messer, who also sits on 
this committee, and we have explored how today's companies are 
changing business models to attract and retain the largest 
segment of our work force, millenials. What companies such as 
PriceWaterhouseCoopers, Uber, and Google are telling us is that 
millennials are looking for companies that have a purpose 
larger than the business. Corporate citizenship is now more 
than ever a key factor in millennials interest in a job.
    So how does this new joint employer standard actually chill 
positive corporate policies by American companies, specifically 
large companies with complex supply chains?
    Mr. Fasman. I think that that's a very good point. And the 
answer is that large companies with supply chains and with 
innovative programs, under the standard that the labor board 
has created, have to be extremely careful about the control 
that they exercise. It is implementing policies from the top 
down. That seems to me to be a very doubtful enterprise if in 
fact this is the standard, because the more control you retain, 
the more you say you should do this, this is how we want to do 
this, the more likely it is that you're going to be considered 
a joint employer.
    Ms. Stefanik. Is there any more specific example you can 
provide?
    Mr. Fasman. I can't think of any sitting here right now.
    Ms. Stefanik. Okay. Thank you very much.
    I yield back.
    Mr. Byrne. The gentlewoman yields back.
    The Chair now recognizes the gentlewoman from Oregon, Ms. 
Bonamici, for five minutes.
    Ms. Bonamici. Thank you very much, Mr. Chairman. And thanks 
to each of the witnesses for being here today.
    We've had this conversation many times. I am one of the 
people here on the committee who used to practice law as well. 
I represented franchisees in disputes with franchisors, and I 
certainly know and appreciate the franchise model and the 
opportunities that it creates.
    Before that, though, before law school, I worked at my 
mom's small business. And I look at the title of this Save 
Local Business Act and, you know, we all want local businesses 
to thrive and succeed. This bill is not the way to do it.
    You know, and as we've heard multiple times, this BFI case 
that we've talked about so much does not upend the franchise 
model. And as we've heard again this morning, that was made 
clear in the Freshii case, a franchisor is not a joint employer 
if they act like a franchisor by protecting brand standards. 
And yes, a franchisor can provide guidance. And there was an 
advice memo from the NLRB on that. Employee handbooks, payroll 
services. Those things, as long as they're optional, do not 
make a franchisor a joint employer.
    And you know, that, if they're going to act like a joint 
employer, they should be treated as a joint employer.
    And Mr. Rubin, you've talked a little bit about why a fact-
specific standard is important. And I really appreciated also 
your response to ranking member Scott's question, because as I 
read this language with the ``and,'' all of those have to be 
met to be a joint employer.
    Why is it important that there be a fact-specific standard 
when assessing joint employment?
    Mr. Rubin. Under any standard, the current standard under 
the FLSA, the NLRA, state law, other federal statutes, it all 
depends on the actual relationship between the parties. There's 
so many ways franchisors, franchisees, lead companies, supplier 
companies can structure their relationship. That's a good 
thing. We welcome flexibility in how companies operate and how 
they interact with each other --
    Ms. Bonamici. And those are typically spelled out in the 
franchise agreement, correct?
    Mr. Rubin. Yes. And it's set forth in as clear language as 
they can set it forth. And the courts must look at the specific 
factors and see what happens, both as a matter of contract, and 
then on the ground in terms of the actual exercise of control. 
That's why it's fact-specific.
    You can't just say, because you have a relationship of 
user/supplier or franchisor/franchisee, you are or are not a 
joint employer. You have to look at the facts on the ground and 
the legal relationship by contract under the law in the 
jurisdiction under the particular statute. That's how you 
analyze cases.
    Ms. Bonamici. Well, I certainly agree that the language in 
this bill would make it much more confusing and create much 
more uncertainty about who is a joint employer, what entity is 
a joint employer.
    Mr. Rubin, we're sitting here in 2017 and there's still a 
pay gap between women and men. It's difficult for individuals 
to prevail in Equal Pay Act claims. Congress did pass the Lilly 
Ledbetter Fair Pay Act in 2009. There's also the Paycheck 
Fairness Act, which I support that would further strengthen the 
right of pay equity.
    If this bill, the Save Local Business Act, were to pass, 
would it make it more difficult for a worker to succeed in an 
Equal Pay Act claim? If so, how?
