Burger Executive as Labor Chief Could Pose Conflict

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By Ben Penn

Dec. 2 — The fast-food executive whose name is rising to the top of Donald Trump’s labor secretary shortlist would need to resolve possible conflicts of interest if appointed to the Cabinet.

Andrew Puzder, chief executive officer of CKE Restaurants Inc.—parent company of the Hardee’s and Carl’s Jr. brands—met with the president-elect to discuss labor reforms Nov. 19, the Trump transition team said. Puzder remains in communication with the team about his possible nomination to head the Labor Department, a source familiar with the matter told Bloomberg BNA Dec. 2.

Puzder’s switch from the private to public sector would likely raise questions about how his 16 years running the fast-food chain may interfere with ongoing government investigations, and it could expose him to ethics concerns. Puzder would inherit an agency that can investigate his franchised and company-owned stores for violations of wage-and-hour, occupational safety and other laws.

“Part of the process for nominees to Cabinet positions is meeting as early as possible with the Office of Government Ethics and working out what might be a necessary ethics agreement to avoid conflicts based on a nominee’s private sector background,” Robert Walker, a former chief counsel and staff director of House and Senate ethics committees, told Bloomberg BNA Dec. 2. “Part of that ethics process here is almost certainly going to be that he will have to recuse himself from these ongoing Hardee’s/Carl’s Jr.-related matters.”

Most of the investigations at Hardee’s and Carl’s Jr. that have been settled recently by the DOL’s Wage and Hour Division pertain to franchisee-owned stores. Should Puzder be named labor secretary, he may also run into at least perceived ethics issues related to enforcement activity at the company’s mostly franchised stores.

“I think if he wanted to remove himself from concerns about not just actual potential conflicts, but the potential appearance of conflicts, I think the recusal would probably have to encompass those franchisee matters as well,” said Walker, who now represents corporations and individuals as counsel at Wiley Rein LLP in Washington.

Restaurants Mostly Franchised

A source close to Puzder told Bloomberg BNA Dec. 2 that conflicts of interest wouldn’t be an issue because 94 percent of CKE's more than 2,500 units are franchised.

“There is nothing from which he would need to recuse himself within that 6 percent of the restaurants that are owned by CKE Holdings,” the source said.

Similar to other executives of large companies appointed to the Cabinet, Puzder would have the option of putting his assets in a blind trust or, if necessary, divesting those assets.

Low Level of WHD Enforcement

The Wage and Hour Division isn’t currently investigating any stores directly owned by CKE Restaurants, according to the department. The DOL has one open investigation at a Hardee’s store that appears to be owned by a franchisee.

A Bloomberg BNA analysis of the WHD’s public enforcement database, which only covers closed investigations, shows the department conducted 108 investigations at CKE-affiliated stores dating back to 2004. Those inquiries resulted in the stores agreeing to pay $153,921 in back wages for 936 employees, mostly from minimum wage and overtime violations. That’s a fairly clean record, compared with other large fast-food chains.

Of the 108 audits, only six appear to be at corporate-run restaurants, as the remaining investigations were not entered in the data set with an affiliation to CKE. Those six cases combined to yield zero violations.

A labor secretary may sometimes be involved in company-specific investigations, Michael Hancock, a former WHD assistant administrator for policy, told Bloomberg BNA.

“The secretary might be brought into a specific case depending on the issues,” he said. “It would not be unusual for the secretary to be informed and in some cases, invoked in the resolution.” Hancock is now of counsel at plaintiffs’ firm Cohen Milstein Sellers & Toll PLLC in Washington.

Puzder Hailed as ‘Ethical.’

Puzder’s ethics review process with the Office of Government Ethics probably wouldn’t begin until after Trump settles on him for labor secretary.

His ability to separate business involvement from government duties wouldn’t be a problem, said Michael Lotito, a management attorney at Littler Mendelson PC in San Francisco.

“Andy is one of the most honest, ethical, upfront people that I’ve ever had the pleasure of dealing with, and I’m sure that he would be the first to seek out the most appropriate ethics counsel to ensure that every action that he takes is beyond reproach,” Lotito, who is also labor counsel to the International Franchise Association, told Bloomberg BNA Dec. 2. He said Littler Mendelson has represented CKE in the past.

Jeff Hauser, executive director of the Revolving Door Project at the Center for Economic and Policy Research, isn’t as convinced that Puzder can sever ties.

“I think it’s very concerning that his self interest is so tied into this conglomerate of fast-food companies that he would take it as a personal insult, I would imagine, if there was an enforcement action taken against him,” said Hauser, whose employer receives some funding from labor unions.

Overtime Rule Implications

It’s still not clear whether the next labor secretary will be called on to revise federal overtime pay eligibility requirements to undo the overtime rule that the DOL finalized earlier this year. That rule, which was placed on hold by a federal judge, would double the salary threshold for overtime eligibility to $47,476 and make some 4 million workers newly eligible for time-and-a-half pay.

The quick-service restaurant industry has been critical of the rule for imposing unwieldy costs on employers that it says could force companies to cut jobs. The IFA, where Puzder is a board member, is among the business groups opposed to the regulation.

The same ethics statutes that could hinder Puzder’s involvement in DOL investigations at his formerly affiliated stores may also create a complicated process for him to navigate if a Labor Secretary Puzder were to order WHD to revise overtime rules in a fashion that benefits Hardee’s and Carl’s Jr.

Cabinet secretaries and other government employees are prohibited from participating in their official capacity in “particular matters”—such as major rulemakings—“that would have a direct and predictable effect on the employee’s own financial interests or on the financial interests of” that employee’s spouse or minor child, according to the criminal conflict of interest statute.

In other words, if Puzder wanted to thwart the rule’s implementation as labor secretary, he’d likely first need to absolve himself and certain family members and partners of any affiliation to CKE. He would also need to ensure there was no arrangement for him to return to the company after leaving the DOL.

The Trump transition team and CKE Restaurants did not immediately respond to a request for comment.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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