SEIU Endorses Clinton Candidacy – What About America’s Small Businesses?

On Tuesday, the Service Employees International Union (SEIU), one of the largest private sector unions, endorsed Hillary Clinton in the 2016 Presidential race. This decision by the SEIU executive board came amidst objections from local SEIU chapters, some of whom say that the endorsement came too early in the election cycle. The controversy is heighted by Clinton’s failure to support SEIU’s keynote initiative, the ‘Fight for $15,’ aimed at raising the minimum wage to $15 per hour. Instead, Clinton has spoken out numerous times in support of a $12 per hour minimum wage.  The endorsement reflects an alarming trend that a Clinton Administration would feature more pro-union policies, following the lead of the Obama Administration.

However, while the SEIU’s approach to solving income inequality is centered on disruptive protests and PR stunts against businesses, IFA’s President & CEO Robert Cresanti argued against harming America’s small business owners: “There is no question we should be looking at solutions to address the growing economic divide in America. However, staging street theatre and shutting down restaurants owned by local families who have invested their life savings and created jobs in communities cannot be the answer.”

The franchise industry is responsible for creating nearly 9 million direct jobs for Americans, outpacing job growth relative to the rest of the economy year after year.  If drastic minimum wage increases take effect, many of these workers will be priced out of the labor market, thereby increasing unemployment and failing to provide millions of workers with the skills needed to excel in a competitive environment.  Regulatory burdens such as the National Labor Relations Board and the Occupational Health and Safety Administration attempts to redefine the “joint employer” standard – which the SEIU has advocated for – have put the country’s more than 780,000 franchise establishments at risk. Despite franchising outpacing the gross domestic product of the rest of the economy, America’s small business owners face a perilous environment if these anti-growth policies persist.

In the future, the inequality debate should focus on creating opportunities to enter the middle class, rather than disruptive political theatre that targets America’s entrepreneurs.

Small business owners to Congress: NLRB’s new test is targeting franchises

On Tuesday, the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP) held a hearing to address the NLRB’s revised “joint employer” standard as detailed in its August 27 decision in Browning-Ferris Industries.  The Board indicated that “indirect, potential, or ultimate” control over another employer’s workers could be enough to trigger a finding of joint employment, a change from the previous standard requiring direct and immediate control over terms and conditions of employment.  The committee is also considering a legislative solution – Chairman Lamar Alexander (R-TN) introduced legislation last month, the Protecting Local Business Opportunity Act, to restore the decades-old definition of joint employer.

Among the panel of witnesses was Ciara Stockeland, Owner and Founder of MODE, a fashion retail franchise based in Fargo, ND.  MODE is a small franchisor with 12 locations, and plans to expand to 75 by 2024.  “The uncertainty introduced by the NLRB’s BFI decision jeopardizes the expansion of my business,” Ms. Stockeland testified.  “As a small business owner who meets countless public and private demands and competes against massive corporations each day, I find it terribly frustrating to have regulators harming my business and the careers of so many others in our system.”

Despite the NLRB’s ongoing litigation against franchise companies alleging joint employer liability, some Senators insisted that a new joint employment standard will not present a problem for franchise businesses, pointing to the NLRB General Counsel’s advice memorandum in the Freshii case declaring that a single franchisor was not a joint employer with its franchisees.  In response, Ms. Stockeland testified that the Freshii memo “is simply a distraction,” noting that the memo does not hold the force of law and has not been fully litigated like the Browning-Ferris Industries case was.  She also pushed back on the Senators’ arguments that Browning-Ferris does not impact franchise companies since it was a ruling on contracting relationships, saying that “every franchisor-franchisee relationship is based on a contractual franchise agreement.  Franchising is contracting.”

Ms. Stockeland also attended yesterday’s White House Summit on Worker Voice, an event designed to bring together leaders from the labor, employer, and advocate communities to explore ways to collaborate to improve jobs and the economy.  However, the event has been criticized as being biased towards labor unions, with very few representatives from the employer community invited to participate.  “I think from what I have heard, I am in the minority there,” she told The Daily Caller News Foundation in an interview on Tuesday.  “But I am excited to tell my story.”

Chairman Alexander’s bill, S. 2015, continues to gain momentum in the Senate and currently has 60 co-sponsors.  Identical legislation in the House of Representatives, H.R. 3459, is sponsored by Rep. John Kline (R-MN), Chairman of the House Committee on Education and the Workforce, and has 44 co-sponsors.

To watch video of Tuesday’s hearing, click here.  To send a letter to your legislators urging them to support the Protecting Local Business Opportunity Act, click here.