    Mr. Rubin. It probably would. That's another great 
uncertainty with the way this bill is written. The Equal Pay 
Act is incorporated into the FLSA.
    Ms. Bonamici. Right.
    Mr. Rubin. As a result it adopts the standards set forth in 
the FLSA. It depends on Congress' intent at the time, and 
that's why there's going to be litigation over it. But 
certainly if this bill changes the definition from what it's 
been going back to the early 1930's to what is proposed here, 
it will affect the Equal Pay Act, make it far more difficult, 
in fact, I think impossible, to prove joint employer 
relationships.
    Same thing will happen under the Family Medical Leave Act 
and certainly under the Migrant and Seasonal Agricultural 
Worker Protection Act, which also borrows the FLSA definitions. 
So we are going to have an explosion of litigation, more 
uncertainty, more expense for franchisors, franchisees, 
contractors and the like, if this bill were enacted.
    Ms. Bonamici. And I know it's been asked before, but just 
to clarify, how many cases are you aware of where a franchisor 
has been found to be a joint employer with its franchisees 
under the Fair Labor Standards Act?
    Mr. Rubin. Zero.
    Ms. Bonamici. Thank you.
    I yield back the balance of my time.
    Mr. Byrne. The gentlewoman yields back.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Allen, for five minutes.
    Mr. Allen. Thank you, Mr. Chairman, and thank you witnesses 
for enduring this.
    As you can, see there's a very, varied difference of 
opinion. I will tell you, Mr. MacDonald and Ms. Kennedy, I'm 
not going to warn you of the risk of running your business. I'm 
a small business person and I, for years, and it's a 
construction business, and I pretty well understood the risk. 
And I'm not going to try to tell you how to run your business. 
I think that's the great thing about this country. Is you 
decide what's best for you and your employees. And we need to 
keep it that way, in my opinion.
    As far as this law is concerned, obviously we've had two 
lawyers who can't agree here today. Ain't America, a great 
place to live, we're all trying to figure out what is best for, 
you know, the people and the citizens, the great citizens of 
this country.
    But it is pretty dynamic right now, this economy, and the 
innovation is very dynamic. And frankly, you know, the five-
year business plans are a thing of the past. You know, one-year 
business plan, maybe six months, I don't know, maybe 30 days is 
what we have to deal with in the business world because your 
competition is getting, you know, it's just difficult out 
there. And but that's good. That's good for the customers. And 
we haven't talked much about customers here today but that's 
who we, that's who we work for.
    But going back to these models and what we're trying to 
clean up here, as far as trying to make at least the lawyers 
understand, you know, again we've got the lawyers disagreeing 
on, ``well, there's going to be more litigation after this 
law,'' versus, you know, ``well, we've got to have this to 
decrease litigation.''
    You know, Mr. MacDonald, as far as your relationship with 
your subcontractors -- and also Texas is a right-to-work state.
    Mr. MacDonald. That's true, actually.
    Mr. Allen. Yeah. Yeah. In fact, going back, Mr. Fasman, as 
far as, you know, you've got states in this country that are 
right-to-work states, and you've got states that are not right-
to-work.
    This Browning-Ferris case, obviously this was in 
California. Georgia is a right-to-work state. Texas is a right-
to-work state. How is that, I mean, how do you deal with that?
    Mr. Fasman. Well, I think it's a different -- so is 
Michigan, by the way.
    Mr. Allen. Yeah.
    Mr. Fasman. And I think the real question in any of these 
situations is who the employer is. And I don't think that 
that's necessarily directly related to the right-to-work issue 
at all. But I would like to, Congressman, I would like to utter 
some words that haven't been said during this hearing. Because 
everybody has talked about, there's never been a franchisor who 
has been found to be a joint employer.
    There's been 145 days of hearing in the McDonalds' 
litigation on just that point. General counsel Griffin is using 
the Browning-Ferris decision to prosecute McDonalds and all of 
its franchisees across the country.
    There's an air of unreality here in the questions that have 
been asked. I mean, to say there hasn't been a franchisor who 
has ever been found to be a joint employer, I mean, tell that 
to McDonalds who's spent the last 145 days, and continuing, in 
hearings on this point.
