Senate Holds Hearing on Franchisor/Franchisee Relationships

Committee members divided on recent NLRB efforts to make franchisor companies liable for their franchisees’ labor practices.

February 06, 2015

WASHINGTON – Yesterday, the Senate Health, Education, Labor, and Pensions (HELP) Committee held a hearing examining an issue of importance to the convenience store industry: recent efforts by the National Labor Relations Board (NLRB) to make franchisor companies liable for their franchisees’ labor practices. If the NLRB’s efforts come to fruition, it would be a transformative development for the convenience store industry and the U.S. economy as a whole. Specifically, it could generate huge potential liabilities for franchisors, make it easier for employees to unionize and eliminate one of the major reasons for operating through franchise agreements. As expected, Republicans at the hearing expressed disapproval for the NLRB’s efforts, while Democrats were more supportive.

The hearing, entitled “Who’s the Boss? The ‘Joint Employer’ Standard and Business Ownership,” examined the NLRB’s efforts and their potential effects on the relationship between franchisors and franchisees. Committee Chairman Lamar Alexander (R-TN) stated the proposed change to the “Joint Employer” standard “could destroy a small business opportunity for more than 700,000 Americans.”

While Republican members agreed with his sentiment, Democrats on the committee defended the rights of workers to collectively bargain. Two witnesses urged Congress to write the existing standard into law (and thereby prevent the NLRB from revising the standard). Both political parties remained divided at the conclusion of the hearing.

In December 2014, the NLRB Office of the General Counsel issued complaints against McDonald’s USA and McDonald’s franchisees as joint employers. According to an NLRB Fact Sheet, both the franchisor and franchisee violated employees’ rights by “taking actions against them for engaging in activities aimed at improving their wages and working conditions.”

While the legal challenges involved in this case could take years to resolve, efforts by the NLRB to redefine the franchisor-franchisee business model could have real significance in the area of wage and unionization disputes. If ultimately upheld, it could make it easier for unions to target a single corporation (franchisor) and organize all of its workers simultaneously, rather than approaching and organizing a litany of franchisees on a piecemeal basis.

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