FANs Testify About Harmful Joint Employer Standard at Senate Hearing

By: Haider Murtaza

On Thursday, June 16, the U.S. Senate Committee on Small Business and Entrepreneurship held a hearing on the challenge to create jobs under the National Labor Relations Board’s (NLRB) new joint employer standard. Chairman David Vitter verified his clear stance on the issue: it negatively impacts the small business community. This notion was featured in the testimony from two franchise operators, Ciara Stockeland, franchisor and owner of MODE, and Lynn Berberich a BrightStar Care franchisee.

Ciara Stockeland expressed the opportunity for rising entrepreneurs when she entered the realm of franchising for MODE. However, the rule interferes with the ability to manage business for franchisees. Under the rule, franchisors would be compelled to exercise more control, causing a loss of trust between franchisors and franchisees. “Franchisees may lose operational control of their business, or at least lose the resources they are used to receiving from their brand company as part of their franchise agreement,” argued Stockeland. Furthermore, there would be limitation in the growth of the business as there would be fewer locations which would mean fewer jobs. From a franchisor’s point of view, Stockeland pointed out how it would be a risk expansion when franchisors could be potentially liable for employees they never hired.

Lynn Berberich, who began her career as a franchisee after the financial recession in 2009, pointed to her contribution to her local society, “Providing this service to our community not only achieved our primary goal of caring for seniors at the most vulnerable phase of their adult lives, but it also provided the opportunity to create more than 200 new jobs.” However, the joint employer issue would negatively impact these employees along with her clients. Berberich focused her argument on how there would be an increase in out-of-pocket expenses due to the rule. The cost of her legal team has been raised in the past couple years as there have been an increase in regulations. Further, the amount of services a franchisee would receive under a franchise agreement has been reduced resulting in the franchisees to be responsible for the service expenses. Berberich’s remarks indicated how franchisors would like to assist franchisees in guidance, but are ambivalent given the new standard.

James Sherk, a Research Fellow in Labor Economics at The Heritage Foundation shared their frustration and raised an important issue: business contracting is becoming more difficult. Most companies contract out for services such as cleaning, IT, or security. He pointed that companies are more productive when they have an outside source dealing with necessary services while they focus on what they do best. However, as this standard shrouds liability in uncertainty, companies will reduce their use of outside firms.

The vague standards of the rule are a threat to small business owners. These small business owners would rather use guidelines that would best suit the needs of the people in the area of their location. As Berberich had mentioned in her testimony, there is a saying in their industry, “Franchising allows you to be in business for yourself, not by yourself”.

Haider Murtaza is a government relations intern at the International Franchise Association.

Posted: 2016-06-17 15:11:00