Frustrated by Obama administration shifts in labor law and workplace policy, business groups and conservative activists are taking a page from their liberal counterparts and using state-level activism, enlisting friendly legislatures to undo a federal pro-union regulation that targeted big franchise businesses such as McDonald’s.
South Dakota Gov. Dennis Daugaard last week made the Mount Rushmore state the 10th in the last two years to adopt a law that explicitly says that large franchisers are not legally responsible for workplace violations by their franchisees. “Notwithstanding any other provisions of law or any voluntary agreement between the United States Department of Labor and a franchiser, a franchisee or an employee of a franchisee is not considered an employee of the franchiser,” the South Dakota law says.
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| ‘This looks to me to be the type of legislation that is put in there mostly for symbolic reasons.’ |
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“The franchiser assumes no liability for the franchisee or the employees the franchisee hires,” said State Rep. Lana Greenfield, R-Doland, one of the law’s sponsors.
Nine other states have passed similar measures: Texas, Oklahoma, Utah, Michigan, Wisconsin, Indiana, Tennessee, Georgia and Louisiana. Additional legislative efforts are being mounted in eight other states, including Virginia, Mississippi and New Hampshire. Business lobbyists hope to get at least a few more states on board.
The laws target a change in the “joint employer” regulation by the National Labor Relations Board, the main federal labor law enforcement agency.
Prior to the Obama administration, a business had to have “direct control” over another business’ employees before it became legally liable for them, a standard known as the “joint employer” doctrine. That excluded most franchisers since most franchisees are independent businesses that, in effect, rent out the corporate brand.
The labor board shifted that standard in 2015 to the more ambiguous “indirect control.” The Labor Department soon adopted the same standard. The NLRB used the new standard to pursue major cases against employers such as McDonald’s, arguing that they are also the employers at the individual restaurants, even those that are privately owned.
Business groups have fought the change ever since, contending that the shift was mainly a sop to organized labor since it made it possible for unions to try to organize large franchises all at once by targeting the corporate leadership rather than piecemeal by location as they had to before. Critics argue that should the change become the legal standard, many franchisers will simply leave the business rather than face the expanded liability. The groups have lobbied Congress hard to roll back the regulation and have fought it in court as well.
The strategy is similar to the one that liberal groups pushing for higher minimum wages have used: Target friendly state legislatures to pass new laws in the hopes of building pressure to do the same at the federal level and to create the impression of a growing legal consensus to help court challenges.
“This [South Dakota] bill demonstrates yet again that the concern about the impact of an expanded joint employer theory extends well beyond the Beltway. We are hopeful that more states will clarify that franchisees are legally separate businesses from franchisers and even more hopeful that a new NLRB will overturn the Browning-Ferris decision that sought to prove otherwise,” said Glenn Spencer, vice president of the Chamber of Commerce’s Workforce Freedom Initiative.
The difference is that the business groups’ efforts can go only so far: It is a long-standing legal principle that state laws such as South Dakota’s cannot override federal regulations. They can only direct state agencies.
Steve Bernstein, a management-side attorney for the law firm Fisher & Phillips, said major legal disputes regarding workplace issues rarely happen at the state level. The activity is usually in the federal courts. “This looks to me to be the type of legislation that is put in there mostly for symbolic reasons,” he said.
Bob Cresanti, president of the International Franchise Association, a trade group that has been pushing the state-level effort, conceded that symbolism was a big part of the effort. But it nevertheless had an impact, he argued. “It puts the court system in the U.S. on notice that the states beg to differ. That buys us purchase in the legal arguments when we go to federal court,” he said.
It also boosts the effort to get Congress to roll back the regulation. Lawmakers are more apt to challenge a federal rule if they think that states, particularly their own, are pushing for that as well.
“The actions taken by South Dakota today draws a line in the sand telling the federal government that the franchise model continues to work and provides tremendous economic benefits for the citizens of this state,” Cresanti said.
There is activity on several fronts. A federal appeals court last week heard a challenge to one of the key cases regarding joint employer, the NLRB’s 2015 Browning-Ferris ruling. A who’s who of business trade groups has joined in the effort. Meanwhile, the business groups have pushed Congress to roll it back. Legislation was introduced in the previous Congress and is likely to be introduced again this session. Finally, President Trump will be able to fill the two open seats on the five-member labor board.
A NLRB spokesman declined to comment. A Labor Department representative could not be reached for comment.
