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115th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 115-379
======================================================================
SAVE LOCAL BUSINESS ACT
_______
November 1, 2017.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Foxx, from the Committee on Education and the Workforce, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 3441]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 3441) to clarify the treatment of two
or more employers as joint employers under the National Labor
Relations Act and the Fair Labor Standards Act of 1938, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Save Local Business Act''.
SEC. 2. CLARIFICATION OF JOINT EMPLOYMENT.
(a) National Labor Relations Act.--Section 2(2) of the National Labor
Relations Act (29 U.S.C. 152(2)) is amended--
(1) by striking ``The term `employer''' and inserting ``(A)
The term `employer'''; and
(2) by adding at the end the following:
``(B) A person may be considered a joint employer in relation to an
employee only if such person directly, actually, and immediately, and
not in a limited and routine manner, exercises significant control over
essential terms and conditions of employment, such as hiring employees,
discharging employees, determining individual employee rates of pay and
benefits, day-to-day supervision of employees, assigning individual
work schedules, positions, and tasks, or administering employee
discipline.''.
(b) Fair Labor Standards Act of 1938.--Section 3(d) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 203(d)) is amended--
(1) by striking ```Employer' includes'' and inserting ``(1)
`Employer' includes''; and
(2) by adding at the end the following:
``(2) A person may be considered a joint employer in relation to an
employee for purposes of this Act only if such person meets the
criteria set forth in section 2(2)(B) of the National Labor Relations
Act (29 U.S.C. 152(2)(B)).''.
Purpose
H.R. 3441, the Save Local Business Act, provides a
commonsense standard under the National Labor Relations Act
(NLRA) and Fair Labor Standards Act (FLSA) for determining
whether a joint employment relationship exists. The bill
restores the long-held standard for determining joint employer
status under the NLRA that was overturned by a decision of the
National Labor Relations Board (NLRB or the Board).
Additionally, the bill provides a uniform joint employer
standard under the FLSA. Specifically, H.R. 3441 amends the
NLRA and FLSA to allow two or more employers to be considered
joint employers only if each shares and exercises actual,
direct, and immediate control over essential terms and
conditions of employment. In doing so, the bill protects the
independence of businesses, in particular small businesses such
as franchisees and subcontractors.
Committee Action
113TH CONGRESS
Subcommittee hearing on NLRB issues
On June 24, 2014, the Subcommittee on Health, Employment,
Labor, and Pensions (HELP) held an NLRB oversight hearing
titled ``What Should Workers and Employers Expect Next from the
National Labor Relations Board?'' Witnesses were Mr. Andrew F.
Puzder, CEO, CKE Restaurants Holdings, Inc., Carpinteria,
California; Mr. Seth H. Borden, Partner, McKenna Long &
Aldridge, New York, New York; Mr. James B. Coppess, Associate
General Counsel, AFL-CIO, Washington, D.C.; and Mr. G. Roger
King, Of Counsel, Jones Day, Columbus, Ohio. Witnesses
discussed upcoming NLRB cases as well as Board policy and cited
changes to the joint employer standard as one of the most
significant and controversial issues before the Board at that
time.
Subcommittee hearing on potential changes to the NLRB's joint employer
standard
On September 9, 2014, the HELP Subcommittee held a hearing
on potential changes to the NLRB's joint employer standard
titled ``Expanding Joint Employer Status: What Does It Mean for
Workers and Job Creators?'' Witnesses were Mr. Todd Duffield,
Shareholder, Ogletree, Deakins, Nash, Smoak & Stewart, Atlanta,
Georgia; Mr. Clint Ehlers, President, FASTSIGNS of Lancaster
and Willow Grove, Lancaster and Willow Grove, Pennsylvania,
testifying on behalf of the International Franchise
Association; Mr. Harris Freeman, Professor, Western New England
University School of Law, Springfield, Massachusetts; Ms.
Catherine Monson, Chief Executive Officer, FASTSIGNS
International, Inc., Carrollton, Texas, testifying on behalf of
the International Franchise Association; and Mrs. Jagruti
Panwala, owner of multiple hotel franchises in the northeastern
United States, Bensalem, Pennsylvania. Witnesses spoke about
how an expanded joint employer standard would negatively impact
franchises and other small businesses.
114TH CONGRESS
Subcommittee field hearing in Mobile, Alabama
On August 25, 2015, the HELP Subcommittee held a field
hearing titled ``Redefining `Employer' and the Impact on
Alabama's Workers and Small Business Owners'' in Mobile,
Alabama, in anticipation of the NLRB creating a new joint
employer standard. Witnesses were Mr. Marcel Debruge, Burr and
Forman LLP, Birmingham, Alabama; Mr. Chris Holmes, CEO, CLH
Development Holdings, Tallahassee, Florida; and Col. Steve
Carey, USAF, Ret., Owner and Operator, CertaPro Painters of
Mobile and Baldwin Counties, Daphne, Alabama, testifying on
behalf of the Coalition to Save Local Businesses and the
International Franchise Association. Witnesses testified the
new joint employer standard would threaten the independence of
small businesses in Alabama and deter franchisors from
licensing new franchisees.
Subcommittee field hearing in Savannah, Georgia
On August 27, 2015, the HELP Subcommittee held a field
hearing titled ``Redefining `Employer' and the Impact on
Georgia's Workers and Small Business Owners'' in Savannah,
Georgia, regarding the NLRB's joint employer standard.
Witnesses were Mr. Jeffrey M. Mintz, Shareholder, Littler
Mendelson, P.C., Atlanta, Georgia; Mr. Kalpesh ``Kal'' Patel,
President and COO, Image Hotels, Inc., Pooler, Georgia; Mr.
Alex Salguerio, Savannah Restaurants Corp., Savannah, Georgia;
and Mr. Fred Weir, President, Meadowbrook Restaurant Company
Inc., Cumming, Georgia, testifying on behalf of the Coalition
to Save Local Businesses and the International Franchise
Association. Witnesses testified the new joint employer
standard would hurt small business growth in Georgia and create
barriers to entry for potential franchise owners.
Introduction of H.R. 3459, Protecting Local Business Opportunity Act
On September 9, 2015, then-Committee on Education and the
Workforce (Committee) Chairman John Kline (R-MN) introduced
H.R. 3459, the Protecting Local Business Opportunity Act.
Recognizing the threat to small businesses posed by the NLRB's
August 2015 decision in Browning-Ferris Industries of
California, Inc. (Browning-Ferris),\1\ the legislation amended
the NLRA to restore the long-held standard that two or more
employers can only be considered joint employers for purposes
of the Act if each shares and exercises control over essential
terms and conditions of employment and such control over these
matters is actual, direct and immediate. Chairman Lamar
Alexander (R-TN) of the Senate Health, Education, Labor, and
Pensions Committee introduced companion legislation, S. 2015,
also on September 9, 2015.
---------------------------------------------------------------------------
\1\362 NLRB No. 186 (2015).
---------------------------------------------------------------------------
Subcommittee Legislative Hearing on H.R. 3459, Protecting Local
Business Opportunity Act
On September 29, 2015, the HELP Subcommittee held a
legislative hearing on H.R. 3459, the Protecting Local Business
Opportunity Act. Witnesses at the hearing were Mr. Ed Braddy,
President, Winlee Foods, LLC, Timonium, Maryland, testifying on
behalf of himself and the National Franchisee Association; Mr.
Kevin Cole, CEO, Enniss Electric Company, Manassas, Virginia,
testifying on behalf of the Independent Electrical Contractors;
Mr. Charles Cohen, former Member of the NLRB and Senior
Counsel, Morgan, Lewis & Bockius, LLP, Washington, D.C.; Ms.
Mara Fortin, President and CEO, Nothing Bundt Cakes, San Diego,
California, testifying on behalf of herself and the Coalition
to Save Local Businesses; Mr. Michael Harper, Professor, Boston
University School of Law, Boston, Massachusetts; and Dr. Anne
Lofaso, Professor, West Virginia University College of Law,
Morgantown, West Virginia. Witnesses testified H.R. 3459 would
restore the joint employer standard that had worked well for
workers and business owners for decades and would protect
opportunities for small business growth.
Committee Passage of H.R. 3459, Protecting Local Business Opportunity
Act
On October 28, 2015, the Committee considered and marked up
H.R. 3459, the Protecting Local Business Opportunity Act. Rep.
Buddy Carter (R-GA) offered an amendment in the nature of a
substitute, making a technical change to clarify the Act. The
Committee voted to adopt the amendment in the nature of a
substitute by voice vote. The Committee then favorably reported
H.R. 3459, as amended, to the House of Representatives by a
vote of 21-15.
115TH CONGRESS
Subcommittee hearing on NLRB issues
On February 14, 2017, the HELP Subcommittee held a hearing
titled ``Restoring Balance and Fairness to the National Labor
Relations Board.'' Witnesses decried the extreme, partisan
decisions of the NLRB during the Obama administration,
including the expanded joint employer standard. Witnesses were
Ms. Reem Aloul, BrightStar Care of Arlington, Arlington,
Virginia, testifying on behalf of the Coalition to Save Local
Business; Ms. Susan Davis, Partner, Cohen, Weiss and Simon,
LLP, New York, New York; Mr. Raymond J. LaJeunesse, Jr., Vice
President, National Right to Work Legal Defense and Education
Foundation, Springfield, Virginia; and, Mr. Kurt G. Larkin,
Partner, Hunton & Williams LLP, Richmond, Virginia.
Full committee hearing on joint employer issues
On July 12, 2017, the Committee held a hearing titled
``Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship'' to examine the impact of expanding joint
employer standards across federal labor laws, including the
NLRA and the FLSA. Witnesses were Mr. Michael Harper,
Professor, Boston University School of Law, Boston,
Massachusetts; Mr. Richard Heiser, Vice President, FedEx Ground
Package System, Inc., Chicago, Illinois; Mr. G. Roger King,
Senior Labor and Employment Counsel, HR Policy Association,
Washington, D.C.; Mr. Jerry Reese II, Director of Franchise
Development, Dat Dog, New Orleans, Louisiana, testifying on
behalf of the Coalition to Save Local Business; Ms. Catherine
K. Ruckelhaus, General Counsel, National Employment Law
Project, New York, New York; and Ms. Mary Kennedy Thompson,
Chief Operating Officer of Franchise Brands,Dwyer Group, Waco,
Texas, testifying on behalf of the International Franchise Association.
Witnesses testified about the importance of reigning in expanding joint
employer standards.
Introduction of H.R. 3441, Save Local Business Act
On July 27, 2017, Subcommittee on Workforce Protections
Chairman Bradley Byrne (R-AL) introduced H.R. 3441, the Save
Local Business Act. In response to expanding joint employer
standards under the NLRA and FLSA, the bill amends both laws to
provide that two or more employers can only be considered joint
employers if each shares and exercises control over essential
terms and conditions of employment and such control over those
matters is actual, direct, and immediate.
Joint subcommittee legislative hearing on H.R. 3441, Save Local
Business Act
On September 13, 2017, the HELP and Workforce Protections
Subcommittees held a joint legislative hearing on H.R. 3441.
Witnesses were Mr. Zachary D. Fasman, Partner, Proskauer Rose
LLP, New York, New York; Ms. Tamra Kennedy, President, Twin
Cities T.J.'s Inc., Roseville, Minnesota, testifying on behalf
of the Coalition to Save Local Business; Mr. Granger MacDonald,
Chief Executive Officer, The MacDonald Companies, Kerrville,
Texas, testifying on behalf of the National Association of Home
Builders; and Mr. Michael Rubin, Partner, Altshuler Berzon LLP,
San Francisco, California. Witnesses testified that H.R. 3441
clarifies the joint employer standard used under both the NLRB
and FLSA and benefits workers and business owners.
Committee passage of H.R. 3441, Save Local Business Act
On October 4, 2017, the Committee considered and marked up
H.R. 3441. Subcommittee on Workforce Protections Chairman Byrne
offered an amendment in the nature of a substitute, making
technical changes.\2\ The Committee voted to adopt the
amendment in the nature of a substitute by voice vote. The
Committee then favorably reported H.R. 3441, as amended, to the
House of Representatives by a vote of 23 to 17.
---------------------------------------------------------------------------
\2\The amendment in the nature of a substitute clarified that a
list of terms and conditions of employment included in the act are
examples of what can be considered in a joint employer analysis, but
not a comprehensive list, and control of every term and condition is
not required for joint employment to be found.
---------------------------------------------------------------------------
Summary
The Save Local Business Act reaffirms that two or more
employers must have ``direct, actual, and immediate'' control
over employees to be considered joint employers. H.R. 3441
provides needed clarity to the job creators, entrepreneurs, and
workers who are being adversely impacted by expanding joint
employer standards. In particular, the bill rolls back vague
and convoluted joint employer schemes as created by the NLRB in
Browning-Ferris,\3\ by the U.S. Court of Appeals for the Fourth
Circuit with respect to the FLSA in Salinas v. Commercial
Interiors, Inc. (Salinas),\4\ and by regulators and other
courts. H.R. 3441 restores a commonsense definition of employer
and protects workers and local employers from future overreach
by unelected bureaucrats and activist judges.
---------------------------------------------------------------------------
\3\362 NLRB No. 186 (2015).
\4\848 F.3d 125 (4th Cir. 2017).
---------------------------------------------------------------------------
Committee Views
Background on the NLRB and the Browning-Ferris decision
Enacted in 1935, the NLRA guarantees the right of most
private-sector employees to organize and bargain collectively
with employers through representatives of their choosing, or to
refrain from such activities. The NLRB is an independent
federal agency established by the NLRA to fulfill two principal
functions: (1) determine whether employees wish to be
represented by a union and (2) prevent and remedy employer and
union unlawful acts, called unfair labor practices.
From 1984 to August 2015, the NLRB determined whether two
separate entities should be considered joint employers by
analyzing whether the entities shared control over or co-
determined the essential terms and conditions of employment.\5\
Essential terms and conditions of employment could include
hiring, firing, discipline, supervision, and direction of
employees. Prior to Browning-Ferris, control over these
employment matters needed to be ``actual, direct, and
immediate'' for the Board to find two or more entities to be
joint employers.\6\ Thus, under this standard, the Board rarely
found joint employer status.\7\
---------------------------------------------------------------------------
\5\TLI, Inc., 271 NLRB 798, 798-99 (1984), overruled by BFI, 362
NLRB No. 186.
