Business Groups Turn to State Legislatures In Bid to Stop Franchiser Liability Expansion

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By Chris Opfer

April 15 — As the National Labor Relations Board considers whether to expand joint employer liability for businesses accused of unfair labor practices, two of the major opponents of the move are turning to state legislatures for clarification of the employment relationship in franchise arrangements.

“We are lobbying in a handful of states in direct response to the NLRB General Counsel’s attempts to expand joint employer liability,” Matthew Haller, the International Franchise Association's senior vice president for communications and public affairs, told Bloomberg BNA April 14. “We look at it as playing some offense.”

Haller and Glenn Spencer, vice president of the Chamber of Commerce's Workforce Freedom Initiative, pointed to a bill recently signed into law in Tennessee as an example of the type of legislation their groups would like to see passed elsewhere. The measure states that franchisers are not employers of their franchisees or franchisee workers under state law.

The IFA and the Chamber have been among the most vocal critics of NLRB General Counsel Richard F. Griffin's effort to expand joint employer liability under the National Labor Relations Act. The board is currently considering Browning-Ferris Industries of California Inc., No. 32-RC-109684, a case in which Griffin has urged the NLRB to adopt a more expansive joint employer test that accounts for indirect control and was used by the board before a pair of decisions modified the standard in 1984.

The groups, along with a slew of Republicans on Capitol Hill, argue that Griffin is asking the board to overturn decades of precedent in an attempt to make it easier for franchise workers to organize as a single unit. The IFA has stressed in particular the potential impact on small businesses, warning that expanded liability will turn the current franchise model on its head by forcing franchisers to either exert significant control over franchise operations or simply stop offering franchise opportunities to local entrepreneurs.

Griffin and Democratic supporters say the revamp is necessary to address vast changes in business and employment relationships in the more than 30 years since the board established its current joint employer standard. They've also questioned the impact on small businesses, saying that large franchisers take advantage of the model to control franchisees without sharing any of the potential liability.

Trending Strategy

The state-level moves are likely to have limited impact, given that they won't alter franchiser's potential liability under the NLRA and other federal labor and employment laws. “This is not a preemption strategy,” Haller told Bloomberg BNA.

The bills are intended to cut back against perceived gains for organized labor at the state level, however, and would protect franchise owners from liability from state and local laws governing pay, discrimination and other workplace issues. That includes state wage and hour laws that may be more restrictive than the Fair Labor Standards Act and may require employers to pay workers at a higher rate than the federal pay floor.

Catherine Fisk, a law professor at the University of California, Irvine, told Bloomberg BNA April 15 that the IFA and Chamber strategy is one that has previously been used by both employer and labor groups.

“Employee advocates have turned to state and local law to protect workers when neither the market nor federal law adequately protects them, and employer advocates have responded similarly,” Fisk said. “When states and localities enact laws to improve wages and working conditions, business groups seek to enact state and local law removing the protections.”

Other States to Follow?

The Tennessee bill, which Gov. Bill Haslam (R) signed into law April 10, limits franchiser liability by clearly stating that the businesses are not employers of their franchisees or franchisee workers under state law.

“Although it applies only to state enforcement agencies, the bipartisan legislation passed in Tennessee is an indicator of widespread opposition to the NLRB’s attempt to expand joint-employer liability,” the Chamber's Spencer told Bloomberg BNA via e-mail April 15. “Other states are likely to follow Tennessee’s lead.”

Haller said the IFA is either already lobbying or considering pushing similar legislation in up to 15 states, but declined to identify those at the top of the organization's list. “We are looking for every opportunity to clarify existing law,” Haller said, adding that some of the lobbying efforts have been spurred by IFA members in various states.

The Texas Senate earlier this month passed a measure that largely mirrors the Tennessee bill. The state's House of Representatives is expected to vote on the legislation in the coming months.

Aaron Gibson is chief of staff for Rep. Marsha Farney (R), the lead sponsor of the Texas House version of the bill. He told Bloomberg BNA April 15 that the IFA testified in favor of the bill at a hearing earlier this year and met with Farney’s staff to express its support for the legislation.

“There’s not an instance, so far that we’ve seen, where there’s been litigation related to the franchiser versus the franchisee and the liability there,” Gibson said, adding that Farney's district includes the headquarters for barbershop franchiser Sport Clips. “But given some of the precedent that we’ve seen in other states and in decisions by the NLRB, we are trying to get this bill passed to codify what’s been common practice and common understanding in Texas.”

Although some labor organizations and a group of plaintiffs' attorneys have expressed concerns about the bill, Gibson said he expects it to pass the Republican-controlled House with “overwhelming” support. “Our position is that the franchiser shouldn't be liable in these cases because that entity is not running the business of the franchisee,” he said.

To contact the reporter on this story: Chris Opfer in Washington at copfer@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com