Congressman Ellison’s Franchise Legislation: Harmful and Unnecessary

By Elizabeth Taylor, Vice President of Federal Government Relations & Public Policy, Counsel

Congressman Keith Ellison (D-MN-05) recently introduced the SBA Franchise Loan Disclosure Act of 2015 (H.R. 3195). He claims the bill will help small business franchise owners by adding transparency to the process of applying for Small Business Administration (SBA) guaranteed loans. In fact, the legislation will harm small businesses. Chock full of unnecessary regulations, the measure unfairly targets franchise loans and would deter small business growth and job creation.

Franchising is flourishing. There are currently more than 780,000 franchise businesses throughout the U.S. in over 300 different industries ranging from restaurants to in-home healthcare.  Franchising allows thousands of entrepreneurs to become small business owners, and supports 8.9 million jobs nationwide. Franchise growth has outpaced the growth of other small businesses for the past 5 years and the trend is expected to continue.

Franchisees aren’t just successful — they’re also satisfied.  A recent survey of franchisees published by the Franchise Business Review found that 80 percent would rate their franchisors highly and recommend their brand to others. Three-fourths of franchisees would “do it all over again.”

This is why imposing additional red tape on franchises would serve only to stifle business creation and employment opportunities for many Americans. The Ellison bill singles out franchise businesses by imposing burdens on the franchise loan process – even though franchise businesses account for only 6 percent of the SBA 7(a) loan portfolio. There is no evidence that franchise loan failure rates are significantly higher than other businesses.  In fact, according to a recent SBA loan study by FRANdata, franchise small business are less likely to default on their SBA loans than non-franchise businesses.  The default rate for franchise loans is 13.73 percent compared to 17.11 percent among non-franchise loans. In other words, the franchise loan default rate is 20 percent lower than non-franchise loans.

While defaults in business loans are unfortunate, they happen in all types of of businesses, not just franchising. The SBA 7(a) loan program has been overwhelmingly beneficial for franchise small business owners and the overall economy. Six out of seven franchises that receive SBA loans do not default and actually go on to grow their businesses.

For the relatively small percentage of franchise brands that do default, this legislation would be of no assistance. What’s more, singling out one or two franchise brands would be misguided. To the extent any problem can be identified, it would be with larger lenders. Big lenders like Banco Popular have a 40 percent default rate for franchise and non-franchise loans.  This rate is twice the average rate (16.8%) of the top 50 SBA lenders.

The Ellison bill would also create a conflict between two agencies, the SBA and the Federal Trade Commission because it would require changes to the FTC Franchise Rule. Although many franchisors disclose financial performance data to potential franchisees, the franchise rule does not require financial performance disclosure by the franchisor.  That would have to change under the Ellison bill, and the FTC no doubt would fight the alteration.

Mr. Ellison has a history of taking policy positions that would harm small businesses. It’s curious that a lawmaker with such a record would now take an interest in the arcane process of SBA loans for franchisees. Mr. Ellison does have one link to franchising – his largest campaign contributor has been the Service Employees International Union, which is on a well-documented mission to destroy the franchise business model. Perhaps the true motivation behind the Ellison bill isn’t to help franchising but to prevent more franchise small businesses from opening at all.

House Hearing Demonstrates New DOL Regulations Will Hurt Businesses and Workers

On Wednesday, June 10th, major regulatory changes expected from the U.S. Department of Labor (DOL) this summer were the subject of a House Subcommittee on Workforce Protections hearing. The forthcoming changes include the potential doubling of the salary threshold for overtime exemption and a new test for the primary duties of overtime-exempt workers. These modifications should concern franchise businesses, as they could severely limit opportunities for lower-level employees to advance in rank, limit the flexibility of business owners to manage their workers as they see fit, and increase compliance and payroll costs.

Subcommittee Chairman Tim Walberg (R-MI) shared his hope that despite an “administration notorious for overreach”, the Department of Labor should listen to employers’ concerns, and put forward a “proposal that encourages rather than stifles productivity, personal opportunity, and economic growth.”

The Subcommittee heard testimony from industry experts and academics regarding the current and proposed regulatory framework. While the witnesses disagreed in some aspects, they all agreed that the current enforcement structure of the Fair Labor Standards Act (FLSA) of 1938 needs to change. Three of the key witnesses were: Seth Harris, former Acting Secretary of Labor, Jamie Richardson, a Vice President of White Castle, Inc., a well-known quick service restaurant chain and Leonard Court, a labor lawyer and member of the U.S. Chamber of Commerce Labor Relations Committee.

The majority of Mr. Harris’ testimony addressed why the DOL should prioritize combating income inequality by raising the Federal minimum wage and increasing the salary threshold. To back up his claims, he relied on his theory that workers will see pay increases because employers will be forced to reclassify previously overtime-exempt workers as hourly workers, and these workers will then get more 1.5x pay for overtime for the work they previously did on salary.