\6\See Airborne Express, 338 NLRB 597, 597 n.1 (2002) (``[The]
essential element in [joint employer] analysis is whether a putative
joint employer's control over employment matters is direct and
immediate.''); AM Prop. Holding Corp., 350 NLRB 998, 1000 (2007) (``In
assessing whether a joint employer relationship exists, the Board . . .
looks to the actual practice of the parties.'').
\7\Prior to 1984, the joint employer standard was less well-defined
under the NLRA, but was generally never as expansive as the new
standard from Browning-Ferris.
---------------------------------------------------------------------------
On August 27, 2015, the NLRB issued a 3-2 decision in
Browning-Ferris that radically revised the joint employer
standard, causing significant concern for every employer with a
contractual relationship with a separate entity, including
franchisees and subcontractors. Under the standard set forth in
Browning-Ferris, companies sharing indirect or potential
control over another's workforce may be considered joint
employers. Under this standard, an employer could be held
liable for the decisions of another entity--decisions of which
the employer may not even be aware.
In Browning-Ferris, a Teamsters local sought to organize
recycling sorters directly employed by Leadpoint Business
Services (Leadpoint), a subcontractor of Browning-Ferris
Industries (BFI). The Teamsters asserted BFI was a joint
employer with Leadpoint. An NLRB regional director applied the
traditional joint employer standard and found BFI did not exert
sufficient control over Leadpoint's employees to be a joint
employer. He then directed an election with Leadpoint as the
sole employer. The Teamsters appealed to the Board.
In its decision, the Board adopted a new standard and found
BFI was a joint employer with Leadpoint. In ruling BFI to be a
joint employer, the Board found the temporary labor service
agreement between the two employers indicated BFI's indirect
control over Leadpoint's employees. This agreement included
BFI's ability to reject employees referred by Leadpoint, set
specific productivity standards of Leadpoint's employees
through Leadpoint's supervisors, and set wage ceilings for
Leadpoint's employees performing comparable work to BFI
employees.\8\
---------------------------------------------------------------------------
\8\Browning-Ferris Industries, 362 NLRB No. 186 at 18-20.
---------------------------------------------------------------------------
The Board held that two or more entities are joint
employers if (1) there is a common-law employment relationship
with the employees in question and (2) the putative joint
employer possesses sufficient control over employees' essential
terms and conditions of employment to permit meaningful
collective bargaining.\9\ The Board rejected the previous
requirement that the joint employer's control be actual,
direct, and immediate--overruling three decades of Board
precedent.\10\ Instead, the ``right to control,'' even if it is
not actually exercised, is evidence of joint employer
status.\11\
---------------------------------------------------------------------------
\9\Id. at 2.
\10\Id. at 16.
\11\Id.
---------------------------------------------------------------------------
BFI has challenged the new joint employer standard at the
U.S. Court of Appeals for the District of Columbia Circuit.\12\
Over a dozen stakeholders filed amicus briefs arguing against
the new standard because it is too broad, creates legal
uncertainty that will lead to more litigation, and overturns a
clear, bright-line test. In contrast, the Equal Employment
Opportunity Commission filed an amicus brief in support of the
NLRB's new joint employer standard, noting the test's
``flexibility.''\13\ Oral arguments were held on March 9, 2017,
but the Court has not yet issued its decision.
---------------------------------------------------------------------------
\12\Browning-Ferris Indus. of Cal., Inc. v. NLRB, Nos. 16-1028, 16-
1063 & 16-1064 (D.C. Cir. 2016).
\13\Brief of the U.S. Equal Emp't Opportunity Comm'n as Amicus
Curiae in Support of Respondent/Cross-Petitioner and in Favor of
Enforcement, Browning-Ferris Indus. of Cal., Inc., Nos. 16-1028, 16-
1063 & 16-1064, at 6 (D.C. Cir.) (filed Sept.14, 2016).
---------------------------------------------------------------------------
In July 2016, the NLRB expanded the potential impact of
Browning-Ferris in Miller and Anderson.\14\ This case concerned
a ``mixed'' bargaining unit consisting of workers solely
employed by one employer and workers jointly employed by two
employers. Such mixed bargaining units have the potential to
create conflicts of interest between differing sets of
employees and employers all combined into one unit. Previously,
establishing a mixed bargaining unit required the consent of
both employers. Instead, Miller and Anderson reverted to a
standard briefly used between 2000 and 2004, where unions could
petition for mixed bargaining units without employer consent.
For such a unit to be formed, a joint employer relationship
must first exist. As Browning-Ferris makes a finding of a joint
employer relationship more likely, there will be increased
opportunities for mixed bargaining units.
---------------------------------------------------------------------------
\14\364 NLRB No. 39 (2016).
---------------------------------------------------------------------------
Under Browning-Ferris, there is already the potential to
force joint employers with conflicting interests to bargain
together across the table from the union. Such conflicts of
interest will likely only be exacerbated when bargaining units
consist of solely employed and jointly employed workers.
The expanding joint employer standard under the FLSA
Enacted in 1938, the FLSA is the primary federal statute
setting forth employment rules concerning minimum wages,
maximum hours, and overtime pay. The FLSA covers some 135
million full- and part-time workers in the private sector and
in federal, state, and local governments\15\ and specifies
minimum wage, overtime pay, child labor, and record keeping
standards.\16\
---------------------------------------------------------------------------
\15\The FLSA applies to federal employees of the Library of
Congress, the U.S. Postal Service, the Postal Rate Commission, and the
Tennessee Valley Authority.
\16\The FLSA specifically requires employers to maintain adequate
records reflecting covered employees' hours of work and pay for all
hours worked.
---------------------------------------------------------------------------
Congress delegates authority to DOL to interpret the FLSA
via regulations; however, state wage and hour laws are not
preempted by the FLSA, so long as states' laws are more
``protective'' of employees.\17\ In addition, the FLSA provides
for enforcement actions by DOL and private litigation between
employees and employers in which court interpretations further
shape the contours of the law.
---------------------------------------------------------------------------
\17\29 U.S.C. Sec. 218.
---------------------------------------------------------------------------
The FLSA, like the NLRA, currently defines only the term
employer, not joint employer. This lack of a definition has led
federal courts to develop various tests for determining whether
two entities have a joint employer relationship under the FLSA.
Standards vary from one federal circuit to another. For
example, the First and Third Circuits examine the potential
joint employer's control over essential terms and conditions of
employment, such as the power to hire and fire the
employee.\18\ Another circuit looks to the ``economic reality''
of the relationship, such as whether the employee works
primarily for the potential joint employer.\19\ For the most
part, the courts' various tests come down to whether the
putative employer exercises authority and control over the
employee, as would be expected in a traditional employment
relationship.
---------------------------------------------------------------------------
\18\See In re Enter. Rent-A-Car Wage & Hour Emp't Practices Litig.,
683 F.3d 462, 468-69 (3d Cir. 2012); Baystate Alt. Staffing, 163 F.3d
668, 675 (1st Cir. 1998).
\19\See, e.g., Zheng v. Liberty Apparel Co., 355 F.3d 61, 71-72 (2d
Cir. 2003).
---------------------------------------------------------------------------
DOL's Wage and Hour Division issued an Administrator's
Interpretation (AI) in January 2016 on joint employment under
the FLSA, further compounding the lack of judicial clarity.\20\
The AI's analysis broadly interpreted joint employment under
the FLSA, rejecting ``control [over essential terms and
conditions of employment] as the standard for determining
employment.''\21\ The Obama administration's DOL said the AI
was needed because the growing variety and prevalence of
business models--such as third-party management companies,
independent contractors, and staffing agencies--have made joint
employment more common. The AI also highlighted certain
industries where joint employment issues are more prevalent:
construction, temporary staffing, hospitality, janitorial
services, warehouse and logistics, and agriculture. However,
stakeholders argued the AI would increase litigation and
encourage companies to alter their business models or risk
being exposed to significant liability.
---------------------------------------------------------------------------
\20\DEP'T OF LABOR, ADMINISTRATOR'S INTERPRETATION NO. 2016-1 (Jan.
20, 2016).
\21\Id.
---------------------------------------------------------------------------
On June 7, 2017, Secretary of Labor Alexander Acosta
announced the withdrawal of the AI on joint employment.\22\
However, the now-withdrawn AI's broad interpretation of joint
employment indicates how the plaintiffs' bar and select judges
are continuing to aggressively pursue the issue. Moreover,
under future administrations, DOL's Wage and Hour Division
could reissue the AI unless Congress amends the FLSA to
preclude it.
---------------------------------------------------------------------------
\22\News Release, U.S. Dep't of Labor, US Sec'y of Labor Withdraws
Joint Employment, Indep. Contractor Informal Guidance (June 7, 2017),
https://www.dol.gov/newsroom/releases/opa/opa20170607.
---------------------------------------------------------------------------
This expansive approach was typified by a Fourth Circuit
case decided this year. On January 25, 2017, the U.S. Court of
Appeals for the Fourth Circuit adopted an expansive new joint
employer standard under the FLSA in Salinas.\23\ In this case,
Commercial Interiors subcontracted with J.I. General
Contractors for drywall installation on a project. When
employees of J.I. General Contractors sued for overtime wages
under the FLSA, they named both J.I. General Contractors and
Commercial Interiors as employers.
---------------------------------------------------------------------------
\23\848 F.3d 125 (4th Cir. 2017).
---------------------------------------------------------------------------
On appeal, the Fourth Circuit ruled Commercial Interiors
was a joint employer with J.I. General Contractors. The Fourth
Circuit used a new test to find joint employer status under the
FLSA where ``two or more persons or entities are not completely
disassociated with respect to a worker such that the persons or
entities share, agree to allocate responsibility for, or
otherwise codetermine--formally or informally, directly or
indirectly--the essential terms and conditions of the worker's
employment.''\24\ The Court identified six factors courts
should use in making that finding, including ``[t]he degree of
permanency and duration of the relationship between the
putative joint employers.''\25\
---------------------------------------------------------------------------
\24\Id. at 141 (internal quotation marks omitted).
\25\Id. at 141-42.
---------------------------------------------------------------------------
Moreover, Salinas states ``one factor alone can serve as
the basis for finding that two or more . . . entities are `not
completely disassociated.'''\26\ As such, the Fourth Circuit's
test seems to make any relationship or collaboration between
two businesses a joint employer relationship because the two
entities will not be completely disassociated from each other,
even if the supposed joint employer has no direct authority or
control over the other entity's employee.
---------------------------------------------------------------------------
\26\Id. at 142.
---------------------------------------------------------------------------
This test for joint employer status under the FLSA is even
broader than the Browning-Ferris test under the NLRA. One
commentator noted, ``No other court, and not even the Obama-era
DOL, has interpreted joint employment this broadly.''\27\ While
this test only applies to cases in the Fourth Circuit, other
courts likely will be urged to adopt it.
---------------------------------------------------------------------------
\27\Hunton & Williams LLP, 4th Circuit Significantly Expands Joint
Employer Liability Under FLSA With Incredibly Broad New Test (Mar.
2017), https://www.hunton.com/images/content/2/7/v2/27717/4th-cir-
expands-joint-employer-liability-flsa.pdf.
---------------------------------------------------------------------------
Consequences of expanded joint employer standards
Unions have long sought a broader NLRA joint employer test
to protect ``concerted activity''\28\ and bring more parties to
the bargaining table. Prior to Browning-Ferris, there have been
significant limits on union activity against non-employers,
such as secondary boycotts.\29\ However, if a previously
neutral employer (i.e., a franchisor or contracting company) is
deemed a joint employer, a previously illegal secondary boycott
would then be NLRA-protected concerted activity. This would
allow a union to pressure one of the employers into a
neutrality agreement or voluntary recognition.\30\
---------------------------------------------------------------------------
\28\See 29 U.S.C. Sec. 157 (``Employees shall have the right to
self-organization, to form, join, or assist labor organizations, to
bargain collectively through representatives of their own choosing, and
to engage in other concerted activities for the purpose of collective
bargaining or other mutual aid or protection . . . .'').
\29\In a secondary boycott, a union and its members refuse to work
for, purchase from, or handle the products of a business with which the
union has a dispute.
\30\A ``neutrality agreement'' is a contract between a union and an
employer under which the employer agrees to support a union's attempt
to organize its workforce. ``Voluntary recognition'' is when employees
persuade an employer to voluntarily recognize a union after showing
majority support by signed authorization cards or other means.
---------------------------------------------------------------------------
The threat of liability for actions taken entirely by a
contractor or franchise partner will make larger businesses
less likely to work with smaller businesses. Under the FLSA,
employers will be particularly cautious about avoiding any
chance of joint employer liability. Over the past several
decades, FLSA litigation has skyrocketed, seeing over a 500
percent increase between 1991 and 2012.\31\ Adding another
defendant as a joint employer to an FLSA case can be an
attractive proposition to a plaintiff's attorney, even if that
extra defendant was not directly involved in the actions behind
the underlying claim. As a result, larger companies will be
constrained in their willingness and ability to boost the
economy from the ground up by partnering with smaller, local
businesses with less of a track record.
---------------------------------------------------------------------------
\31\Government Accountability Office, Fair Labor Standards Act: The
Department of Labor Should Adopt a More Systematic Approach to
Developing Its Guidance, GAO-14-69 (December 18, 2013).
---------------------------------------------------------------------------
The economic benefits of contract work will be greatly
diminished by the expanded joint employer standards. For
instance, many manufacturing plants contract out janitorial
work so that they can efficiently focus on what they do best,
manufacturing. Under the new joint employer standard, however,
the manufacturing company may be liable for the janitorial
company's employment actions and would be forced to bargain
with the janitorial company's employees. Such a system may not
be viable for many employers.
Expanded joint employer standards under the FLSA and NLRA
will hurt the franchise model as well. Franchisors may be found
to be joint employers with their franchisees based on indirect
control of the franchisees' operations. This will eliminate the
primary benefit of the franchise system, which gives
franchisees complete discretion over their workforce while at
the same time enjoying the advantages of associating with a
franchisor's brand name. With franchisors and franchisees now
deemed joint employers, the franchisor's potential liabilities
will increase, requiring greater involvement in franchisee
stores. These added liabilities and responsibilities will
reduce franchisees' independence and increase costs for the
franchisor. Furthermore, because of these increased
liabilities, franchisors will be more restrictive with their
franchise sales. They will likely require greater experience
and resources from new franchisees, thereby reducing new small
businesses opportunities under the franchise model.