    And I find it unbelievable that nobody has mentioned that. 
I just did.
    Mr. Allen. Yeah, and I am glad you brought that up. I was 
going to get to that as well.
    As far as the right to work situation, Mr. MacDonald, I 
know, you know, one of the questions is whether you work in 
union or open shop. And at least in a right-to-work state you 
can have two gates and you can work, work both union and open 
shop subcontractors.
    Do you have any subcontractors who work under those, under 
that scenario?
    Mr. MacDonald. Yes, sir, we certainly do.
    Mr. Allen. You do?
    Mr. MacDonald. The people that provide our elevator 
services Thyssen Krupp are union, and even their maintenance 
personnel are as well. And we work hand in hand with them.
    Mr. Allen. Right. So we don't have any issues there that -- 
these were some concerns that were brought up about, and I know 
-- and I'm not sure in a state that's a not right-to-work 
state, you don't have that option. Is that correct?
    Mr. Fasman. I think that that's correct. I think that you 
don't have that option.
    Mr. MacDonald. And it's a state-by-state situation. And you 
bring up a wonderful point that a lot of state law is going to 
be trampled as we try and unravel all the litigation around 
this, that is pending and it's working quite well, and it's 
working well in Texas.
    Mr. Allen. Well, obviously, you know, we're here to try to 
dismantle regulatory involvement in the process. We think 
that's the most innovative, productive way for this country to 
grow and to get people to work.
    Thank you for your testimony.
    Mr. Byrne. The gentleman yields back.
    The Chair now recognizes the gentlewoman from North 
Carolina, Ms. Adams, for five minutes.
    Ms. Adams. Thank you, Mr. Chairman.
    Ranking member, thank you as well. And thank you to the 
witnesses today.
    You know, what's interesting to me is that the very people 
that my colleagues claim to be advocating for with the support 
of H.R. 3441 are those who will suffer the most if this bill is 
enacted.
    The focus on the harm the joint employer standard does to 
franchisees is a red herring because the National Labor 
Relations Board has really never found the franchisor to be a 
joint employer.
    So it seems that all this bill does is create a scheme that 
would give franchisors the power to scourge labor and 
employment laws while leaving franchisees increasingly exposed 
to lawsuits.
    So I have a couple of questions. Mr. Rubin, my colleagues 
claim that H.R. 3441 creates certainty for franchisees and the 
joint employment context, so could you explain why this may not 
necessarily be the case and what uncertainty might arise from 
narrowing the standard in this way?
    Mr. Rubin. The only certainty created by the bill is, as 
Representative Scott was pointing out, it is certain that no 
franchisor or other large company could be held liable as a 
joint employer. It creates uncertainty because there are still 
lots of other federal statutes and lots of state statutes that 
have a range of different standards.
    The standards proposed here still have to be applied on a 
fact-by-fact basis.
    There is no way, no court, at any time, since the Supreme 
Court in the Rutherford in 1947, has ever tried to analyze a 
joint employer case without looking at the facts.
    There is always uncertainty until the facts are developed, 
a well-counselled franchisee, small business, large business, 
franchisor will know how to avoid responsibility by delegating 
all control to the other business or to take on responsibility, 
as it should, if in fact it does control the workers.
    Ms. Adams. Okay. So, Mr. Rubin, Ms. Kennedy is concerned 
about the impacts that the common law joint employee standard 
may have on her business, and believes that common law standard 
limits her autonomy as a franchisee and increases cost. Well, 
what's your view?
    Mr. Rubin. The common law standard has been in effect for 
well over a hundred years.
    As the board in Browning-Ferris emphasized -- looking at 
the restatement of the law of agency which sets out the common 
law principle, it is a fair and appropriate way to determine 
when one company is acting on behalf of another. That's what 
agency is all about.
    Where the franchisor directs the franchisee to do certain 
things, and that's indirect control, it is responsible for what 
it has directed the franchisee to do. It's as simple as that. 
Common law was developed, initially, the principle, for when a 
company is responsible for its employees wrongful acts against 
someone else. There was strict liability imposed on the master 
for the acts of a servant.