Mr. Harris’ theories were countered by Mr. Richardson of White Castle, Inc., whom represented the views of many private-sector companies. Mr. Richardson explained that these new regulatory changes will add significant compliance costs, drive down worker opportunities and disrupt business in a negative manner. For example, of the over 400 White Castle restaurants, 445 of the 450 managers started as a cashier or a line cook, and worked their way up. If the primary duties test for a salary employee is narrowed based on strict percentages of time spent on managing, there will no longer be as many opportunities for lower-level employees to get managerial experience necessary for this advancement process. This is because a strict definition of primary duties will no longer afford many managers the flexibility to lead from the front and help out with non-managerial duties as needed. Employers will be forced to choose between classifying a worker as strictly management, and strictly hourly, which will in turn, reduce the amount of managers it can hire. It will also reduce opportunities for workers who depend on the ability to work outside the office to promote flexibility, because they will now fall under strictly hourly regulations, and out-of-office work is hard to measure on an hourly basis.

Contrary to Mr. Harris’ suggestion that these overtime changes would result in additional hours for many workers, Mr. Richardson and another human resources professional on the panel testified that- a reduction of salaried positions will also lead to reduced hours, reduced pay, and a feeling of demotion by these formerly salaried employees.  In addition, Mr. Richardson noted an Oxford University study on the effects of an increased salary exemption, which found that an increase to a salary exemption limit of $808 per week, would affect 1.7 million restaurant workers, and would cost business owners $5.2 billion per year. These increased costs will have a negative impact on raises, health benefits, and generous leave policies.

Leonard Court, a member of the U.S. Chamber of Commerce’s Labor Relations Committee, testified about how unfair DOL enforcement techniques create a negative environment for businesses. He cited numerous examples about how Wage and Hours Division investigators have been using a variety of “questionable” tactics to pressure business owners and human resources professionals into unfair and possibly unjustified settlements. Mr. Court also expressed concerns that the DOL needs to release more administrative interpretations of existing law, in order to give businesses more guidance on how to effectively comply with a complex web of regulations.

Among other issues, the three most concerning tactics employed by the DOL were: deliberately pressuring businesses not to use legal counsel, compelling immediate settlements by threatening litigation, and using bait and switch techniques to grab double punitive damages for new cases by using settled ones as admissions of guilt. These tactics result in an enforcement environment that, in the words of Mr. Court, has shifted from an approach of “cooperation and education to one of confrontation and coerced settlement.” Mr. Court cited one case that demonstrates this attitude, where despite months of investigation and six figures of legal fees, the WHD found no wrongdoing by the employer. The tactics and methods of the DOL are even more concerning in light of the Obama Administration’s authorization of expansive funding for franchise-specific Wage and Hour Division investigators.

The final version of these regulations is expected to be released soon, and it appears the potential changes are already creating uncertainty for businesses. As witnesses like Mr. Court and Ms. Berberich, a member of the Society of Human Resource Management observed, more helpful changes the DOL could make include adding clarity to the laws through opinion letters, and by promoting flexibility for the new generation of tech-savvy workers. Written transcripts of witness testimony can be found here, and the video of the full hearing is available here.

Senate HELP Committee Examines “Ambush” Election Rule

Yesterday the Senate Committee on Health, Education, Labor, & Pensions (HELP) held a hearing titled “Ambushed: How the NLRB’s New Election Rule Harms Employers & Employees,” to discuss a controversial new National Labor Relations Board (NLRB) rule to speed up union representation elections. In December the NLRB reissued a previously invalidated rule that dramatically decreased the amount of time employers and employees have to prepare for a union representation election. Many in the business community argue that the accelerated election schedule would prevent business owners from developing a complete response to a union proposal and compromise both workers’ privacy and ability to make an informed decision.

HELP Committee Chairman Lamar Alexander (R-TN) strongly condemned the reissued rule. “I refer to this as the ‘ambush election rule,’ because it forces a union election before an employer has a chance to figure out what is going on” Alexander said in his opening statement. “Even worse, it jeopardizes employees’ privacy by requiring employers to turn over personal information including email addresses, phone numbers, shift hours and locations to union organizers. Today more than 95 percent of union elections occur within 56 days of the petition-filing. But under this new rule, elections could take place in as few as 11 days.”

Senator Tim Scott (R-SC) echoed the Chairman’s concerns, adding “I would tell you that this rule is radical, it is ridiculous, and it is oppressive and it applies to all employers no matter how many employees you have… If there’s any sense of an ambush, as an employer trying to create jobs, help families, this rule stands front and center to that point.”

Earlier this year, the Coalition for a Democratic Workplace (CDW) filed a lawsuit to prevent the NLRB from implementing this new rule, which becomes effective on April 14. IFA sits on the management committee of CDW. A decision on the case is expected this spring.

Achieved video of the hearing, along with the witnesses’ testimony, can be found here.