The Committee heard from a variety of business owners about
the negative impact of expanding joint employer standards. Ed
Braddy, a Burger King franchisee who owns and operates a
restaurant in Baltimore, stated, ``[T]he new joint employer
standard will destroy smaller restaurant operators like me.''
According to Mr. Braddy, the new standard will result in
franchisors repurchasing franchises, consolidating operations
by selecting larger operators, or taking away the independence
of franchisees by implementing detailed franchisee and employee
policies, making him ``no more than a glorified manager in
[his] own restaurant.''\32\ Mr. Braddy concluded:
---------------------------------------------------------------------------
\32\Protecting Local Business Opportunity Act: Hearing on H.R. 3459
Before the House Subcomm. on Health, Employment, Labor, and Pensions,
Comm. on Educ. and the Workforce, 114th Cong. (Sept. 29, 2015) (written
testimony of Ed Braddy at 3).
I am concerned that those who created this new
standard believe it will help the ``little guy'' and
put more mandates on large corporations. As a one-store
operator in an inner-city neighborhood, I can tell you
that nothing is further from the truth. The new joint
employer standard will hurt me, my employees and the
neighborhood I support. Please restore the definition
to require actual, direct, immediate control over the
essential terms of employment.\33\
---------------------------------------------------------------------------
\33\Id. at 4.
Kevin Cole, CEO of the Ennis Electric Company and speaking
on behalf of the Independent Electrical Contractors, testified
the new joint employer standard would deter those in the
construction industry from working with small, start-up
---------------------------------------------------------------------------
subcontractors. Mr. Cole stated:
This new standard . . . prevents us from working with
certain start-ups or new small businesses that may have
a limited track record. For example, my company will
take on certain small businesses as subcontractors,
which will often times be owned by minorities or women,
and help mentor them on certain projects. With this new
standard, I'm now less likely to take on that risk. I
am also less likely to bid on federal contracts over
$1.5 million, under which the Federal Acquisition
Regulation (FAR) system mandates 1 subcontract with
small businesses.\34\
---------------------------------------------------------------------------
\34\Protecting Local Business Opportunity Act: Hearing on H.R. 3459
Before the House Subcomm. on Health, Employment, Labor, and Pensions,
Comm. on Educ. and the Workforce, 114th Cong. (Sept. 29, 2015) (written
testimony of Kevin Cole at 3).
In his testimony, Charles Cohen, former NLRB Member, echoed
Mr. Cole's concern the new joint employer standard would likely
discourage companies from ``promoting special hiring programs''
and working with underrepresented groups such as veterans.\35\
---------------------------------------------------------------------------
\35\Id. (written testimony of Charles Cohen at 5.) [Hereinafter
Cohen Testimony]
---------------------------------------------------------------------------
Mara Fortin, owner of several Nothing Bundt Cakes
franchises, testified that due to the Browning-Ferris decision,
she could lose control of her own business. Ms. Fortin stated:
My franchisor had nothing to do with hiring my
employees or setting their wages and benefits. My
franchisor has nothing to do with the day-to-day
operations of my small business. But if they are to be
considered a joint employer, my franchisor may decide
to exert more control over my business, relegating me
to a middle manager role for which I did not sign
up.\36\
---------------------------------------------------------------------------
\36\Protecting Local Business Opportunity Act: Hearing on H.R. 3459
Before the House Subcomm. on Health, Employment, Labor, and Pensions,
Comm. on Educ. and the Workforce, 114th Cong. (Sept. 29, 2015) (written
testimony of Mara Fortin at 6) [Hereinafter Fortin Testimony].
Tamra Kennedy, owner of several Taco John's franchises,
noted the opportunities lost to franchisees when franchisors
---------------------------------------------------------------------------
have to withdraw support over joint employer concerns:
My franchisor used to provide standard employee
handbooks to its franchisees. But due to expanded joint
employment liability, the company no longer provides me
employee handbooks--even though my brand has the
expertise and best practices that would be most helpful
for me and my employees. Now, I must hire an outside
attorney to write an employee handbook for me. It cost
my business $9,000 to have outside counsel prepare my
employee handbook. Not to mention, I need my attorneys
to update my handbook each time the law changes. All
told, I need to sell hundreds of extra tacos every day
to cover this needless expense.\37\
---------------------------------------------------------------------------
\37\The Save Local Business Act: Hearing on H.R. 3441 Before the
House Subcomm. on Health, Employment, Labor and Pensions and the
Subcomm. on Workforce Protections, Comm. on Educ. and the Workforce,
115th Congress (September 13, 2017) (written testimony of Tamra Kennedy
at 3).
Fred Weir, a Zaxby's franchisee, also spoke about the
negative consequences of new joint employer standards. Mr. Weir
stated that expanded joint employer standards ``would drain the
life from the hundreds of thousands of small businesses that
operate just like mine. The new standard would force
operational changes on the franchisor, and on
franchisees.''\38\
---------------------------------------------------------------------------
\38\Redefining ``Employer'' and the Impact on Georgia's Workers and
Small Business Owners: Hearing Before the House Subcomm. on Health,
Employment, Labor, and Pensions, Comm. on Educ. and the Workforce,
114th Cong. (Aug. 27, 2015) (written testimony of Fred Weir at 3).
---------------------------------------------------------------------------
Among the many concerns raised, business owners were
especially alarmed about the loss of flexibility and
independence under these new standards. CertaPro Paint
franchisee Col. Steve Carey, USAF, Ret., testified about the
potential impact new joint employer standards would have on his
industry:
If CertaPro is going to be responsible for the
liabilities arising out of the operation of the
business, and oversight of the workforce, why would
they hand control over to me? Many businesses may feel
this way and opportunities for local business ownership
will decline dramatically. I know how fortunate I am to
own my business after my long service in the military.
While CertaPro provides advice and support, I am the
decision-maker when it comes to my business. The
success or failure of my business is, essentially, all
on me--and that's exactly what I signed up for. It
would be a real shame to take these opportunities away
from other veterans looking to start their ``second
life'' as a local franchise business owner as well.\39\
---------------------------------------------------------------------------
\39\Redefining ``Employer'' and the Impact on Alabama's Workers and
Small Business Owners: Hearing Before the House Subcomm. on Health,
Employment, Labor, and Pensions, Comm. on Educ. and the Workforce,
114th Cong. (Aug. 25, 2015) (written testimony of Steve Carey at 4)
[Hereinafter Carey Testimony].
Mary Kennedy Thompson of the Dwyer Group noted the broad
implications of expanding joint employer standards across all
---------------------------------------------------------------------------
sectors of the economy:
Research from the American Action Forum in April 2017
projected that the new joint employer standard could
result in 1.7 million fewer jobs in the entire private
sector and 500,000 fewer jobs in the leisure and
hospitality industry alone. It is imperative that the
locally-owned businesses created by the franchise
system remain open and continue to operate with the
full support of their brand. The system gives
entrepreneurs a leg up because they can rely on the
proven-to-work tools that we as franchisors give them,
and that system is currently in jeopardy.\40\
---------------------------------------------------------------------------
\40\Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship: Hearing before the House Comm. on Educ. and the
Workforce, 115th Cong. (July 12, 2017) (written Testimony of Tamra
Kennedy at 5) [Hereinafter Kennedy Testimony].
Kal Patel, a hotel franchisee and past board member of the
Asian American Hotel Owners Association (AAHOA), testified
before the HELP Subcommittee about the impact of the NLRB's
---------------------------------------------------------------------------
Browning-Ferris decision. Mr. Patel stated:
As an hotelier, I have come to depend on the
franchise model as the most advantageous means to small
business ownership. Consequently, I am deeply concerned
that the NLRB's efforts to expand the definition of
joint employer status will transfer control of small
businesses from independent hotel owners and operators
to large corporations. An expanded joint employer legal
standard intimated by the NLRB would compel franchisors
to take an active role in staffing decisions due to the
newly manufactured potential for liability.
Franchisees, including the majority of AAHOA members,
would lose independence in decision making and would
effectively become employees of the franchisor because
they would be forced to follow someone else's
directives.\41\
---------------------------------------------------------------------------
\41\Redefining ``Employer'' and the Impact on Georgia's Workers and
Small Business Owners: Hearing Before the House Subcomm. on Health,
Employment, Labor, and Pensions, Comm. on Educ. and the Workforce,
114th Cong. (Aug. 27, 2015) (written testimony of Kal Patel at 3).
Labor attorney Jeffrey Mintz criticized the NLRB
specifically for ``disturbing the well-established standard
applied to determine whether a joint employer relationship
exists and, more particularly, opting for a broader, ambiguous
standard'' that would ``require many employers to revisit,
analyze and likely revise their current business practices
which could negatively impact many other businesses and their
employees.''\42\
---------------------------------------------------------------------------
\42\Id. (written testimony of Jeffrey Mintz at 1).
---------------------------------------------------------------------------
The threat of expanding joint employer standards under the
FLSA was also addressed by labor attorneys testifying before
the Committee. Zachary Fasman, Partner at Proskauer Rose, LLP
in New York City, noted:
While there have been numerous decisions on joint
employer status under the FLSA, there is no commonly
accepted test for joint employer liability under the
statute. Some courts rely upon a four factor ``economic
reality'' test; others add as many as six or eight
factors to that test, others consider whether the
putative joint employer can discipline or discharge an
employee, while new and novel--and different--tests
continue to arise in federal courts across the country.
Employers with multi-state operations have no idea what
standards will apply to their operations, or when they
may be held responsible--after the fact, if the NLRB's
Browning-Ferris standards are applied--for another
employer's wage and payroll practices.\43\
---------------------------------------------------------------------------
\43\The Save Local Business Act: Hearing on H.R. 3441 Before the
House Subcomm. on Health, Employment, Labor, and Pensions and the
Subcomm. on Workforce Protections, Comm. on Educ. and the Workforce,
115th Congress (September 13, 2017) (written testimony of Zachary D.
Fasman at 10) [Hereinafter Fasman Testimony].
Labor attorney Roger King of the HR Policy Association
---------------------------------------------------------------------------
agreed in his testimony:
Although employer exposure to increased liability as
a result of the National Labor Relation Board's (NLRB)
recent decision in the Browning-Ferris case has
received considerable attention--as it should--the
potential for litigation risk is arguably even greater
under other federal labor statutes such as the Fair
Labor Standards Act (FLSA).\44\
---------------------------------------------------------------------------
\44\Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship: Hearing before the House Comm. on Educ. and the
Workforce, 115th Cong. (July 12, 2017) (written testimony of Roger King
at 3).
---------------------------------------------------------------------------
Mr. Fasman also noted:
H.R. 3441 solves these problems by defining the term
``joint employer'' under the NLRA and the FLSA based
upon the standards applied by the NLRB for 30 years
prior to Browning-Ferris. The bill would properly limit
joint employment to situations where the putative joint
employer ``actually'' exercises ``significant direct
and immediate control'' over the ``essential terms and
conditions of employment.''\45\
---------------------------------------------------------------------------
\45\Fasman Testimony at 11.
---------------------------------------------------------------------------
Business models affected by the new standards
A broad range of business arrangements, well beyond the
specific types at issue in Browning-Ferris, Salinas, and other
recent decisions, will be considered joint employer
relationships under new NLRA and FLSA standards. Franchised
businesses, for example, are already being affected. Currently,
the NLRB General Counsel is pursuing nearly 100 complaints
against McDonald's under this joint employer theory.\46\ But as
Ms. Thompson noted in her testimony, ``franchises are not the
only business model threatened by the new standards.''\47\ A
vast scope of businesses are reliant on vendor and contractor
arrangements that may now be considered joint employer
relationships.
---------------------------------------------------------------------------
\46\NLRB, McDonald's Fact Sheet, https://www.nlrb.gov/news-
outreach/fact-sheets/mcdonalds-fact-sheet.
\47\Kennedy Testimony at 5.
---------------------------------------------------------------------------
In their dissent to the Browning-Ferris decision, NLRB
Members Philip Miscimarra and Harry Johnson discussed the
numerous industries and business relationships that may be
affected by the Board's joint employer standard. The number of
contractual relationships now potentially encompassed within
the majority's new standard appears to be virtually unlimited:
[bullet] Insurance companies that require employers
to take certain actions with employees in order to
comply with policy requirements for safety, security,
health, etc.;
[bullet] Franchisors (see below);
[bullet] Banks or other lenders whose financing terms
may require certain performance measurements;
[bullet] Any company that negotiates specific quality
or product requirements;
[bullet] Any company that grants access to its
facilities for a contractor to perform services there,
and then continuously regulates the contractor's access
to the property for the duration of the contract;
[bullet] Any company that is concerned about the
quality of the contracted services;
[bullet] Consumers or small businesses who dictate
times, manner, and some methods of performance of
contracts.\48\
---------------------------------------------------------------------------
\48\BFI, 362 NLRB No. 186, slip op. at 37 (Miscimarra and Johnson,
Members, dissenting).
---------------------------------------------------------------------------
Testifying before the HELP Subcommittee, Mr. Mintz stated
that ``in addition to franchise businesses, a revised standard
would affect relationships and have potential economic
consequence within supply chains, dealer networks and staffing
companies.''\49\ Labor attorney Marcel Debruge further
explained to the Subcommittee that many automakers rely on the
flexibility of temporary workers to survive during economic
downturns, but they will likely be unable to continue this
practice under expanded joint employer standard.\50\ Former
Board Member Cohen testified expanded joint employer standards
have ``the potential to apply to a wide variety of business
relationships in which one employer contracts for the work of
another business entity's employees, including outside
suppliers and on-site contractors.''\51\
---------------------------------------------------------------------------
\49\Redefining ``Employer'' and the Impact on Georgia's Workers and
Small Business Owners: Hearing Before the House Subcomm. on Health,
Employment, Labor, and Pensions, Comm. on Educ. and the Workforce,
114th Cong. (Aug. 27, 2015) (written testimony of Jeffrey Mintz at 7).
\50\Redefining ``Employer'' and the Impact on Alabama's Workers and
Small Business Owners: Hearing Before the House Subcomm. on Health,
Employment, Labor, and Pensions, Comm. on Educ. and the Workforce,
114th Cong. (Aug. 25, 2015) (written testimony of Marcel Debruge at 4-
5).
\51\Cohen Testimony at 2.
