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.

Local Franchise Owners Warn Senate HELP Committee that Proposed NLRB Joint Employer Changes Will Reduce Entrepreneurship Opportunities

Today, the Senate Committee on Health, Education, Labor, and Pensions (HELP) held a hearing to examine the impact that National Labor Relations Board (NLRB) general counsel Richard Griffin’s recent actions could have on small businesses all over the country. Last year, Griffin filed an amicus brief in the Browning Ferris Industries case that recommended franchisors be considered joint employers with franchisees. Later, he authorized dozens of complaints against a franchisor, naming it as a joint employer with franchisees. The hearing, titled Who’s the Boss? The “Joint Employer” Standard and Business Ownership, featured testimony from two franchisees who told the committee members of the negative impacts that changes to current joint employer standards would have on their small businesses.

Gerald Moore, the owner of five The Little Gym franchises in Tennessee, North Carolina and South Carolina, explained that such a radical change to established labor law would fundamentally undermine the franchise relationship, saying that it “would mean that my franchisor would be jointly responsible for all of my employment-related liabilities… This will mean increased control and more day-to-day involvement by The Little Gym International.”

John Sims IV, who owns a Rainbow Station franchise in Richmond, Va., added that the general counsel’s actions were already having a negative impact on his business’ plans. “My wife and I have often talked about opening a second Rainbow Station location,” Sims explained. “However, the uncertainty as to what the future holds for franchisees and other small businesses has forced us to put that plan on hold. It simply does not make sense to try and grow our business at a time when we do not know what the future of our business will be.”

Although some Democratic members of the committee claimed the impact of such a change would be limited, HELP Committee Chairman Lamar Alexander (R-TN) agreed that a dramatic change in joint employer standards would have negative consequences that reached far beyond the franchise community. “This case doesn’t just affect franchisees, it will affect every business that uses a subcontractor or contracts out for any service.  That includes most of the 5.7 million businesses under NLRB jurisdiction in America – because most businesses contract for some service.”

You find an achieved webcast of the hearing, along with the witnesses’ testimony, here. If you would like more information on the joint employer issue, please visit IFA’s Labor and Workforce Hub. You can also be a part of IFA’s nationwide grassroots efforts to preserve the franchise model by joining the Franchise Action Network.

Making the Case for Franchising Just Got Easier

Franchise businesses are expected to grow and create more jobs at a faster pace than the rest of the economy in 2015 for the fifth consecutive year.

You recently scheduled a meeting with your local lawmaker, or even better, have plans to have your elected official visit your brand’s headquarters or a local unit.  Everything is moving along great. Or perhaps you’re been invited to speak before a community group or professional organization about your franchise business. You know your brand (or brands if you’re a multi-unit, multi-brand franchisee) inside out, but how about getting some stats that highlight the overall franchise industry?

That’s where the Franchise Business Economic Outlook: 2015, released yesterday by IFA’s Educational Foundation and IHS Economics, can help.  According to the report, franchise businesses are expected to grow and create more jobs at a faster pace than the rest of the economy in 2015 for the fifth consecutive year.

Here are some key findings from the business outlook:

  • Franchise businesses will add 247,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs, over last year. That is on top of the 235,000 franchise jobs that were added in 2014.
  •  The number of franchise establishments will grow this year by 12,111, or 1.6 percent, to 781,794.
  • Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion.
  • The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year, which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole. The franchise sector will contribute about 3 percent of the U.S. GDP in 2015.
  • The IFA Franchise Business Index— which is a mixture of employment, sales and credit conditions — also rose smartly, especially at the end of last year. In November, the index was up 3.1 percent compared to November 2013, the biggest year-over-year gain since the start of the Great Recession in 2008.
  • The outlook for growth among the different types of franchises will differ, with quick service restaurants ranking first and retail businesses ranking second in terms of increased employment.

Find the full IHS Economics report here and see the updated infographic here.

 

 

 

It’s About Community, It’s About Being a “FAN”

Thanksgiving is just around the corner and it provides an opportunity to share precious time with our families in our communities.  As businesses reach out to their respective communities during this holiday season, they are also involved in activities and movements that benefit their neighbors all year.

And how do franchise businesses benefit their neighborhoods? Franchise small-business owners hire and promote people from within the community, contribute to local economic and social stability, as well as serve as entrepreneurial role models.  One close friend who was a franchisee for a decade was passionate about helping young people remain in school and helping them to understand the significance of a strong work ethic, being responsible and respectful.

There is a movement taking hold in the franchise community that helps to promote small businesses in their local communities.  It’s called the Franchise Action Network or FAN.  The audience:  lawmakers in every state capitol and the message: how important the franchise industry is to their state and communities.

Now comes the most important part of this movement: It’s you!!! As a franchise small-business owner, you make the best possible representative because you are local and can tell exactly how legislative or regulatory actions can help or hinder the growth of your business. Check out FAN Maine in action below.

You can help explain that franchising involves more that quick-service restaurants, and includes everything from soup, Soupman Inc., to nuts, Cornwell Quality Tools Company, and everything in between:  from Jiffy Lube to The UPS Store, from Abrakadoodle Remarkable Art Education to the Gap, Inc. and from Gold’s Gym to Camp Bow Wow to list just a very few.

Locally owned franchises are America’s hidden small treasures. IFA asks your support to get involved; visit www.FranchiseActionNetwork.com today to sign up and get involved. After all, Thanksgiving is only one day per year.  Your franchise small business is making a difference every day; let your legislators know how!