“The threat of unlimited, unpredictable joint-employer liability is very scary. It threatens everything my partners and colleagues have worked to build in our community.” — SoldierFit CEO and founder Danny Farrar, testifying before Congress in opposition to the joint-employer rule.

By Elizabeth Taylor

Following successful hearings on the National Labor Relations Board’s joint-employer rule in the U.S. Senate Committee on Health, Education, Labor and Pensions, and a panel of the U.S. House Committee on Education and the Workforce, IFA continues to impress on Congress the importance of addressing the regulatory overreach perpetrated by the federal agency through its new, nebulous joint-employer definition.  

In late March, the U.S. House Small Business Subcommittee on Investigations, Oversight and Regulations held a hearing examining the new joint-employer definition and, in particular, its effect on small businesses. The hearing entitled, “Risky Business: Effects of New Joint Employer Standards for Small Firms,” featured three witnesses testifying for the franchise community: Danny Farrar, CEO and founder of SoldierFit, a fitness company, appeared on behalf of the IFA-led Coalition to Save Local Businesses; Vinay Patel, a Fairbrooks Hotel franchisee; and Kurt Larkin, an attorney representing employers including franchise companies.

All three witnesses spoke to the uncertainty franchise businesses face operating under the expanded joint-employer standard and urged Congress to support the IFA’s legislation, which would revert the labor law definition back to the previous joint employer standard. Under the decades-long, well-established prior standard, an employer would be considered a joint employer only if it exercises actual, direct, and immediate control over the essential terms and conditions of employment. The NLRB’s new standard allows for a finding of joint employment based merely on indirect, reserved, or potential control of the franchisees’ employees.      

Rule could thwart franchise start-ups, witness says

The subcommittee was particularly moved by Farrar’s testimony. He opened the first SoldierFit business five years ago after a challenging start to his career, including a combat tour in Iraq, time spent as a firefighter and emergency medical technician, and even a period when he was homeless. He overcame those challenges and founded SoldierFit, which now has three corporate locations (soon to be four) and recently awarded its first two franchise locations.  

The potential benefits to SoldierFit offered by the franchise business model are incalculable. Farrar is already in discussions with several potential franchisees and has hired additional staff to assist with franchise development. However, the expansive joint-employer definition threatens his company’s growth and its ability to create more jobs and opportunities. As Farrar told the subcommittee, “the threat of unlimited, unpredictable joint-employer liability is very scary. It threatens everything my partners and colleagues have worked to build in our community.”

After hearing Farrar’s concerns about the rule, Subcommittee Chairman Crescent Hardy (R-Nev.) asked if he would have started his franchises today given the current joint-employer definition. Farrar responded: “I probably would not have. We have invested already at least $300,000 in expanding SoldierFit, and that’s not chump-change for a small business by any stretch of the imagination.” 

Uncertainty, confusion challenge owners

Franchisee Vinay Patel echoed Farrar’s concerns, testifying, “I am convinced that the bureaucrats who are creating these mandates have never run a business and clearly do not understand the franchise model. If they had, they would understand it is inconceivable to conflate a franchisee with a franchisor, from any perspective.”

Attorney Kurt Larkin emphasized the ambiguity in the law and the problems this poses to small-business owners. He testified that this “murky” standard makes it virtually impossible for a small-business owner to know what actions might be considered indirect or reserved control.    

Chairman Hardy concluded by thanking the witnesses and noting the hearing had “highlighted the confusion and challenges this new joint-employer standard is creating for a wide variety of small businesses.”  He vowed to continue working on the issue and educate his colleagues about the problems.

The IFA looks forward to working with the chairman and other members of Congress to combat the new joint-employer standard and protect small businesses from oppressive government overreach.    

Elizabeth Taylor is vice president, federal government relations, public policy and counsel. Find her at fransocial.franchise.org.

 

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