---------------------------------------------------------------------------
Richard Heiser, Vice President at FedEx Ground, Inc., noted
in his testimony that ``on a broader basis, it is important to
consider how joint employment can affect all businesses--small
and large.''\52\ He concluded that ``many businesses are at
risk of being embroiled in protracted litigation because of
another company's alleged actions.''\53\
---------------------------------------------------------------------------
\52\Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship: Hearing before the House Comm. on Educ. and the
Workforce, 115th Cong. (July 12, 2017) (written testimony of Richard
Heiser at 2).
\53\Id.
---------------------------------------------------------------------------
Furthermore, the Subcommittee heard from a diverse group of
small business owners, all of whom predicted expanded joint
employer standards would without a doubt impact their
businesses. Reem Aloul, owner of a BrightStar Care franchise,
testified that expanding joint employer standards could impact
``nearly any conceivable business relationship'' and the
franchise model in particular.\54\ Jerry Reese II, Director of
Franchise Development at Dat Dog, noted that joint employer
uncertainty could be of especial concern to smaller local
business like his as they ``may run out of resources'' due to
the legal confusion.\55\
---------------------------------------------------------------------------
\54\Restoring Balance and Fairness to the National Labor Relations
Board: Hearing Before the House Subcomm. on Health, Employment, Labor
and pensions, Comm. on Educ. and the Workforce, 115th Cong. (Feb. 14,
2017) (written testimony of Reem Aloul at 4).
\55\Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship: Hearing before the House Comm. on Educ. and the
Workforce, 115th Cong. (July 12, 2017) (written testimony of Jerry
Reese II at 5).
---------------------------------------------------------------------------
Granger MacDonald, a homebuilder, testified about how
expanded joint employer standards could greatly impact the
construction industry:
If MacDonald Companies contracted with a painting
company for a multifamily building in San Antonio, by
telling the subcontractors when to paint the walls or
even when the walls would be constructed, we could be
found a joint employer. To avoid a joint employer
finding, would we be prevented from scheduling
installation of the fire sprinklers or cabinets? Would
the roof be completed in time for the codes inspector
to visit? This would be akin to ordering a pizza, but
allowing the delivery service to show up at the
driver's discretion.\56\
---------------------------------------------------------------------------
\56\The Save Local Business Act: Hearing on H.R. 3441 Before the
House Subcomm. on Health, Employment, Labor and Pensions and the
Subcomm. on Workforce Protections, Comm. On Educ. and the Workforce,
115th Congress (September 13, 2017) (written testimony of Granger
MacDonald at 3).
These witnesses represent small, medium, and large
businesses in urban, suburban, and rural markets around the
country that provide a variety of services across different
industries. Every one of them fear expanding joint employer
standards would wreak havoc on their business. Expanding joint
employer standards have the potential to affect countless
business relationships, and the impact will almost always be
negative.
Proponents of the NLRB's new joint employer standard have
often cited an April 2015 non-binding advice memorandum from
the NLRB general counsel's office to argue the franchise model
will not be impacted by Browning-Ferris. In that memo, the
general counsel's office stated that Freshii, a fast casual
restaurant franchisor, was not a joint employer with its
franchisees.\57\ Unlike Browning-Ferris, which involved a
staffing firm, the Freshii advice memorandum involved a
franchisor and franchisee. Unions and Democrats have claimed
this memorandum proves franchises should not be concerned about
the Browning-Ferris decision or an allegedly expanding joint
employer standard. The Freshii advice memorandum, however, was
decided before the Browning-Ferris standard was in place and
was released as a non-binding advice memorandum that has no
value as precedent in other cases.
---------------------------------------------------------------------------
\57\Advice Memorandum regarding Nutritionality, Inc., d/b/a Freshii
from Barry J. Kearney, Associate General Counsel, NLRB Office of the
General Counsel, to Peter Sung Ohn, Regional Director, NLRB Region 13
(Apr. 28 2015), https://www.nlrb.gov/case/13-CA-134294.
---------------------------------------------------------------------------
Thus, franchisors and franchisees across the country remain
concerned about the potential effects of Browning-Ferris on the
industry. In May 2017, 13 Democrat Representatives wrote a
letter to the NLRB asking for clarification about the
memorandum.\58\ Specifically, the letter asked if the
memorandum can be used as ``a blueprint for all franchise
systems,'' notwithstanding Browning-Ferris. On June 27, 2017,
NLRB General Counsel Richard Griffin (D) replied in a one-page
letter that the non-binding advice memo ``speaks for itself''
and should be read ``in light of'' subsequent developments
including the Browning-Ferris decision.\59\ Accordingly,
employers cannot rely on the Freshii memorandum for meaningful
guidance.
---------------------------------------------------------------------------
\58\Letter from thirteen Members of the House of Representatives to
Barry J. Kearney, Associate General Counsel, NLRB Office of the General
Counsel (May 8, 2017), http://savelocalbusinesses.com/wp-content/
uploads/2017/05/House-Dem-Letter-to-NLRB-5-10-17.pdf.
\59\Letter from Richard F. Griffin, Jr., NLRB General Counsel, to
Rep. Scott H. Peters (June 27, 2017), http://src.bna.com/qjS.
---------------------------------------------------------------------------
Needed legislation
Congress is responsible for establishing and revising, as
necessary, standards in federal labor law. The NLRB's decision
in Browning-Ferris and court decisions interpreting the FLSA
uniquely threaten the independence of small businesses and
reduce opportunities for many Americans to own a business.
Expanded joint employer standards extend liability to entities
that have never been considered joint employers previously.
Legislation is the appropriate and necessary solution to this
issue. The Save Local Business Act returns certainty and
predictability back to consumers, employees, and employers by
reinstating the previous joint employer standard used by the
NLRB for decades before Browning-Ferris. H.R. 3441 clarifies
that two or more employers are considered joint employers under
the NLRA and FLSA only if each employer shares and exercises
``actual, direct, and immediate'' control over essential terms
and conditions of employment.
Conclusion
H.R. 3441 restores the commonsense joint employer standard
workers and employers relied on for decades before the NLRB
overreached. H.R. 3441 clarifies two or more employers must
have actual, direct, and immediate control over employees to be
considered employers. This is the same standard that existed
for more than 30 years before the NLRB dramatically expanded
it--a standard that provides stability and legal clarity for
employers and employees. Moreover, H.R. 3441 provides much
needed uniformity to the joint employment standard under the
FLSA and provides the certainty employers need to expand their
businesses and increase hiring. Joint employment under the FLSA
is far from settled law and is an area marked by inconsistency
and increasing litigation. Without this bill, the patchwork of
joint employer standards across the country will continue to
grow, creating regulatory confusion for job creators doing
business in multiple states.
This bill is a proportional response to misguided and
unprecedented actions by the NLRB, Obama-era regulators, and
activist judges. H.R. 3441 maintains existing worker
protections while correcting an extreme, partisan, and
confusing joint employer scheme that makes it harder for
individuals to climb the economic ladder. The bill ensures an
actual employer is the one legally responsible for complying
with those protections.
Section-by-Section Analysis
The following is a section-by-section analysis of the Save
Local Business Act reported favorably by the Committee.
Section 1. Provides that the short title is the ``Save
Local Business Act.''
Section 2. Amends the NLRA to allow two or more employers
to be considered joint employers for purposes of the Act only
if each shares and exercises control over essential terms and
conditions of employment and such control over these matters is
``actual, direct, and immediate.''
Section 3. Amends the FLSA to allow two or more employers
to be considered joint employers for purposes of the Act only
if each shares and exercises control over essential terms and
conditions of employment and such control over these matters is
``actual, direct, and immediate.''
Explanation of Amendments
The amendments, including the amendment in the nature of a
substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch. H.R. 3441 restores the long-held standard for
determining joint employer status under the NLRA that was
overturned by a decision of the NLRB and provides a uniform
joint employer standard under the FLSA.
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
Mandates Reform Act, P.L. 104-4) requires a statement of
whether the provisions of the reported bill include unfunded
mandates. This issue is addressed in the CBO letter.
Earmark Statement
H.R. 3441 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of House Rule XXI.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of House Rule XIII, the
goal of H.R. 3441 is to ensure a commonsense standard for
determining whether a joint employment relationship exists.
Duplication of Federal Programs
No provision of H.R. 3441 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that enacting H.R. 3441 does not
specifically direct the completion of any specific rulemakings
within the meaning of 5 U.S.C. 551.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the body of this report.
New Budget Authority and CBO Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following estimate for H.R. 3441 from the Director of the
Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 27, 2017.
Hon. Virginia Foxx,
Chairwoman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3441, the Save
Local Business Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Christina
Hawley Anthony.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 3441--Save Local Business Act
H.R. 3441 would amend the National Labor Relations Act
(NLRA) to specify that a person may be considered a ``joint
employer'' only if that person exercises significant control
over employees' essential terms and conditions of employment.
If enacted, the bill would effectively negate a 2015 ruling by
the National Labor Relations Board in which the board concluded
a joint employer relationship could be established when an
employer exercises control over employment matters indirectly
or has reserved such control by contract.
Implementing the bill would not affect the operations of
federal and state agencies because the NLRA excludes federal
governmental entities as well as states and political
subdivisions of states from the definition of employer under
the act.
Enacting H.R. 3441 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply. CBO
estimates that enacting H.R. 3441 would not increase net direct
spending or on-budget deficits in any of the four consecutive
10-year periods beginning in 2028.
H.R. 3441 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Christina Hawley
Anthony. The estimate was approved by H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 3441.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the Committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
NATIONAL LABOR RELATIONS ACT
* * * * * * *
definitions
Sec. 2. When used in this Act--
(1) The term ``person'' includes one or more individuals,
labor organizations, partnerships, associations, corporations,
legal representatives, trustees, trustees in cases under title
11 of the United States Code, or receivers.
(2) [The term ``employer''] (A) The term ``employer''
includes any person acting as an agent of an employer, directly
or indirectly, but shall not include the United States or any
wholly owned Government corporation, or any Federal Reserve
Bank, or any State or political subdivision thereof, or any
person subject to the Railway Labor Act, as amended from time
to time, or any labor organization (other than when acting as
an employer), or anyone acting in the capacity of officer or
agent of such labor organization.
(B) A person may be considered a joint employer in relation
to an employee only if such person directly, actually, and
immediately, and not in a limited and routine manner, exercises
significant control over essential terms and conditions of
employment, such as hiring employees, discharging employees,
determining individual employee rates of pay and benefits, day-
to-day supervision of employees, assigning individual work
schedules, positions, and tasks, or administering employee
discipline.
(3) The term ``employee'' shall include any employee, and
shall not be limited to the employees of a particular employer,
unless the Act explicitly states otherwise, and shall include
any individual whose work has ceased as a consequence of, or in
connection with, any current labor dispute or because of any
unfair labor practice, and who has not obtained any other
regular and substantially equivalent employment, but shall not
include any individual employed as an agricultural laborer, or
in the domestic service of any family or person at his home, or
any individual employed by his parent or spouse, or any
individual having the status of an independent contractor, or
any individual employed as a supervisor, or any individual
employed by an employer subject to the Railway Labor Act, as
amended from time to time, or by any other person who is not an
employer as herein defined.
(4) The term ``representatives'' includes any individual or
labor organization.
(5) The term ``labor organization'' means any organization of
any kind, or any agency or employee representation committee or
plan, in which employees participate and which exists for the
purpose, in whole or in part, of dealing with employers
concerning grievances, labor disputes, wages, rates of pay,
hours of employment, or conditions of work.
(6) The term ``commerce'' means trade, traffic, commerce,
transportation, or communication among the several States, or
between the District of Columbia or any Territory of the United
States and any State or other Territory, or between any foreign
country and any State, Territory, or the District of Columbia,
or within the District of Columbia or any Territory, or between
points in the same State but through any other State or any
Territory or the District of Columbia or any foreign country.
(7) The term ``affecting commerce'' means in commerce, or
burdening or obstructing commerce or the free flow of commerce,
or having led or tending to lead to a labor dispute burdening
or obstructing commerce or the free flow of commerce.
(8) The term ``unfair labor practice'' means any unfair labor
practice listed in section 8.
(9) The term ``labor dispute'' includes any controversy
concerning terms, tenure or conditions of employment, or
concerning the association or representation of persons in
negotiating, fixing, maintaining, changing, or seeking to
arrange terms or conditions of employment, regardless of
whether the disputants stand in the proximate relation of
employer and employee.
(10) The term ``National Labor Relations Board'' means the
National Labor Relations Board provided for in section 3 of
this Act.
(11) The term ``supervisor'' means any individual having
authority, in the interest of the employer, to hire, transfer,
suspend, lay off, recall, promote, discharge, assign, reward,
or discipline other employees, or responsibly to direct them,
or to adjust their grievances, or effectively to recommend such
action, if in connection with the foregoing the exercise of
such authority is not of a merely routine or clerical nature,
but requires the use of independent judgment.
(12) The term ``professional employee'' means--
(a) any employee engaged in work (i) predominantly
intellectual and varied in character as opposed to
routine mental, manual, mechanical, or physical work;
(ii) involving the consistent exercise of discretion
and judgment in its performance; (iii) of such a
character that the output produced or the result
accomplished cannot be standardized in relation to a
given period of time; (iv) requiring knowledge of an
advanced type in a field of science or learning
customarily acquired by a prolonged course of
specialized intellectual instruction and study in an
institution of higher learning or a hospital, as
distinguished from a general academic education or from
an apprenticeship or from training in the performance
of routine mental, manual, or physical processes; or
(b) any employee, who (i) has completed the courses
of specialized intellectual instruction and study
described in clause (iv) of paragraph (a), and (ii) is
performing related work under the supervision of a
professional person to qualify himself to become a
professional employee as defined in paragraph (a).
(13) In determining whether any person is acting as an
``agent'' of another person so as to make such other person
responsible for his acts, the question of whether the specific
acts performed were actually authorized or subsequently
ratified shall not be controlling.
(14) The term ``health care institution'' shall include any
hospital, convalescent hospital, health maintenance
organization, health clinic, nursing home, extended care
facility, or other institution devoted to the care of sick,
infirm, or aged person.
* * * * * * *
----------
FAIR LABOR STANDARDS ACT OF 1938
* * * * * * *
definitions
Sec. 3. As used in this Act--
(a) ``Person'' means an individual, partnership, association,
corporation, business trust, legal representative, or any
organized group of persons.
(b) ``Commerce'' means trade, commerce, transportation,
transmission, or communication among the several States or
between any State and any place outside thereof.