    The statutes have been adopted in order to protect the 
employees of the master so the master doesn't deprive those 
workers of their rights. And that's all the joint employer 
doctrine is about, ensuring that the responsible parties are 
held liable and responsible for bargaining for, and making 
whole, employees who are deprived of fundamental statutory 
rights because of a larger company's own actions.
    Ms. Adams. All right. Thank you very much.
    And, Mr. Chair, I yield back.
    Mr. Byrne. The gentlewoman yields back.
    The Chair now recognizes the gentlewoman from Georgia, Mrs. 
Handle, for five minutes.
    Mrs. Handle. Thank you, Mr. Chairman.
    Thank you to all the witnesses here today. I appreciate the 
insightful testimony.
    For Mr. MacDonald, with the aftermath of Hurricane Harvey 
and now with Hurricane Irma through Florida and into Georgia 
and South Carolina, how important will it be for builders to be 
able to find subcontractors to work with the rebuilding effort? 
And does the expansion of the joint employer standard impact 
that it in any negative way?
    Mr. MacDonald. It will impact it in a negative way because 
we can't do anything that impedes our ability to get more folks 
to come to work. We were having problems getting people to come 
to work before the storms in these areas because we have an 
economic rebirth since the 2008 crash. And so now it's just 
being exacerbated by the fact that we're not only trying to 
produce new housing but we're trying to repair the damaged 
housing and get people back in their homes.
    Mrs. Handle. Okay. Great. Thank you very much.
    Ms. Kennedy, like you, I also am not an attorney. In fact, 
we actually share a common history in that I, too, started out 
as a secretary and worked my way up. One may have an opinion 
about the direction of my career since then. But I want to say 
that I have tremendous respect for lawyers both on this panel 
and across the country. At the same time having the view points 
of people who are actually on the ground, having to implement 
these types of regulations that come through and giving us a 
very practical real-world impact of what you're trying to deal 
with, as well as Mr. MacDonald, is incredibly important. And so 
I appreciate that you're here.
    One question for you: You spoke about owning stores in Iowa 
and Minnesota. If you were thinking to expand into Wisconsin or 
Illinois, as you know there will be different definitions 
there, as a result is it possible that a different test for 
joint employer liability under FLSA would apply?
    As a business owner, would it be helpful, more helpful or 
less helpful to ensure that we have a uniform national standard 
such as the one created in this -- bipartisan, I would like to 
add -- the Save Local Business Act, and how important is that 
consistency and uniformity to you.
    Ms. Kennedy. Thank you very much. It would be very helpful 
to have one clear definition of what joint employer means 
across any state line. Working in two states right now, it's 
difficult, challenging. I learn fast and often. When things 
change from one -- I mean, we share a border, that's about it, 
from Iowa to Minnesota. If I do want to expand -- and I hope to 
-- in other states besides the two that I'm in, it would be 
very helpful to have one specifically clear set of languages 
that help guide us in how we look at joint employer and, in 
fact, any other type of regulation as we run our businesses.
    Mrs. Handle. Right. Thank you very much.
    Mr. Chairman, I yield back.
    Mr. Byrne. The gentlewoman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
DeSaulnier, for five minutes.
    Mr. DeSaulnier. Thank you, Mr. Chairman. I would like to 
maybe make just some macro comments. I'm not an attorney. And 
this is, maybe, in the context, Mr. Chairman, I hope you don't 
take any offense, it might have been easier on everyone, but 
not as good for attorneys, if we just went back to the more 
traditional employer/employee relationship.
    I know that the Obama administration and the Department of 
Labor had been working on a study that showed that up to 70 
million Americans no longer have a traditional employer/
employee relationship. So in that context we have this debate.
    Having worked at fast food restaurants -- and I'm going to 
date myself -- when I was in college in the 1970's, it was a 
traditional employer/employee relationship. Having owned 
restaurants for 35 years -- Ms. Kennedy, I understand the 
pressure you're under -- but they were independent restaurants, 
and I wonder about this rule and the impact it might have in 
the real world, as some of my colleagues like to say, having 
worked in what their definition of the real world is, on 
independent restaurants.
    Because with all due respect to McDonalds, I never felt 
like, even though I was in fine dining, they wanted me to stay 
in the business any longer if they could get my business aside.
    So, Mr. Rubin, in the context, the larger context, I'm just 
worried about this erosion of worker protection. I wish it 
could be clearer. I share that with the majority party.
