Christopher Head is a Virginia entrepreneur who became worried when he learned last year the federal government had changed the legal liability rules relating to business franchises such as the two he owns.
He fears the rule, called the “joint employer standard,” will result in the parent corporation forcing him to give up control over day-to-day operations at his Home Instead Senior Care businesses.
“I was very concerned with what was coming out of the National Labor Relations Board and what would flow downstream from that,” Head told the Washington Examiner about the federal agency that issued the rule change.
He found a way to register his opposition that probably got the federal government’s attention. Head is also a Republican state delegate representing Roanoke, and he introduced a bill declaring that the federal government’s franchise rule doesn’t apply to Virginia state agencies or in state labor disputes.
The Republican-led General Assembly passed Head’s bill in March, but it was vetoed by Gov. Terry McAuliffe, a Democrat. Last week, Republicans failed to override the veto in a party-line 66-34 vote, just one shy of the two-thirds margin needed.
It was a rare defeat. Governors in seven other states have signed similar legislation. Tennessee was the first to pass such legislation in March 2015. Texas, Louisiana, Michigan, Indiana, Utah and Wisconsin have followed. Georgia passed a version earlier this month that the governor is mulling over.
The rule that prompted the opposition is a revision of a long-standing policy for when two businesses are so intertwined that both are legally liable for the other’s workplace employment policies. Traditionally, the joint employer rule applied only when a business had “direct” control over another’s workforce.
Last year, in a case involving labor complaints against McDonald’s Corp., the board revised the standard to include “indirect” control. The board said that the franchiser corporation was legally liable for labor rights violations at its franchisees, even if those restaurants were privately owned businesses that merely rented out the corporate name. More than 80 percent of McDonald’s restaurants are privately owned.
Labor groups cheered the rule since it made union organizing easier. Rather than trying to organize restaurants one at a time, they could now target the corporate parent instead. The charges against McDonald’s that became the basis for the labor board rules change were the result of a campaign funded by the Service Employees International Union.
In his veto announcement, McAuliffe echoed the reasoning used by both the board and labor groups, saying the bill relieved “dominant franchisor/employers of the obligations and responsibilities an employer owes to its employees.”
McAuliffe even argued that the veto was protecting small businesses because otherwise franchisees would have to “shoulder the burdens more appropriately placed on the dominant franchiser.”
That’s not how businesses small and large view it. The new rule prompted a major outcry from business groups, which are fighting the labor board in court and lobbying Congress to pass legislation to rein in the board.
Small business owners such as Head fear that if the rule stands, it would force franchisers to assert more control over their franchisees to limit their liability or get out of franchising altogether, leaving the small business without the help of a national brand.
The various state bills are limited in their impact. They all say that the labor board’s new rule does not apply in state labor complaints and the direct control standard should be used instead. That does not pre-empt federal complaints from being issued against businesses in those states.
“The state legislation would not prevent a business from being sanctioned from the NLRB,” said Dean Heyl, vice president for government relations at the International Franchise Association, which has supported the state-level efforts.
Each state has its labor laws and enforcement agencies, and their levels of aggressiveness varies. States such as New York and California are known for being the most active, while the states that have passed the anti-NLRB legislation are generally more business-friendly.
So, the state laws are of limited impact, Heyl concedes. But they still help, providing support to businesses in those states, as well as making their business environments more competitive.
“What we hope is that maybe Congress looks at this and says, ‘Maybe the states have a better idea on this,’ and follows suit with its own legislation,” Heyl said.