(c) ``State'' means any State of the United States or the
District of Columbia or any Territory or possession of the
United States.
(d) [``Employer'' includes] (1) ``Employer'' includes any
person acting directly or indirectly in the interest of an
employer in relation to an employee and includes a public
agency, but does not include any labor organization (other than
when acting as an employer) or anyone acting in the capacity of
officer or agent of such labor organization.
(2) A person may be considered a joint employer in relation
to an employee for purposes of this Act only if such person
meets the criteria set forth in section 2(2)(B) of the National
Labor Relations Act (29 U.S.C. 152(2)(B)).
(e)(1) Except as provided in paragraphs (2), (3), and (4),
the term ``employee'' means any individual employed by an
employer.
(2) In the case of an individual employed by a public agency,
such term means--
(A) any individual employed by the Government of the
United States--
(i) as a civilian in the military departments
(as defined in section 102 of title 5, United
States Code),
(ii) in any executive agency (as defined in
section 105 of such title),
(iii) in any unit of the judicial branch of
the Government which has positions in the
competitive service,
(iv) in a nonappropriated fund
instrumentality under the jurisdiction of the
Armed Forces,
(v) in the Library of Congress, or
(vi) the Government Printing Office;
(B) any individual employed by the United States
Postal Service or the Postal Rate Commission; and
(C) any individual employed by a State, political
subdivision of a State, or an interstate governmental
agency, other than such an individual--
(i) who is not subject to the civil service
laws of the State, political subdivision, or
agency which employs him; and
(ii) who--
(I) holds a public elective office of
that State, political subdivision, or
agency,
(II) is selected by the holder of
such an office to be a member of his
personal staff,
(III) is appointed by such an
officeholder to serve on a policymaking
level,
(IV) is an immediate adviser to such
an officeholder with respect to the
constitutional or legal powers of his
office, or
(V) is an employee in the legislative
branch or legislative body of that
State, political subdivision, or agency
and is not employed by the legislative
library of such State, political
subdivision, or agency.
(3) For purposes of subsection (u), such term does not
include any individual employed by an employer engaged in
agriculture if such individual is the parent, spouse, child, or
other member of the employer's immediate family.
(4)(A) The term ``employee'' does not include any individual
who volunteers to perform services for a public agency which is
a State, a political subdivision of a State, or an interstate
governmental agency, if--
(i) the individual receives no compensation or is
paid expenses, reasonable benefits, or a nominal fee to
perform the services for which the individual
volunteered; and
(ii) such services are not the same type of services
which the individual is employed to perform for such
public agency.
(B) An employee of a public agency which is a State,
political subdivision of a State, or an interstate governmental
agency may volunteer to perform services for any other State,
political subdivision, or interstate governmental agency,
including a State, political subdivision or agency with which
the employing State, political subdivision, or agency has a
mutual aid agreement.
(5) The term ``employee'' does not include individuals who
volunteer their services solely for humanitarian purposes to
private non-profit food banks and who receive from the food
banks groceries.
(f) ``Agriculture'' includes farming in all its branches and
among other things includes the cultivation and tillage of the
soil, dairying, the production, cultivation, growing, and
harvesting of any agricultural or horticultural commodities
(including commodities defined as agricultural commodities in
section 15(g) of the Agricultural Marketing Act, as amended),
the raising of livestock, bees, fur-bearing animals, or
poultry, and any practices (including any forestry or lumbering
operations) performed by a farmer or on a farm as an incident
to or in conjunction with such farming operations, including
preparation for market, delivery to storage or to market or to
carriers for transportation to market.
(g) ``Employ'' includes to suffer or permit to work.
(h) ``Industry'' means a trade, business, industry, or other
activity, or branch or group thereof, in which individuals are
gainfully employed.
(i) ``Goods'' means goods (including ships and marine
equipment), wares, products, commodities, merchandise, or
articles or subjects of commerce of any character, or any part
or ingredient thereof, but does not include goods after their
delivery into the actual physical possession of the ultimate
consumer thereof other than a producer, manufacturer, or
processor thereof.
(j) ``Producer'' means produced, manufactured, mined,
handled, or in any manner worked on in any State; and for the
purposes of this Act an employee shall be deemed to have been
engaged in the production of goods if such employee was
employed in producing, manufacturing, mining, handling,
transporting, or in any other manner working on such goods, or
in any closely related process or occupation directly essential
to the production thereof, in any State.
(k) ``Sale'' or ``sell'' includes any sale, exchange,
contract to sell, consignment for sale, shipment for sale, or
other disposition.
(l) ``Oppressive child labor'' means a condition of
employment under which (1) any employee under the age of
sixteen years is employed by an employer (other than a parent
or a person standing in place of a parent employing his own
child or a child in his custody under the age of sixteen years
in an occupation other than manufacturing or mining or an
occupation found by the Secretary of Labor to be particularly
hazardous for the employment of children between the ages of
sixteen and eighteen years or detrimental to their health or
well-being) in any occupation, or (2) any employee between the
ages of sixteen and eighteen years is employed by an employer
in any occupation which the Secretary of Labor shall find and
by order declare to be particularly hazardous for the
employment of children between such ages or detrimental to
their health or well-being; but oppressive child labor shall
not be deemed to exist by virture of the employment in any
occupation of any person with respect to whom the employer
shall have on file an unexpired certificate issued and held
pursuant to regulations of the Secretary of Labor certifying
that such person is above the oppressive child labor age. The
Secretary of Labor shall provide by regulation or by order that
the employment of employees between the ages of fourteen and
sixteen years in occupations other than manufacturing and
mining shall not be deemed to constitute oppressive child labor
if and to the extent that the Secretary of Labor determines
that such employment is confined to periods which will not
interfere with their schooling and to conditions which will not
interfere with their health and well-being.
(m) ``Wage'' paid to any employee includes the reasonable
cost, as determined by the Secretary of Labor, to the employer
of furnishing such employee with board, lodging, or other
facilities, if such board, lodging, or other facilities are
customarily furnished by such employer to his employees:
Provided, That the cost of board, lodging, or other facilities
shall not be included as a part of the wage paid to any
employee to the extent it is excluded therefrom under the terms
of a bona fide collective-bargaining agreement applicable to
the particular employee: Provided further, That the Secretary
is authorized to determine the fair value of such board,
lodging, or other facilities for defined classes of employees
and in defined areas, based on average cost to the employer or
to groups of employers similarly situated, or average value to
groups of employees, or other appropriate measures of fair
value. Such evaluations, where applicable and pertinent, shall
be used in lieu of actual measure of cost in determining the
wage paid to any employee. In determining the wage an employer
is required to pay a tipped employee, the amount paid such
employee by the employee's employer shall be an amount equal
to--
(1) the cash wage paid such employee which for
purposes of such determination shall be not less than
the cash wage required to be paid such an employee on
the date of the enactment of this paragraph; and
(2) an additional amount on account of the tips
received by such employee which amount is equal to the
difference between the wage specified in paragraph (1)
and the wage in effect under section 6(a)(1).
The additional amount on account of tips may not exceed the
value of the tips actually received by an employee. The
preceding 2 sentences shall not apply with respect to any
tipped employee unless such employee has been informed by the
employer of the provisions of this subsection, and all tips
received by such employee have been retained by the employee,
except that this subsection shall not be construed to prohibit
the pooling of tips among employees who customarily and
regularly receive tips.
(n) ``Resale'' shall not include the sale of goods to be used
in residential or farm building construction, repair, or
maintenance: Provided, That the sale is recognized as a bona
fide retail sale in the industry.
(o) Hours Worked.--In determining for the purposes of
sections 6 and 7 the hours for which an employee is employed,
there shall be excluded any time spent in changing clothes or
washing at the beginning or end of each workday which was
excluded from measured working time during the week involved by
the express terms of or by custom or practice under a bona fide
collective-bargaining agreement applicable to the particular
employee.
(p) ``American vessel'' includes any vessel which is
documented or numbered under the laws of the United States.
(q) ``Secretary'' means the Secretary of Labor.
(r)(1) ``Enterprise'' means the related activities performed
(either through unified operation or common control) by any
person or persons for a common business purpose, and includes
all such activities whether performed in one or more
establishments or by one or more corporate or other
organizational units including departments of an establishment
operated through leasing arrangements, but shall not include
the related activities performed for such enterprise by an
independent contractor. Within the meaning of this subsection,
a retail or service establishment which is under independent
ownership shall not be deemed to be so operated or controlled
as to be other than a separate and distinct enterprise by
reason of any arrangement, which includes, but is not
necessarily limited to, an agreement, (A) that it will sell, or
sell only, certain goods specified by a particular
manufacturer, distributor, or advertiser, or (B) that it will
join with other such establishments in the same industry for
the purpose of collective purchasing, or (C) that it will have
the exclusive rights to sell the goods or use the brand name of
a manufacturer, distributor, or advertiser within a specified
area, or by reason of the fact that it occupies premises leased
to it by a person who also leases premises to other retail or
service establishments.
(2) For purposes of paragraph (1), the activities performed
by any person or persons--
(A) in connection with the operation of a hospital,
an institution primarily engaged in the care of the
sick, the aged, the mentally ill or defective who
reside on the premises of such institution, a school
for mentally or physicially handicapped or gifted
children, a preschool, elementary or secondary school,
or an institution of higher education (regardless of
whether or not such hospital, institution, or school is
operated for profit or not for profit), or
(B) in connection with the operation of a street,
suburban or interurban electric railway, or local
trolley or motorbus carrier, if the rates and services
of such railway or carrier are subject to regulation by
a State or local agency (regardless of whether or not
such railway or carrier is public or private or
operated for profit or not for profit), or
(C) in connection with the activities of a public
agency.
shall be deemed to be activities performed for a business
purpose.
(s)(1) ``Enterprise engaged in commerce or in the production
of goods for commerce'' means an enterprise that--
(A)(i) has employees engaged in commerce or in the
production of goods for commerce, or that has employees
handling, selling, or otherwise working on goods or
materials that have been moved in or produced for
commerce by any person; and
(ii) is an enterprise whose annual gross volume of
sales made or business done is not less than $500,000
(exclusive of excise taxes at the retail level that are
separately stated);
(B) is engaged in the operation of a hospital, an
institution primarily engaged in the care of the sick,
the aged, or the mentally ill or defective who reside
on the premises of such institution, a school for
mentally or physically handicapped or gifted children,
a preschool, elementary or secondary school, or an
institution of higher education (regardless of whether
or not such hospital, institution, or school is public
or private or operated for profit or not for profit);
or
(C) is an activity of a public agency.
(2) Any establishment that has as its only regular employees
the owner thereof or the parent, spouse, child, or other member
of the immediate family of such owner shall not be considered
to be an enterprise engaged in commerce or in the production of
goods for commerce or a part of such an enterprise. The sales
of such an establishment shall not be included for the purpose
of determining the annual gross volume of sales of any
enterprise for the purpose of this subsection.
(t) ``Tipped employee'' means any employee engaged in an
occupation in which he customarily and regularly receives more
than $30 a month in tips.
(u) ``Man-day'' means any day during which an employee
performs any agricultural labor for not less than one hour.
(v) ``Elementary school'' means a day or residential school
which provides elementary education, as determined under State
law.
(w) ``Secondary school'' means a day or residential school
which provides secondary education, as determined under State
law.
(x) ``Public agency'' means the Government of the United
States; the government of a State or political subdivision
thereof; any agency of the United States (including the United
States Postal Service and Postal Rate Commission), a State, or
a political subdivision of a State; or any interstate
governmental agency.
(y) ``Employee in fire protection activities'' means an
employee, including a firefighter, paramedic, emergency medical
technician, rescue worker, ambulance personnel, or hazardous
materials worker, who--
(1) is trained in fire suppression, has the legal
authority and responsibility to engage in fire
suppression, and is employed by a fire department of a
municipality, county, fire district, or State; and
(2) is engaged in the prevention, control, and
extinguishment of fires or response to emergency
situations where life, property, or the environment is
at risk.
* * * * * * *
MINORITY VIEWS
INTRODUCTION
The Save Local Business Act (H.R. 3441) dismantles
longstanding legal protections for employees under the National
Labor Relations Act (NLRA) and the Fair Labor Standards Act
(FLSA). It does so by allowing employers who jointly determine
working conditions to evade responsibility for collective
bargaining, and to avoid liability for wage theft, child labor,
and equal pay violations committed by subcontractors and
intermediaries over which they exercise control. Despite the
bill's pro-business title, H.R. 3441 disadvantages franchisees
by leaving them on the hook for decisions directed by their
franchisors. All Democratic members of the Committee opposed
H.R. 3441 during the October 4, 2017 markup.
BACKGROUND
In recent years, employers have increasingly moved away
from direct hiring of employees to the use of permatemps and
subcontracting to reduce labor costs and liability. For many
workers, the name on the door of the building where they work
may not be the name of the company that signs their paycheck.
Approximately three million Americans are employed by a
temporary staffing agency on any given day, performing work on
behalf of a client company that directs the employee's work but
does not write the employee's paycheck.\1\ Since the end of the
recession in mid-2009, one study found that almost one-fifth of
all job growth has been through temp agencies.\2\ Another
recent study found that 94% of all new jobs between 2005 and
2015 involved alternative work arrangements--including
temporary help agency workers, on-call workers, contract
workers, and independent contractors.\3\ The largest increase
involved the percentage of workers hired out through contract
companies, increasing from 1.4 percent in 2014 to 3.1 percent
(of all employment) in 2015.\4\
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\1\Employees on Nonfarm Payrolls by Industry Sector and Selected
Industry Data, Bureau of Labor Statistics (last accessed Jul. 7, 2017),
available at https://www.bls.gov/news.release/empsit.t17.htm.
\2\Michael Grabell, ``The Expendables: How the Temps Who Power
Corporate Giants are Getting Crushed,'' ProPublica (June 27, 2013),
available at 3https://www.propublica.org/article/the-expendables-how-
the-temps-who-power-corporate-giants-are-getting-crushe
\3\Katz and Krueger, ``The Rise and Nature of Alternative Work
Arrangements in the United States, 1995-2015,'' National Bureau of
Economic Research Working Paper 22667, (Sept. 2016), available at
www.nber.org/papers/w22667.
\4\Id.