    I know that former Secretary of Labor, Secretary Reich, 
likes to argue that we should make it simpler just by saying 
employee/employer relationship is if you've received 80 percent 
of your compensation, you are employed by that employer. It 
strikes me that for everybody that would be easier, knowing 
that we have to have something for these unique franchise 
relationships. But maybe you could just expand on sort of more, 
in your world, what happens with other employers as they try to 
compete in the world where you've got this disadvantage, in my 
mind's eye, when I'm trying to compete with somebody who pays 
less in terms of wages and benefits because they're contracting 
out.
    Mr. Rubin. Right. That's an interesting perspective and one 
we haven't addressed.
    I, too, started my career as a secretary, my first job out 
of college, and spent a lot of time in a small business, Rubin 
Hardware and Son, in Dorchester, Massachusetts, founded by my 
grandfather in 1922. I understand the impacts on small 
businesses, and I particularly understand the impacts on small 
businesses that try to follow the law.
    And that's the problem we have here. The - we'll call them 
high-road businesses. That's a nomenclature, they shouldn't be 
called that. They're simple law-abiding business, as every 
business should strive to be and the overwhelming majority do. 
The problem they face is competition from companies that don't 
follow the law --
    Mr. DeSaulnier. Right.
    Mr. Rubin. -- who are able to save labor costs, by what has 
been called wage theft. By taking money, sometimes in small 
amounts, but in the aggregate large amounts, from workers not 
in compliance with the FLSA and other statutes.
    And what the joint employer doctrine does, and actually, we 
see it more often in the agricultural context, more than half 
of the cases that have actually been litigated and found joint 
employer, have involved farm workers who have been ripped off 
by farm labor contractors. But we see it in a range of 
industries where labor is a significant element of the 
employer's cost, and where the reason the company is cheating 
its workers is because the squeeze is on from the higher-up-
the-ladder company.
    So the contract doesn't provide the small business enough 
profits. Yet demands that it acts in a certain way, certain 
productivity quotas that can't be done legally. That's when 
that company caught in the middle, that small business has to, 
find sometimes violating the law, and that adversely affects 
every other small business.
    So it's not just the small businesses that themselves are 
in a joint employer relationship that would be affected by this 
bill. Every small business that faces the competitive squeeze 
from other small businesses that aren't legally compliant 
because of their relationships with other companies are going 
to be harmed by this bill.
    Mr. DeSaulnier. And I just -- one other aspect to that, Ms. 
Kennedy, one of the pressures I felt as I went longer in my 
restaurant career was disposable income. So this dynamic, and 
this race to the bottom, gives workers, consumers, less 
disposable income. So I always looked at the trade magazines to 
look at that in terms of housing costs, transportation, 
healthcare costs, because there's less money for them to spend 
in the marketplace.
    And, Mr. Chairman, just in conclusion, maybe Mr. Rubin can 
add some comments to this. I did want to note that McDonald's 
is still pending and was brought under the 1984 joint employee 
standard which was pre-BFI, if I'm correct. Mr. Rubin, you have 
any comments about that?
    Mr. Rubin. Yes. And the facts of the case are very 
McDonald's specific, as are the facts of other cases against 
McDonald's. But, yes, it's based on the old tried-and-true 
standard.
    Mr. DeSaulnier. Thank you.
    Thank you, Mr. Chairman.
    Chairman Byrne. Thank you, Mr. DeSaulnier.
    The chair now recognizes the gentleman from Wisconsin, Mr. 
Grothman, for 5 minutes.
    Mr. Grothman. Yes I'll start with, Mr. Fasman. It's kind of 
a difficult topic because you normally think small business is 
the backbone of America. And, of course, government, for a long 
time, has been waging a war on small business, trying to drive 
them out of business, just punish them. They hate them. But 
could you just -- in general, a lot of small businesses today 
are franchisees.
    Could you give me, in general, your opinion of what will 
happen to small businesses as this goes into effect? Will more 
of them be driven into becoming carpet stores and more 
employees be forced to work for large corporations? Will that 
be something that will happen in the long run?
    Mr. Fasman. That is, of course, where this ultimately goes. 
