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In a win for the franchise industry, on July 27, 2017, the United States House of Representatives introduced the Save Local Business Act (H.R. 3441).  The purpose is to amend Section 2(2) of the National Labor Relations Act (29 U.S.C. 152(2)) and Section 3(d) of the Fair Labor Standards Act (29 U.S.C. 203(d)) by clarifying what it means to be a joint-employer under those acts.

This proposed legislation attempts to combat a 2015 ruling by the National Labor Relations Board (NLRB) that created a two-part test for determining the joint-employer standard:

  1. Whether a common law relationship exists.
  2. Whether the potential joint employer “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.”  

The NLRB’s ruling sent shockwaves through the franchise industry because it vastly expanded the concept of “control,” which the NLRB interpreted as being direct, indirect (through an intermediary), or even a reserved right to control, regardless of whether such right is ever exercised.

Save Local Business Act

The Save Local Business Act proposes to amend the National Labor Relations Act and the Fair Labor Standards Act by providing that a person may be considered a joint employer in relation to an employee only if such person “directly, actually and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment (including to hiring benefits, day-to-day supervision of employees, assigning individual work schedules, positions and tasks, and administering employee discipline).

Benefits of a commonsense definition of employer

This proposed legislation is being applauded by the franchise industry as its implementation would significantly reduce a very costly and burdensome issue that impacts the franchise business model. Proponents of the bill also believe that a commonsense definition of employer will:

  • Provide certainty and stability for workers and employers.
  • Reduce the proliferation of litigation caused by the NLRB’s ruling.
  • Encourage business expansion.
  • Positively impact small business owners, entrepreneurs and their communities.

What critics have to say

However, critics of the bill posit that the change to the joint-employer standard only serves to help large corporations avoid liability for labor and employment violations, lead to an increase in job outsourcing, and inhibit collective bargaining rights for workers.

What should franchises and small business owners do?

While this proposed legislation comports with the president’s and the Republican-controlled Congress’s pro-business agenda, franchises and other small business owners should closely follow the progress of this bill because no one – soothsayers and fortune tellers included – is equipped to predict the day-to-day changes of current Washington D.C. politics.

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