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As direct hire arrangements give way to increased use of
subcontractors, permatemps, or employee leasing arrangements,
accountability for compliance with labor and employment laws is
at risk of being undermined if companies can shield themselves
from liability by contracting out while retaining contractual
control over the terms and conditions of employment. As the
National Employment Law Project notes, under current law,
``joint employer liability doesn't bar companies from
outsourcing; it simply means that the companies cannot also
outsource responsibility for their workers when they control
the conditions of their work.''\5\
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\5\Joint Employment Explained: How H.R. 3441 Legalizes a Corporate
Rip-Off of Workers, National Employment Law Project (Sept. 8, 2017),
available at http://nelp.org/publication/joint-employment-explained-
how-hr-3441-legalizes-corporate-rip-off-workers/.
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Congressional efforts to narrow joint employer liability
over the past two Congresses were spurred by two events. First,
on December 19, 2014, the National Labor Relations Board's
(NLRB or Board) General Counsel alleged that McDonald's USA is
a joint employer with its franchisees in a complaint alleging
unlawful retaliation against employees who protested for better
wages as part of the ``Fight for $15 and a Union.'' This case
remains pending before an administrative law judge. Secondly,
on August 27, 2015, the NLRB reinstated its traditional joint
employment standard in its Browning Ferris\6\ decision, which
found that a waste-management company jointly controlled the
employment conditions of its subcontracted workers. That case
is on appeal to the D.C. Circuit Court of Appeals.
---------------------------------------------------------------------------
\6\362 NLRB No. 186 (2015).
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In response to these events, in the 114th Congress the
Education and the Workforce Committee reported the Protecting
Local Business Opportunity Act (H.R. 3459) by a margin of 21-
15, with all present Democrats opposing.\7\ That bill sought to
narrow the legal standard for a joint employer only under the
NLRA.
---------------------------------------------------------------------------
\7\H. Rept. 114-355--Protecting Local Business Opportunity Act
(Dec. 1, 2015).
---------------------------------------------------------------------------
Committee Republicans introduced H.R. 3441 on July 27,
2017, following the July 12, 2017 Committee hearing entitled,
``Redefining Joint Employer Standards: Barriers to Job Creation
and Entrepreneurship.'' That bill narrows the legal standard
for a joint employer under both the NLRA and the FLSA. A
legislative hearing was held on September 13, 2017, and a
Committee markup was held on October 4, 2017.
DESCRIPTION OF H.R. 3441, THE SAVE LOCAL BUSINESS ACT
Labor and employment laws have long held that when more
than one employer controls or has the right to control the
terms and conditions of employment, whether directly or
indirectly, they may be liable as ``joint employers.''\8\ H.R.
3441 amends the NLRA and the FLSA by adding a new, narrow
definition for ``joint employer'' to the existing definition of
``employer'' under each law and eliminates indirect control as
indicia of joint employment.
---------------------------------------------------------------------------
\8\Under section 2(2) of the NLRA, an employer ``includes any
person acting as an agent of an employer, directly or indirectly, but
shall not include the United States or any wholly owned Government
corporation, or any Federal Reserve Bank, or any State or political
subdivision thereof, or any person subject to the Railway Labor Act, as
amended from time to time, or any labor organization (other than when
acting as an employer), or anyone acting in the capacity of officer or
agent of such labor organization.'' Under the FLSA, an employer
``includes any person acting directly or indirectly in the interest of
an employer in relation to an employee and includes a public agency,
but does not include any labor organization (other than when acting as
an employer) or anyone acting in the capacity of officer or agent of
such labor organization.'' 29 U.S.C. Sec. 203(d) (emphasis added).
---------------------------------------------------------------------------
H.R. 3441 confers joint employer status on a company if it
``directly, actually, and immediately . . . exercises
significant control over essential terms and conditions of
employment.'' Specifically, the bill identifies a non-exclusive
list of nine essential terms and conditions: ``hiring
employees, discharging employees, determining individual
employee rates of pay and benefits, day-to-day supervision of
employees, assigning individual work schedules, positions, and
tasks, or administering employee discipline.'' Under this
legislation as reported from Committee, a company can have
indirect control over all of nine of these terms and
conditions, and so long as it exercises that control through a
subcontractor or intermediary, the company is immune from
liability under the NLRA or the FLSA.
H.R. 3441 CREATES A ROADMAP FOR EMPLOYERS TO ELIMINATE JOINT EMPLOYER
LIABILITY
H.R. 3441's definition of a joint employer is so narrow
that any entity can arrange its relationships with staffing
agencies or subcontractors to avoid liability. Because the bill
requires that a joint employer control the ``essential terms
and conditions of employment,'' and describes nine of those
terms, an entity may no longer be a joint employer under the
bill as long as it delegates at least one of the nine listed
terms to another entity, no matter how much control it retains.
Further, because a joint employer must exert control
``directly, actually, and immediately'' under the bill, an
entity can convey all employment directions through an
intermediary without ever being considered a joint employer.
Michael Rubin, an attorney at Altshuler Berzon LLP who has
litigated joint employer cases involving wage theft, testified
at the legislative hearing on this very point:
In practical effect, this means there will be no more
``joint employment'' under the FLSA or NLRA, because
once an FLSA or NLRA employer . . . delegates any
significant control over any terms or conditions of its
workers' employment, it ceases to exercise ``direct''
control over those terms and conditions and is no
longer a potential ``joint employer'' under the bill's
definition.\9\
---------------------------------------------------------------------------
\9\Testimony of Michael Rubin, before a joint hearing of the
Subcommittee on Workforce Protections and the Subcommittee on Health,
Employment, Labor and Pensions Regarding H.R. 3441 (Sept. 13, 2017)
(emphasis added).
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H.R. 3441 MAY LEAVE EMPLOYEES COMPLETELY WITHOUT RECOURSE FOR
VIOLATIONS WHEN MULTIPLE EMPLOYERS CONTROL WORKING CONDITIONS
As originally drafted and introduced, H.R. 3441 provided
that if one company controls some of the enumerated terms and
conditions and another company controls the others, then each
company could argue in their defense that they are not an
employer because they do not control all nine terms. A court
could find that neither company is a joint employer, and thus
that neither company is liable as an employer. The bill
provided no guidance on how to resolve this problem.
At the September 13, 2017 legislative hearing on H.R. 3441,
Ranking Member Scott raised this concern with Michael Rubin.
Mr. Scott: [I]f 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 9
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 . . . [T]his
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 would be [liable].
During the markup, Committee Republicans attempted to
alleviate this concern through an Amendment in the Nature of a
Substitute (ANS), but in doing so rendered the bill even more
ambiguous. The ANS modified the bill primarily by changing the
``and'' to an ``or,'' so that the nine essential terms and
conditions are now listed in the disjunctive. These changes are
set forth below. The relevant text to be changed is in bold
italics and the new text is bold and underlined.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The changes in the ANS do not remedy the problem. The ANS
states that a person is a joint employer only if such person
``exercises significant control over essential terms and
conditions of employment.'' Since the bill retains a list of
nine ``essential'' terms and conditions that the person must
control, the problem remains that a person who does not control
all of the nine terms and conditions may not face any liability
under the NLRA or the FLSA, regardless of how much control they
possess. Even if the NLRB or courts interpreting the NLRA or
FLSA avoid this plain reading of H.R. 3441, the bill still
provides no guidance over how many of the essential terms and
conditions a person would need to control in order to be a
joint employer.
Committee Republicans have promoted the need for this
legislation because they contend it will provide needed
clarity. Subcommittee Chairman Walberg stated:
``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.''\10\
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\10\Opening Statement of U.S. Representative Tim Walberg, at a
joint hearing of the Subcommittee on Workforce Protections and the
Subcommittee on Health, Employment, Labor and Pensions regarding H.R.
3441 (Sept. 13, 2017).
At the October 4th markup, Ranking Member Scott tried to
identify whether the bill provides improved clarity by asking
the bill's sponsor, Representative Byrne, exactly how many of
the nine listed terms and conditions a party would need to
control. Mr. Byrne replied that this would depend on the
``facts of each individual case'' and how a judge or the NLRB
analyzes those facts. Mr. Scott replied: ``I think we are right
back where we started from. We don't know what it means,
whether you are an employer or joint employer or not.''\11\
This exchange exposed the fallacy of the Majority's argument,
and demonstrates that this bill opens the door for uncertainty.
---------------------------------------------------------------------------
\11\U.S. House of Representatives Committee on Education and the
Workforce, Markup of H.R. 3441, pp. 20-21 (Oct. 4, 2017).
---------------------------------------------------------------------------
H.R. 3441 CRIPPLES WORKERS' FREEDOM TO NEGOTIATE FOR BETTER WAGES AND
BENFITS WHEN THERE ARE JOINT EMPLOYERS
When workers organize unions, the NLRA guarantees them the
right to collectively bargain for better wages and working
conditions without fear of retaliation. Where multiple entities
control the essential terms and conditions of employment, this
right is rendered futile if workers cannot bargain with all
those entities controlling wages and working conditions. The
new definition of a joint employer under H.R. 3441 is so narrow
that it effectively writes the concept out of law.
Committee Republicans have criticized the NLRB's 2015
Browning Ferris decision, which reinstated the traditional
joint employer standard the Board used prior to 1984.\12\ In
this case, the NLRB found that a client employer (BFI) and its
staffing agency (Leadpoint) were joint employers and had a
joint duty to bargain with the Teamsters union. BFI operates a
municipal recycling facility in Milpitas, California, but
contracted with Leadpoint to hire workers sorting recyclable
materials under a cost reimbursement contract. BFI
contractually capped the maximum wage that Leadpoint could pay
at a rate that could not exceed what BFI paid its own workers.
BFI also reserved and exercised the right to overrule any of
Leadpoint's personnel decisions and assigned shifts to the
workers through Leadpoint's supervisors. When the Teamsters
sought to organize 240 Leadpoint workers, it named BFI as the
joint employer with Leadpoint in a petition for a union
election.
---------------------------------------------------------------------------
\12\362 NLRB No. 186 (2015).
---------------------------------------------------------------------------
Susan K. Garea, an attorney who represents the workers in
Browning Ferris, explains:
These workers want to negotiate better wages and
working conditions in exchange for their back-breaking
labor. Many concerns brought these workers to the
Teamsters including their low wages and distress over
the speed and safety of the work. These concerns cannot
be addressed by negotiating with the temporary staffing
agency. BFI must be at the table to negotiate over the
speed of the streams, the number of workers per line or
breaks, wages, safety protocols and other major terms
and conditions of employment. Leadpoint has literally
no control over these core terms and conditions of
employment.\13\
---------------------------------------------------------------------------
\13\Letter from Susan K. Garea, Esq., Beeson Taylor and Bodine, to
Chairman Foxx and Ranking Member Scott, submitted for the record at the
July 12, 2017 hearing before the Committee on Education and the
Workforce entitled ``Redefining Joint Employer Standards: Barriers to
Job Creation and Entrepreneurship'' (Jul. 10, 2017).
The NLRB's traditional joint employer test asks: (1)
whether there is a common law employment relationship, and (2)
whether the employer possesses sufficient control over
employees' essential terms and conditions of employment to
permit meaningful collective bargaining. In examining whether
there is a common law relationship, the NLRB uses the standard
that Anglo-American courts have applied for centuries to
determine whether there is a ``master-servant''
relationship.\14\ The NLRB considers both the employer's
``right to control'' in addition to its actual exercise of
control. That control may be either direct or indirect, such as
through the other joint employer as an intermediary.
---------------------------------------------------------------------------
\14\As articulated by the Supreme Court in Nationwide Mutual
Insurance Co. v. Darden, 503 U.S. 318 (1992), determining an employment
relationship under common law depends on ``the hiring party's right to
control the manner and means'' by which the worker accomplishes the
project.
---------------------------------------------------------------------------
The Board's traditional joint employer test as articulated
in Browning Ferris is consistent with the legislative history
of the Taft-Hartley Act, which states that the definition of an
employment relationship should be governed by the common law
principles of agency.\15\ Under the Restatement of Agency Sec.
2(1), an employer is one who ``controls or has the right to
control the physical conduct of the other in the performance of
the service.''\16\ In contrast to this centuries-old test, H.R.
3441 creates a completely new test, requiring that the joint
employer's control must be ``direct, actual, and immediate.''
---------------------------------------------------------------------------
\15\Congressional Record, Senate, at 1575-1576 (1947), reprinted in
2 Legislative History of the Labor Management Relations Act, 1947, 51
(1948), and House Conf. Rep. No. 510 on H.R. 3020 at 36 (1947)
reprinted in 1 Legislative History of the Labor Management Relations
Act, 1947, at 540 (1948).
\16\The Restatement of Agency is a set of principles issued by the
American Law Institute, intended to clarify the prevailing opinion on
how the law of agency stands.
---------------------------------------------------------------------------
The practical effect of this bill is to suppress wages for
hundreds of thousands of permatemps, such as the Leadpoint
workers, by making it easier for putative employers to avoid
their bargaining obligations under the NLRA. This point is
illustrated in the chart below, which shows that at recycling
plants in the vicinity of BFI's facility, employees covered by
a collective bargaining agreement earn between $19 and $30 per
hour, plus health and retirement benefits. The subcontracted
Leadpoint workers only make $12.50 per hour, with no benefits.
WAGES AND BENEFITS OF MUNICIPAL WASTE SORTERS IN SAN FRANCISCO BAY AREA REPRESENTED BY TEAMSTERS LOCAL 350 COMPARED WITH LEADPOINT SORTERS AT THE
BROWNING FERRIS INDUSTRIES (BFI) FACILITY (AUGUST 2017)\17\
--------------------------------------------------------------------------------------------------------------------------------------------------------
BFI direct-hire
South San California Waste South Bay workers Leadpoint
Recology (San Francisco Solutions (San Recycling (San (grandfathered Sorters at BFI
Francisco) Scavenger Jose) Carlos) sorter) Facility
Company (Milpitis) (Milpitis)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hourly Wages................................ $30.11 $22.88 $23.52 $24.60 $19.20 $12.50
Health Care Contribution/Hour............... 12.31 11.96 11.96 11.96 11.96 ................
Pension Contribution/Hour................... * 4.85 3.18 6.3 3.15 ................
Retirement Security Plan Contribution/Hour..
----------------*---------------3.8--................---------------3.8--................--................
Total................................... $42.42 $43.49 $38.66 $46.66 $34.31 $12.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: Recology SF has a defined benefit of $4,583.33/month.