If you are a large franchisor, and you're found to be a joint 
employer with franchisees across the country, you may have 
thousands of collective bargaining agreements that you have to 
negotiate. And that's untenable. So what do you do under those 
circumstances? Well, there are certain things you could do. But 
one of them is you could say, well, we won't have franchise -- 
we won't --
    Mr. Grothman. Become all carpet stores.
    Mr. Fasman. Yeah.
    Mr. Grothman. Just like we do in so many other industries -
-
    Mr. Fasman. Correct.
    Mr. Grothman. -- the government will -- their hatred for 
the small businessman will be such they want everybody to have 
to work for a large corporation. That's what's going to happen. 
Right?
    Mr. Fasman. Yes. I mean, that's the logical thing to do is 
to say, look, we can't do this, we can't negotiate, you know, 
3,000 franchise labor contracts. It's just an impossibility.
    Mr. Grothman. Not to mention you don't want to be 
personally on the hook for what's going on with somebody who 
you're not supervising yourself.
    Mr. Fasman. Well, that is absolutely right. And that really 
is. That really goes back to what we're talking about here. 
It's hard for a business that has a contractual relationship 
with another business and says, look, you run all of these 
things, we don't want -- as is the case with Ms. Kennedy -- you 
hire, you fire, you pay, and you're responsible for this, to be 
told after the fact by a Federal agency, oh, but, by the way, 
you're a joint employer because you have the potential to 
control that relationship. I mean, that just is -- that just 
makes no sense.
    The parties do this. And, you know, with all due respect to 
what I've heard today, companies do this not to evade the law. 
They do this because this is a legitimate and important 
business model in generating jobs throughout the United States. 
It's not a nefarious way to get around paying employees what 
they're entitled to under the law.
    Mr. Grothman. Well, Ms. Kennedy, I'll ask you. I guess you 
now own several Taco John's. But you just probably started out 
with one?
    Ms. Kennedy. Actually, I bought the company in 1999, and we 
started out with more restaurants than I have today. I started 
with 14. I'm down to nine.
    Mr. Grothman. Oh, okay.
    Ms. Kennedy. Yeah.
    Mr. Grothman. I'll ask you, though, as somebody who is a 
franchisee. Would you feel you were a small business woman if, 
I guess, you lost control of the employer/employer relationship 
in which more and more of the employer/employer relationship -- 
assuming Taco John's would allow you to continue to exist, 
would be directed from the corporate level?
    Ms. Kennedy. In effect, it would make me a manager for 
them. If they are going to be responsible for employees that 
are technically my employees and my business, why would they 
want to carry all of that risk if they couldn't direct every 
single action of those employees? And that's really what is at 
odds here today, is that uncertainty over whether or not -- 
could they? Is it possible that they could take over control of 
my employees? Because they might be held responsible in the end 
for what they do.
    Mr. Grothman. Now we're looking at joint employer role 
today, Ms. Kennedy. But we sit on other committees. We deal 
with other sort of businesses. And this idea of hating small 
business, and forcing them into a position in which they 
ultimately have to get bought out by the big corporation, is 
something that we see in other areas, not just in the 
restaurant business. Do you know why the government hates small 
business? Could you take -- tries to drive them out of 
business? Could you maybe speculate as to why that is, why 
there are politicians who would be in favor of this rule?
    Ms. Kennedy. I guess I can't. I won't speak for or to that. 
I can tell you from my perspective, though, that it's easier to 
control the larger.
    Mr. Grothman. Easier to control. Yeah.
    Ms. Kennedy. Yeah. Yeah.
    Mr. Grothman. Control the big business. Control the little 
guy.
    Ms. Kennedy. Yeah.
    Mr. Grothman. You know, you lose touch, of course, with the 
local community. I'm sure you give money to the local charities 
and participate in those events. And, you know, once big Mr. -- 
nothing against Taco John's, but big Mr. Taco John's gets out 
there they're not going to be helping out with the local float 
at the local parade or whatever. It's a shame that so many 
people are trying to drive people like you out of business. 
It's kind of a shame that the government is doing that. I guess 
my time is up.
    Chairman Byrne. The time is up. Gentleman yields back.
    I now recognize myself for five minutes for questions.
