Committee Statements

Each day more than eight million Americans go to work at our nation’s 757,000 franchise businesses. The franchise model has encouraged entrepreneurship, the growth of small businesses, and job creation. Countless men and women invest their tears, sweat, and savings to realize the dream of owning their own business, and the franchise model has helped turn those dreams into a reality. 

For most franchise employers, it’s tough staying afloat in even the best of times. It’s especially challenging when Washington bureaucrats change the rules in the middle of the game. In recent months, it’s become clear the Obama National Labor Relations Board is determined to rewrite a franchise model that has served workers, employers, and consumers well for decades. 

At the center of this effort is Richard Griffin. As the agency’s general counsel, Mr. Griffin has encouraged the board to blur the lines of responsibility between the franchisor and franchisee. Most recently, he determined McDonalds Inc. is a joint employer with its franchisees, a decision that no doubt sent a shockwave across the country. This radical effort is detached from reality for two important reasons. 

First, it pretends the franchise business model doesn’t exist. Since 1984, the NLRB has applied a straight-forward test to determine whether two separate entities are joint employers of a business establishment. The board analyzes whether the alleged employers share control over essential conditions of employment, such as hiring, firing, discipline, supervision, and direction of employees. Control over these matters must be direct and immediate.

The current standard makes perfect sense when one considers how the franchise model works in the real world. As chief executive officer of CKE Restaurants – a company that includes iconic brands like Hardee’s and Carl’s Jr. – Andrew Puzder is no stranger to the franchise business or this subcommittee. Here is how he has described the franchise business model:

The franchiser/franchisee relationship is built on a division of roles and responsibilities. The franchiser owns a unique system, which it licenses and protects as a brand. The franchisee operates an independent business under the brand's trademarks at one or more locations as a licensee. … Franchisees independently choose who they hire, the number of people they hire, the wages and benefits they pay, the training that such employees undergo, the labor practices they use, how their employees are monitored and evaluated, and the circumstances under which they're promoted, disciplined or fired.

 
Make no mistake, the current standard reflects the way franchise businesses have been owned and operated for decades. So why the sudden effort to dismantle policies that work? As the Wall Street Journal noted in reaction to Mr. Griffin’s decision:

This is a bonanza for trial lawyers who will be able to shake down the parent company for alleged labor violations at franchisees whose pockets aren't as deep. The other beneficiary is Big Labor. … Under Mr. Griffin's law, they can leap-frog their direct managers to corporate headquarters, which are more vulnerable to political pressure and less sensitive to local markets. 

 
Which leads to the second reason why this radical effort is so detached from reality – it fails to recognize the difficult challenges facing workers in the Obama economy. Our nation remains mired in a jobs crisis. Workers are frustrated. After six years of President Obama’s failed policies, I am frustrated too. Stocks prices on Wall Street are breaking new records while wages on Main Street remain flat. Meanwhile, the prices for essential goods and services like food, gas, and health insurance have gone up. 

That’s not right and working families deserve better. Yet today we are discussing an effort that will force small businesses to close their doors, or at the very least, discourage new small businesses from being created. Workers will once again be on the losing end of this Big Labor bailout and at a time they can least afford it.

I suspect some of my colleagues will protest today’s hearing. It will likely be noted the board hasn’t rendered a decision and suggested the committee is once again putting the cart before the horse. We’ve heard our colleagues sing that tune before and each time it has been followed by a radical shift in board policy. 

The American people deserve to know what the federal government is up to and how it will affect their families. Hiding the truth behind some process nonsense isn’t fair to the men and women who will have to live by the rules issued by this federal agency. Today’s hearing will help shine a light on those consequences and I hope encourage the NLRB to change course.

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