\ \\17\Susan K. Garea, Esq., Beeson Taylor and Bodine, and
Teamsters Local 350 (Aug. 29, 2017).
The growing use of permatemps, coupled with the specific
facts of the Browning Ferris case, provided ample reasons for
the NLRB to return to its traditional joint employer standard.
---------------------------------------------------------------------------
As the NLRB stated in that decision:
[T]he primary function and responsibility of the
Board . . . is that of applying the general provisions
of the Act to the complexities of industrial life. If
the current joint-employer standard is narrower than
statutorily necessary and if joint-employment
arrangements are increasing, the risk is increased that
the Board is failing in what the Supreme Court has
described as the Board's responsibility to adapt the
Act to the changing patterns of industrial life.\18\
---------------------------------------------------------------------------
\18\Browning Ferris, 362 NLRB No. 186 (2015) (internal citations
omitted).
---------------------------------------------------------------------------
H.R. 3441 EMPOWERS JOINT EMPLOYERS TO EVADE LIABILITY FOR WAGE THEFT
AND CHILD LABOR VIOLATIONS UNDER THE FLSA, AS WELL AS VIOLATIONS OF THE
EQUAL PAY ACT
The Fair Labor Standards Act sets minimum wage, overtime,
and child labor standards, and has long held that a single
individual may be employed by two or more employers at the same
time. The FLSA defines ``employ'' as ``to suffer or permit to
work.''\19\ Its definition is the ``broadest definition [of
employ] that has ever been included in any one act.''\20\ It is
more encompassing than the definition of ``employer'' under the
NLRA.
---------------------------------------------------------------------------
\19\29 U.S.C. Sec. 203(g).
\20\United States v. Rosenwasser, 323 U.S. 360, 363 (1945) (quoting
81 Cong. Rec. 7,657 (1938) (remarks of Sen. Hugo Black).
---------------------------------------------------------------------------
Congress developed the ``suffer or permit to work''
definition from several state laws. At the time, state
legislatures had adopted a broad definition of employment to
impose employer status on larger businesses that claimed
ignorance when their labor intermediaries violated child labor
laws. The state laws defined employers as entities that
directly or indirectly employed a worker and defined the word
``employ'' more broadly than the common law ``control or right
to control test'', but instead as ``to suffer or permit to
work.'' To ``suffer'' in this context means to acquiesce in,
passively allow, or to fail to prevent the worker's work.\21\
As noted by Bruce Goldstein, President of Farmworker Justice:
---------------------------------------------------------------------------
\21\Bruce Goldstein, Statement on H.R. 3441 (Oct. 2, 2017),
available at: http://democrats-edworkforce.house.gov/imo/media/doc/
ESPAILLAT_FWJ%20Statement%20H.R%203441%20JtEmployer.pdf.
This broad definition imposed liability on a company
that had the power to prevent the work of the worker
from happening and denied the business the ability to
hide its head in the sand about what was happening in
its business, including where it utilized labor
contractors or other intermediaries which were
considered employers of those workers.\22\
---------------------------------------------------------------------------
\22\Id.
---------------------------------------------------------------------------
The courts have found that a joint employment relationship
can be found by assessing the economic realities between an
employee and a putative joint employer. Consideration of these
economic realities is consistent with the approach used by
courts to determine employment status generally.\23\ In
Rutherford Food Corporation v. McComb, the U.S. Supreme Court
held that an employment relationship ``does not depend on . . .
isolated factors but rather upon the circumstances of the whole
activity.''\24\
---------------------------------------------------------------------------
\23\United States v. Silk, 331 U.S. 704, 713 (1947).
\24\In Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947),
meat boners who worked on the premises of a slaughterhouse were hired
by another employer under contract with the slaughterhouse. The Supreme
Court held that the slaughterhouse was a joint employer for the purpose
of minimum wage obligations under the FLSA because the boners' work was
``part of the integrated unit of production''.
---------------------------------------------------------------------------
In the Ninth Circuit case Bonnette v. California Health &
Welfare Agency,\25\ the court set four factors to be used when
establishing joint employment relationships. Courts examine
whether the alleged employer:
---------------------------------------------------------------------------
\25\704 F.2d 1465 (1983).
1. Had the power to hire and fire employees,
2. Supervised and controlled employee work schedules
or conditions of employment,
3. Determined the rate and method of payment, and
4. Maintained employment records.\26\
---------------------------------------------------------------------------
\26\1 Ellen C. Kerns et al., The Fair Labor Standards Act, Sec. 3-
65.
Bonnette was the standard for the economic realities test
used for determining joint employment under the FLSA, and was
translated to many other circuits. Since the case was decided
in 1983, several circuit courts have amended and added to this
list of factors based on the facts of the case. Courts have
found joint employment relationships under the FLSA with
respect to labor contractors, farming companies, and in sectors
ranging from the janitorial sector to garment manufacturing.
Courts have not found a franchisor to be a joint employer under
the FLSA.
The Majority contends that there is a need to legislate a
change to the definition for joint employer under the FLSA
based on recent Fourth Circuit decision Salinas v.
Commercial,\27\ which the Majority Views characterize as
adopting ``an expansive new joint employer standard.'' In the
Salinas case, residential drywall workers who worked for a
subcontractor in Maryland brought a claim for violations of the
FLSA. Their subcontractor disappeared; the Court deemed the
subcontractor defunct. The workers brought a claim against the
general contractor as a joint employer. The Salinas decision
applied a six factor test to assess whether there was an
employment relationship between the prime contractor and the
subcontractor's employees. The court found that the general
contractor provided both direct supervision and supplied tools
and equipment for performing the work. The Fourth Circuit's
test was ``designed to capture the economic realities of the
relationship between the worker and the putative employer'' and
is well within the bounds of the FLSA.\28\
---------------------------------------------------------------------------
\27\848 F.3d 125 (4th Cir. 2017).
\28\Id. at 150.
---------------------------------------------------------------------------
H.R. 3441 dramatically narrows who is liable as a joint
employer under the FLSA and would allow low-road companies to
benefit from workers' labor while shirking any responsibility
to them simply by using an intermediary contractor.\29\ H.R.
3441 would open the door to widespread wage theft in many
growth industries, and reverse decades of judicial precedent
and congressional intent. As noted by Michael Rubin in his
testimony before the September 13th legislative hearing on this
bill, ``The bill completely abandons [the FLSA's] longstanding
definition and the decades of case law applying it to
circumstances where two companies co-determine and share
responsibility for their workers' terms and conditions of
employment.''\30\
---------------------------------------------------------------------------
\29\Joint Employment Explained: How H.R. 3441 Legalizes a Corporate
Rip-Off of Workers, National Employment Law Project (Sept. 8, 2017),
available at http://nelp.org/publication/joint-employment-explained-
how-hr-3441-legalizes-corporate-rip-off-workers/.
\30\Testimony of Michael Rubin, before a joint hearing of the
Subcommittee on Workforce Protections and the Subcommittee on Health,
Employment, Labor and Pensions regarding H.R. 3441 (Sept. 13, 2017).
---------------------------------------------------------------------------
To illustrate this, Michael Rubin described an FLSA case he
litigated:
In a case we settled a few years ago in Southern
California, hundreds of hard-working warehouse workers
were employed in four warehouses, loading and unloading
trucks for deliveries to Walmart distribution centers
throughout the country. Walmart owned the warehouses
and all of their contents. It contracted with a
subsidiary of Schneider Logistics, Inc. to operate the
warehouses. Schneider, in turn, retained two labor
services subcontractors who hired the warehouse
workers. By contract, all responsibility for legal
compliance rested solely with those two labor services
subcontractors. Yet Walmart and Schneider had kept for
themselves the contractual right to control almost
every aspect of those warehouse workers' employment,
directly and indirectly.
The violations we found in those warehouses were
egregious. But the only reason the workers were
eventually able to obtain relief--through a $22.7
million settlement that resulted in many class members
receiving tens of thousands of dollars each as
compensation--was because the warehouse workers had
demonstrated a likelihood of success in proving that
Walmart and Schneider, as well as the staffing
agencies, were the workers' joint employers. The two
staffing agencies were undercapitalized . . . Only
because the federal courts focused on the actual
working relationships in those warehouses, as other
courts have done in other joint-employer cases under
the NLRA and FLSA, were the workers able to retain
compensation for past violations, to obtain higher
wages and significant benefits, and to have deterred
future violations.\31\
---------------------------------------------------------------------------
\31\29 U.S.C. Sec. 206(d).
At the September 13th legislative hearing, Representative
Takano asked what these workers' remedy would be under this
bill. Mr. Rubin's response: ``They would have no remedy at all.
Their only recourse would be against the labor services
contractor, who'' could only pay 7.5% of the total settlement
amount.
Amending the FLSA's definition of employer also hinders
workers' abilities to bring equal pay claims when multiple
employers are responsible for the violation. More than 50 years
ago, President Kennedy signed the Equal Pay Act of 1963 (EPA)
into law. The EPA amended the FLSA to prohibit sex-based wage
discrimination between men and women in the same establishment
who perform jobs that require substantially equal skill,
effort, and responsibility under similar working
conditions.\31\ Because the EPA is a part of the FLSA, the same
definitions of ``employer,'' ``employ,'' and ``employee''
apply. Thus, narrowing the scope of who is considered a joint
employer under the FLSA may impact the ability to bring equal
pay claims under the EPA.
H.R. 3441 WILL CREATE UNCERTAINTY REGARDING JOINT EMPLOYER LIABILITY
UNDER THE MIGRANT AND SEASONAL AGRICULTURAL WORKER PROTECTION ACT
H.R. 3441 will also create uncertainty for farmworkers, who
are among our nation's most vulnerable workers. The Migrant and
Seasonal Agricultural Worker Protection Act (MSPA), the
principal labor statute protecting agriculture workers,
establishes wage, health, safety, and recordkeeping standards
for seasonal or temporary farmworkers. Joint employment
standards under this law and the FLSA are vital to protecting
the rights and protections afforded to these workers.
Frequently, farmworkers are recruited, hired, supervised,
or transported by intermediaries, who are often referred to as
farm labor contractors (FLC). Farm operators utilizing FLCs
maintain control over working conditions, as Bruce Goldstein,
President of Farmworker Justice, points out in his statement to
the Committee:
The economic reality is that few farm operators will
risk their profitability and the survival of their
business by delegating all responsibility to a labor
contractor. Most farm operators who engage labor
intermediaries exercise substantial decision-making
regarding the impact of subcontracted workers on their
business . . . In most cases, there is shared
responsibility among the farm operator and the labor
contractor so that the workers on the farm ensure the
profitability of that business.\32\
---------------------------------------------------------------------------
\32\Bruce Goldstein, Statement for the Record on H.R. 3441 (Oct. 2,
2017), p. 3., available at http://democrats-edworkforce.house.gov/imo/
media/doc/ESPAILLATFWJ%20Statement%20 H.R%203441%20JtEmployer.pdf.
Despite this shared responsibility, farm operators may
contend that the FLC's they engage are the farmworkers' sole
employer responsible for compliance. FLCs are thinly
capitalized and often cannot afford to pay court judgements for
violations. Under the MSPA, joint employer liability helps
ensure covered workers have adequate avenues for redress.
In 1982, the Committee on Education and Labor incorporated
the FLSA's broad definition of ``employ'' into the MSPA for the
direct purpose of adopting the FSLA's joint employer doctrine.
Congress believed this standard was the ``central foundation''
of MSPA's protections and necessary to ``reverse the historical
pattern of abuse and exploitation of migrant and seasonal farm
workers.''\33\ According to the committee report, the joint
employer standard is ``the indivisible hinge between certain
important duties imposed for the protection of migrant and
seasonal workers and those liable for any breach of those
duties.''\34\
---------------------------------------------------------------------------
\33\H. Rep. No. 97-885, 97th Cong., 2d Sess., 1982.
\34\Id. at 6.
---------------------------------------------------------------------------
The MSPA regulations make it clear that the terms
``employer'' and ``employee'' have the same meaning under both
the FLSA and the MSPA. As the MSPA regulations read, ``[j]oint
employment under the Fair Labor Standards Act is joint
employment under the MSPA.''\35\ This means where a farmworker
is economically dependent on a farm operator, he or she may be
jointly employed by the FLC and the farm operator.
---------------------------------------------------------------------------
\35\29 C.F.R. Sec. 500.20(h)(5)(i).
---------------------------------------------------------------------------
While H.R. 3441 does not directly amend the FLSA's
definition of ``employ,'' by creating a new, extremely narrow
definition of ``joint employer'' under the FLSA, H.R. 3441
upends the FLSA's joint employer framework upon which the MSPA
relies. It is unclear how this legislative change would impact
the application of joint employment liability under the MSPA,
creating significant uncertainty for our nation's migrant and
seasonal farmworkers.
THE SAVE LOCAL BUSINESS ACT WOULD HURT LAW ABIDING CONTRACTORS BY
FORCING THEM TO COMPETE ON AN UNLEVEL PLAYING FIELD
H.R. 3441 forces law abiding construction contractors to
compete on an unlevel playing field, because it allows
unscrupulous competitors to be free from joint employer
liability when they use subcontractors who can cut project
costs by engaging in wage theft. For this reason, the Signatory
Wall and Ceiling Contractors Alliance (SWACCA), an association
of construction contractors, opposes H.R. 3441. They recently
wrote: ``The joint employment doctrine is an important means
for forcing these unscrupulous contractors to compete on a
level playing field and to be held accountable for the unlawful
treatment of the workers they utilize.''\36\
---------------------------------------------------------------------------
\36\Letter from the Signatory Wall and Ceiling Contractors Alliance
to Speaker Paul Ryan and Minority Leader Nancy Pelosi (Oct. 5, 2017),
available at http://democrats-edworkforce. house.gov/imo/media/doc/
SWACCA%20ltr%20of%20opposition%20-%20H.R.%203441.pdf.
---------------------------------------------------------------------------
H.R. 3441 would exempt these unscrupulous contractors from
liability by enabling them to exert even more control over the
workers' terms and conditions while facing no liability for
wage theft or overtime claims under the FLSA. As SWACCA noted,
``H.R. 3441 would create a standard that would surely
accelerate a race to the bottom in the construction industry
and many other sectors of the economy. It would further tilt
the field of competition against honest, ethical
businesses.''\37\
---------------------------------------------------------------------------
\37\Id.