    Mr. Fasman, we've heard today that there have been 
virtually no findings of joint liability for franchisors. And 
yet, there are press stories of investigations and cases 
regarding a number of brand name franchisors. And you mention 
the McDonald's case. Is it accurate to say that franchisors and 
franchisees have no reason to worry under this BFI standard?
    Mr. Fasman. Absolutely not. It is inaccurate to say that. 
And the reason to worry, of course, are the things that we've 
been talking about today when we've actually talked about the 
bill. The Browning-Ferris decision is, as I said, completely 
allows the labor board to come in and say, after the fact, 
you're a joint employer based upon evidence that was not there, 
not on the way that you've run your business. So I would be 
remiss in not saying that this is a standard that all 
businesses, not only franchisors, but all businesses, should 
care about.
    And, Mr. Chairman, you've made it very clear, and said, 
that, you know, all you have to do is look at the McDonald's 
prosecution on this, on this theory. And I don't agree that the 
McDonald's -- the McDonald's prosecution was brought before 
Browning-Ferris. But I can virtually guarantee that the general 
counsel will argue that Browning-Ferris should apply under that 
ruling or in that case. So I don't agree with the proposition 
that this has nothing to do with it.
    Chairman Byrne. It seems to me that the game here is to get 
a favorable decision in the McDonald's case and then use that 
as precedent to go after franchisor/franchisee relationships 
throughout the country, large, medium, and small. Would you 
agree?
    Mr. Fasman. I agree with that. I think that that's why it's 
being brought.
    Chairman Byrne. So would you agree with this assertion, 
that prior to Browning-Ferris that there was certainty under 
the National Labor Relations Act about who is and who is not a 
joint employer?
    Mr. Fasman. Well, I think that there -- yes. I think that 
there was certainty in the sense that there was 30 years of 
history. All of these cases, as Mr. Rubin rightly points out, 
are fact-specific. But we at least knew what the standard was. 
I do not agree, by the way, that there was a common law 
standard for 46 years before that period of time that was 
applied under the National Labor Relations Act. I think -- I've 
read all those cases.
    And if one can figure out what the standard was, you're 
better than I am, and a better lawyer than I am. Those cases 
were all over the place. And even the board said about its 
prior decisions that it was somewhat amorphous what test we 
used.
    So this standard in 1984 brought clarity, brought 
certainty, balanced the rights of employees, employers, and 
labor unions, in an appropriate fashion.
    Chairman Byrne. And what did the Browning-Ferris standard 
do to that clarity and that certainty?
    Mr. Fasman. Well, it destroyed it. It destroyed it by 
introducing this after-the-fact, nonfactual, contrafactual 
possibilities about potential control and indirect control. It 
just threw everything into uncertainty. And it will literally 
take -- if this standard continues, it will literally take 
another 30 years to figure out what it means.
    Chairman Byrne. As opposed to going back to the old 
standard under the bill that we're talking about today and 
having that clarity and certainty that we had before.
    Mr. Fasman. Yes. I agree, Mr. Chairman.
    Chairman Byrne. Ms. Kennedy, the American Action Forum, 
Washington think tank, just released a study citing a downtrend 
in growth in the hotel industry, which is heavily reliant on 
franchises. This could be attributed to expanding the joint 
employer standards. Do you think a similar downturn could occur 
in the franchise restaurant industry based on expansion of the 
joint employer standards?
    Ms. Kennedy. I do. I sit here today with that exact 
position. I am waiting before I start construction on another 
site. I just finished building one, got it open successfully in 
January, and now I'm on hold.
    I want to make sure that what I build is mine under all of 
the laws. And all of the history that I have, 33 years as a 
franchisee, or an employee of a franchisee, everything seemed 
like we were together in this idea of franchising. And now, 
with this, the question is out there: Will they be able to take 
over, in essence, my business, because they might be 
responsible for my employees?
    I'd like to point out, too -- and I'm reminded -- that 
there are hundreds of charges against franchises pending at the 
NLRB waiting on the McDonald's decision. So it might be fair to 
say that there aren't any today. That probably isn't going to 
be the case once that decision is made.
    Chairman Byrne. Thank you.
    And that comes to the conclusion of our question and 
answer. I would like to thank our witnesses for taking the time 
to testify before our subcommittee today. It was excellent 
testimony, got great information out there.