---------------------------------------------------------------------------
H.R. 3441 EMPOWERS FRANCHISORS TO DICTATE FRANCHISEES' EMPLOYEE
RELATIONS, WHILE LEAVING FRANCHISEES EXCLUSIVELY ON THE HOOK WHEN THERE
ARE VIOLATIONS
Committee Republicans have claimed that this bill protects
the franchising business model because the NLRB's Browning
Ferris decision created legal uncertainty which hinders the
growth of that model. The Majority has also claimed that this
legislation would protect the independence of small franchisees
by ensuring that franchisors would not feel compelled to take
control of franchisees' labor relations in order to limit their
own potential liability. Committee Republicans contend that the
current standard ``threatens to upend small businesses,
undermine their independence, and put jobs and livelihoods at
risk.''\38\
---------------------------------------------------------------------------
\38\Press Release, Committee on Education and the Workforce (Jul.
27, 2017), available at https://edworkforce.house.gov/news/
documentsingle.aspx?DocumentID=401928.
---------------------------------------------------------------------------
These arguments have no merit.
First, no franchisor has ever been found to be a joint
employer with its franchisees under the NLRA or the FLSA. The
Browning Ferris decision explicitly stated that it did not
affect the franchise model, and the decision has not had any
documented effect on the industry's growth.\39\ Indeed, the
franchise industry flourished in the decades before the NLRB
narrowed its joint employer standard in 1984, using a standard
identical to the one articulated in Browning Ferris. Franchise
employment actually grew by 3 percent in 2015, the year
Browning Ferris was decided, and by 3.5 percent in 2016. This
rate is faster than the growth of franchising employment in the
year prior to Browning Ferris.\40\
---------------------------------------------------------------------------
\39\Browning Ferris, 362 NLRB No. 186 n.120 (2015) (``The dissent
is simply wrong when it insists that today's decision `fundamentally
alters the law' with regard to the employment relationships that may
arise under various legal relationships between different entities:
`lessor-lessee, parent-subsidy, contractor-subcontractor, franchisor-
franchisee, predecessor-successor, creditor-debtor, and contractor-
consumer.' None of those situations are before us today . . . As we
have made clear, the common-law test requires us to review, in each
case, all of the relevant control factors that are present determining
the terms of employment.'').
\40\Karla Walter, ``The So-Called `Save Local Business Act' Harms
Workers and Small Businesses,'' Center for American Progress (Oct. 3,
2017), available at https://www.americanprogressaction.org/issues/
economy/reports/2017/10/03/168754/called-save-local-business-act-harms-
workers-small-businesses/ (citing IHS Markit Economics, ``Franchise
Business Economic Outlook for 2017'' (2017), available at https://
www.franchise.org/sites/default/files/
Franchise_Business_Outlook_Jan_2017.pdf; IHS Economics, ``Franchise
Business Economic Outlook for 2015'' (2015), available at: https://
www.franchisefacts.org/assets/files/FranchiseBizOutlook2015.pdf.
---------------------------------------------------------------------------
Second, the NLRB takes a reasoned, case-by-case approach
when assessing whether any company, including a franchisor, is
a joint employer. For example, the NLRB's General Counsel
recently determined that Freshii's, a fast-casual restaurant
franchisor, would not be deemed to be a joint employer with its
franchisees, because its control was limited to maintaining
brand standards and food quality.\41\ The threshold for joint
employment liability is control over labor-management
relationships. Control over brand standards does not cross that
threshold.
---------------------------------------------------------------------------
\41\See Nutritionality, Inc., d/b/a/ Freshii, Case 13-CA-134294 et
al., Advice Memorandum (Apr. 28, 2015), available at http://
apps.nlrb.gov/link/document.aspx/09031d4581c23996.
---------------------------------------------------------------------------
Testimony at a September 29, 2015 legislative hearing
before the Subcommittee on Health, Employment, Labor and
Pensions debunked the Majority's claim that the Browning Ferris
standard has undermined franchisees' independence from their
franchisors. Two franchisee witnesses--a Burger King franchisee
and a Nothing Bundt Cakes franchisee--testified to this fear
that franchisors would take over their employee relations in
order to limit the franchisors' joint employer liability.
However, in response to questioning, both testified that they
have absolute and total control over their employment policies,
and that their respective franchisors do not exercise control
over their business operations.
Mara Fortin (owner and operator of Nothing Bundt Cakes
franchises) testified:
I hire my own workers, set their wages, benefit
packages, et cetera. I manage my inventory and I
purchase equipment. I pay taxes as my own small
business with my own employer identification numbers.
And I help my employees when they are in need of
assistance. My franchisor plays no part in any of these
key functions that only a true and sole employer
performs.\42\
---------------------------------------------------------------------------
\42\Testimony of Mara Fortin before the Subcommittee on Health,
Employment, Labor and Pensions of the Committee on Education and the
Workforce, H.R. 3459, Protecting Local Business Opportunity Act (Sept.
29, 2015), pp. 21 (Serial No. 114-28).
In an exchange between Representative Guthrie and Ed
Braddy, a Burger King franchisee testifying on behalf of the
---------------------------------------------------------------------------
International Franchise Association, Mr. Braddy was asked:
Representative Guthrie: Do you or do [sic] the
franchisor hire and fire and determine the work of your
employees?
Mr. Braddy: I schedule interviews every other
Wednesday. I sit down with eight people every other
Wednesday. Even though I am not hiring, I do the
interviews because I always like to have a waiting list
of people who want to work. So I do all the hiring. I
don't allow my managers or my assistants to terminate
anyone because I want to make sure that once I let
someone go it is for a good reason.
Mr. Guthrie: But it is you as the business owner, not
the--what role does the franchisor play in any of
your--those issues?
Mr. Braddy: None at all.\43\
---------------------------------------------------------------------------
\43\Testimony of Ed Braddy before the Subcommittee on Health,
Employment, Labor and Pensions of the Committee on Education and the
Workforce, H.R. 3459, Protecting Local Business Opportunity Act (Sept.
29, 2015), pp. 84 (Serial No. 114-28).
Based on this testimony, nothing in the Browning Ferris
decision could establish that these franchisors are exercising
sufficient control to be deemed a joint employer with their
respective franchisees.
Third, H.R. 3441 does not reduce franchisees' exposure to
liability. A franchisee is an employer under the NLRA and the
FLSA and will always have liability under current law. The
question is whether the franchisor also shares liability as a
joint employer, if it shares control over its franchisees'
employee relations. This bill insulates franchisors from
potential liability as a joint employer if they exercise
control through their franchise agreement; moreover, this
liability shield empowers franchisors to exercise indirect
control over franchisees while leaving franchisees exposed to
liability. If the franchisor mandates a policy that could
violate the NLRA or the FLSA--such as firing workers who try to
form a union--then the franchisee may be forced to choose
between abiding by their franchisor's direction or compliance
with the law.
The current joint employer standards under the NLRA and the
FLSA therefore benefit franchisees who want autonomy to manage
their employment practices, because franchisors who involve
themselves in their franchisees' labor relations will risk
incurring a bargaining obligation or liability under the NLRA
and FLSA. That potential liability will incentivize franchisors
to distance themselves from control over their franchisees'
labor relations.
COMMITTEE DEMOCRATS OFFERED AMENDMENTS TO FIX FLAWS IN H.R. 3441
Democrats offered the following seven amendments to the
Amendment in the Nature of a Substitute to H.R. 3441, which was
introduced by Representative Byrne (AL) as the base text at the
beginning of the markup.
Amendment #1--Strikes the bill's definition of a ``joint employer''
under the NLRA and replaces it with the traditional common law
test articulated in Browning Ferris, and strikes the bill's
definition of ``joint employer'' under the FLSA
Representative Norcross (NJ) offered an amendment to adopt
the NLRB's traditional common law test for determining who is a
joint employer. The Norcross amendment would ensure that
workers can meaningfully collectively bargain where more than
one employer exercises control over the terms and conditions of
employment. The amendment also strikes the bill text regarding
the definition of a joint employer under the FLSA.
The amendment was rejected 17 to 23, with all Democrats
voting in favor of the amendment.
Amendment #2--Prevents disputes under the bill from being subject to a
pre-dispute arbitration agreement
Representative Fudge (OH) offered an amendment that states
that the provisions of this bill would not be subject to the
terms of a pre-dispute arbitration agreement between an
employee and the alleged employer, unless the arbitration
agreement is pursuant to a collective bargaining agreement. The
Fudge amendment would ensure that workers have full due process
rights to hold employers responsible when they violate the NLRA
or the FLSA. Over the past few decades employers have
increasingly conditioned job offers on an employee's agreement
to waive their right to seek recourse in the courts for
employment related disputes and to submit such disputes solely
to a private arbitrator. Employee win rates are far lower in
mandatory arbitration than they are in federal or state courts,
according to a report by the Economic Policy Institute.\44\
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\44\Alexander J.S. Colvin, ``The Growing Use of Mandatory
Arbitration,'' Economic Policy Institute (Sept. 27, 2017), available at
http://www.epi.ogv/publication/the-growing-use-of-mandatory-
arbitration/.
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The amendment was rejected 16 to 23, with all Democrats
present voting in favor of the amendment.
Amendment #3--Prevents the bill from applying in cases when multiple
employers control the terms of employment, but no person meets
the test as an ``employer'' as set forth in H.R. 3441
Ranking Member Scott (VA) offered an amendment to clarify
that when there is a violation of the NLRA or the FLSA
involving joint employers, but neither entity is deemed to be
an ``employer'' under the criteria set forth in H.R. 3441, then
the bill's provisions cannot be applied by a court.
Representative Scott noted:
I think it is clear under the amendment [in the
nature of a substitute] that it is possible that nobody
has total, direct control over the employment. It could
be shared, and if it is shared everybody gets to escape
liability. I do not think that is fair to the employee,
and if that is not a possibility, then the provisions
in the amendment would not make any difference. If it
is a possibility, then the amendment fixes it.
The author of the bill, Representative Byrne, opposed the
amendment saying it is ``totally unneeded,'' and that ``there
is no unclear thing about this at all.''\45\ Mr. Scott replied:
``I would just say that if there is no chance that you could
end up with no employer, then you should not be afraid of this
amendment.''\46\
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\45\Statement of the Representative Byrne, Committee Markup
Transcript (Oct. 4, 2017), p.57.
\46\Statement of Ranking Member Scott, Committee Markup Transcript
(Oct. 4, 2017), pp.58-59.
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The amendment was rejected 17 to 23, with all Democrats
voting in favor of the amendment.
Amendment #4--Holds a franchisor jointly and severally liable if a
franchisee takes an action at the direction of a franchisor and
such action violates the NLRA or the FLSA
Representative Bonamici (OR) offered an amendment that
states that when a franchisee takes an employment-related
action at the direction of a franchisor and such action
violates the NLRA or the FLSA, the franchisor shall be jointly
and severally liable for such violation. The Bonamici amendment
would ensure that small businesses, such as franchisees, are
not treated unfairly under this legislation.
The amendment was rejected 17 to 23, with all Democrats
voting in favor of the amendment.
Amendment #5--Prevents provisions of the bill from applying unless the
employee receives regular paystubs
Representative Takano (CA) offered an amendment that states
that the provisions of H.R. 3441 would not apply unless the
employee receives regular paystubs that correspond to the work
performed by the employee during an applicable pay period. The
Takano amendment would ensure that workers have the tools to
fight back against wage theft.
The amendment was rejected 17 to 23, with all Democrats
voting in favor of the amendment.
Amendment #6--Renames H.R. 3441 the ``Wage Theft Immunity Act''
Representative Polis (CO) offered an amendment to rename
this bill the ``Wage Theft Promotion Act'' given that this
legislation eviscerates worker protections under the NLRA and
the FLSA by eliminating longstanding avenues for workers to
recover stolen wages or to secure recourse for unfair labor
practices from employers who jointly control terms of
employment., According to a recent report from the Economic
Policy Institute, 2.4 million workers in the 10 most populous
States lost $8 billion annually from minimum wage violations
alone.\47\ That is an average of 3,300 annually per year-round
worker.
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\47\David Cooper and Teresa Kroeger, ``Employers Steal Billions
from Workers' Paychecks Each Year,'' Economic Policy Institute (May 10,
2017), available at http://www.epi.org/publication/employers-steal-
billions-from-workers-paychecks-each-year-survey-data-show-millions-of-
workers-are-paid-less-than-the-minimum-wage-at-significant-cost-to-
taxpayers-and-state-economies/.
---------------------------------------------------------------------------
The amendment was rejected 17 to 23, with all Democrats
voting in favor of the amendment.
Amendment #7--An Amendment in the Nature of a Substitute to enact the
Raise the Wage Act (H.R. 15), a bill to raise the minimum wage
to $15 per hour
Representative Wilson (FL) offered a substitute that
increases the minimum wage to $15 per hour by 2024. Today's
minimum wage workers earn less per hour, adjusted for
inflation, than their counterparts did 50 years ago even though
productivity has more than doubled over that same time period.
Raising the minimum wage to $15 an hour by 2024 will lift pay
for nearly 30 percent of the American workforce and reverse the
growing trend in income inequality between those at the top and
everyone else.
The amendment was ruled non germane.
CONCLUSION
H.R. 3441 enables unscrupulous employers to avoid their
legal responsibilities under the NLRA and FLSA, while denying
employees recourse for violations of law and inflicting
collateral damage to adversely impacted businesses. We urge the
full House of Representatives to reject this legislation.
The following organizations have opposed H.R. 3441: AFL
CIO; Center for American Progress; Economic Policy Institute;
Farmworker Justice, International Brotherhood of Teamsters;
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW); National
Employment Law Project; North America's Building Trades Unions
(NABTU); Service Employees International Union (SEIU);
Signatory Wall and Ceiling Contractors Alliance; United
Brotherhood of Carpenters and Joiners of America; United Farm
Workers of America (UFW); United Food and Commercial Workers
International Union (UFCW); and the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and
Service Workers International Union (USW).
Robert C. ``Bobby'' Scott,
Ranking Member.
Susan A. Davis.
Raul M. Grijalva.
Joe Courtney.
Marcia L. Fudge.
Jared Polis.
Gregorio Kilili Camacho Sablan.
Frederica S. Wilson.
Suzanne Bonamici.
Mark Takano.
Alma S. Adams.
Mark DeSaulnier.
Donald Norcross.
Lisa Blunt Rochester.
Raja Krishnamoorthi.
Carol Shea-Porter.
Adriano Espaillat.
[all]