    I would ask unanimous consent to submit for the record a 
statement from the House Committee on Small Business, Chairman 
Chabot in support of H.R. 3441. Without objection, it will be 
entered in the record.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Chairman Byrne. Mr. Takano, do you have any closing 
remarks?
    Mr. Takano. I do, Mr. Chairman.
    I would like to thank the witnesses for their testimony 
today. And particularly I want to thank Mr. Rubin from my home 
State of California for clarifying some things for us.
    And I just want to say that too many Americans can't afford 
to buy a house, send their children to college, or save for 
retirement. It really should not be this way. American workers' 
productivity has led to tremendous economic growth.
    But, unfortunately, the rules are written so that the 
economy delivers only for those at the very top. Here in 
Congress, we have the power to fix that. Unfortunately, we seem 
to have our priorities mixed up. We have held numerous hearings 
on how to undermine our nation's unions and fundamental labor 
protections. If we spent the same amount of time, in this 
committee, working towards building up our nation's workforce 
as we have spent on destroying unions, I believe we could have 
come together on a bill to dramatically scale up investments in 
our nation's workforce through registered apprenticeship 
programs.
    H.R. 3441 is not a good deal for small business owners or 
small franchises. And it's an even worse bill for workers. I 
hope we can work together to refocus our priorities, to support 
and strengthen the rights of our working people in our modern 
economy.
    Mr. Chairman, at this time I would like to ask unanimous 
consent to insert into the record the slides that Mr. Norcross 
and I referenced in our opening statements.
    Chairman Byrne. Without objection, so ordered.
    [The information follows:]

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
 
    
    Mr. Takano. And I'd also like to ask unanimous consent to 
insert two letters opposing H.R. 3441 from the AFL-CIO, and the 
other, collectively, from the Teamsters, SEIU, UAW, UFW, UFCW, 
and the USW.
    Chairman Byrne. Without objection, so ordered.
    [The information follows:]
 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Takano. Thank you, Mr. Chairman. And that concludes my 
closing statement.
    Chairman Byrne. Thank you, Mr. Takano.
    Well, this has been very useful and helpful, I think, both 
to the committee and to the House as we consider this 
particular piece of legislation.
    What's really going on here is this is a game. I think we 
all understand what the game is here. You just heard the two 
letters that were entered into the record from the largest 
labor unions in America. It's an effort by the labor unions to 
try to organize where they haven't been able to organize 
before. And it's a very calculated game. It started with the 
Browning-Ferris decision, but certainly the Browning-Ferris 
decision is going to be used, is being used today in the 
McDonanld's case to try to get precedent to use to come in and 
interfere with the employment relationship of small businesses.
    Let me make this very clear. This is going to hurt small 
businesses. I don't hear from big businesses about this. Big 
businesses have lawyers, and accountants, and all those people 
to take care of them.
    I hear from people like Mr. MacDonald and Ms. Kennedy from 
my district and all over America. And they know that this is 
going to hurt them. More importantly, they know what's going to 
hurt their employees. This is not about the employees of small 
businesses or the small businesses in America. This is about 
the big labor unions in America trying to find a way to try to 
claw themselves back into the position they were in years ago.
    Labor unions have continued to lose their percentage of 
American workers that they represent even after 8 years of a 
very favorable administration. And this is one more effort 
that's their attempt to try to get back into some sort of 
position of strength in America.
    I would assert the only way they can get back in strength 
is by changing their model, not by interrupting or interfering 
with a model that's worked for small businesses and the 
employees of small businesses throughout America.
    So I think, if anything, the testimony we've heard today 
has underscored the need for this piece of legislation. I will 
say to my colleagues that I have open ears and open minds. If 
they have some suggestions they want to make to me about 
changes they think that would improve it, I'm happy to listen.
    But based upon what I've heard today, it simply has 
underscored what I've been hearing for months now, which is 
that we desperately need to pass this law, get certainty and 
clarity back into that employment relationship, and help small 
businesses throughout America.
    There being no further business, the subcommittees stand 
adjourned.
    [Additional submission by Mr. Takano follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    [Whereupon, at 12:20 p.m., the subcommittees were 
adjourned.]

                                 [all]