News From Terre Haute, Indiana

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July 11, 2014

A federal court is about to answer the question: Whom do you actually work for?

WASHINGTON — One of the most fundamental obstacles the American labor movement faces could get torn down in the coming days -- and it's terrifying management, in industries from fast-food to manufacturing.

Right now, the National Labor Relations Board is weighing the very question of what it means to be an "employer," and therefore who has to come to the bargaining table when workers organize for better treatment.

The problem: Over the past few decades, the labor market has undergone a profound "fissuring," with workers being insulated from the people who effectively dictate the terms of their employment. Vertical integration is so 1950s; outsourcing is the new hotness. Some big companies barely "employ" anybody at all, hiding behind the franchises, temp staffing agencies and contractors that actually do the hiring and firing (or work for themselves). That makes it nearly impossible for unions to gain any leverage in their fights for better wages and working conditions: If a hospital or a property manager or an automaker can just swap out one contractor for another that charges less, what's the point?       

               

The two cases that could change the American workplace

The deliberations come in the form of two cases. One you might have heard about: The Fast-Food Workers Committee, backed by the Service Employees International Union, helped organize a highly visible campaign for the $15 minimum wage over the past year. They filed a number of complaints against McDonald's with the National Labor Relations Board, which consolidated them all into one case that hinges on the issue of whether McDonald's qualifies as a "joint employer" along with the franchise owner.

That's been sitting in the NLRB general counsel's office in Washington for months now, and a decision could be out within days.

Meanwhile, the NLRB has granted an appeal from the Teamsters, which attempted to hold an election for all employees of a recycling plant in Milpitas, Calif. -- not just the staffing agency that controls the bulk of the payroll -- after a regional panel found in favor of Browning-Ferris Industries. Last month, the board invited amicus briefs from all interested parties on the joint employer question, indicating that it's interested in setting forth a new standard, though the case might take a few months to resolve.

The outcome of either proceeding -- or both -- could significantly restructure the American workplace. And that has the "employer community," as industry associations refer to themselves, on high alert.

The NLRB's call for briefs in the Browning-Ferris case returned reams of arguments from the National Association of Manufacturers, American Staffing Association, National Restaurant Association, National Retail Federation, American Hospital Association, National Waste and Recycling Association, National Hotel and Lodging Association, and the Associated Builders and Contractors -- to name a few. The issue was discussed with great concern in a recent House hearing. Over the past few weeks, the International Franchise Association (IFA) has published op-eds portending the death of the 770,000 "small businesses" it serves, which can range from single-store independent operators to larger companies with dozens of locations.

"Years of federal and state legal precedent would be upended and thousands of small business owners would lose control of the operations they worked hard to build," IFA president Steve Caldeira wrote in The Hill. "The result would be a wave of 'going out of business signs' across the country and thousands of lost jobs. Signed contracts would be tossed away as if they had never been written."

On the other side: The AFL-CIO, SEIU, eminent professors of labor law, the NLRB's own general counsel, and advocacy groups like the National Employment Law Project. The essential argument they make is that the board wouldn't have to stretch its imagination at all, but rather go back to the standard set by a case in 1982 -- ironically, regarding the same company at issue in this matter -- that defined a joint employer as any company that retains substantial control of the terms and conditions of employment.

               

Why franchises are fighting back

Now, franchises argue that they're the ones who make all the decisions about what life is like for their employees, and essentially operate just like any other independent business. "We've got to get our own EIN, file our own taxes," says Bob Dorfman, who built an empire of 35 Five Guys locations in Florida, Ohio and Texas before selling it in 2012. "We do our own day-to-day operations. We can fire whom we want, we can hire whom we want. The only thing they provided me is brand equity, the use of the name, and their operating practices."

That may be true of some franchise models. In the case of McDonald's, though, advocates argue that the fast-food giant's franchise agreement and actual business practices are so restrictive and pervasive that franchise owners have little latitude with their staffing arrangements and no choice but to keep labor costs as low as possible. In a somewhat unusual arrangement, McDonald's even controls its own real estate and extracts exorbitant rents from its franchisees, who are on the hook for expensive renovations. All that has driven profit margins down to the point where former McDonald's executive Richard Adams, now a consultant, estimates that about a quarter of franchises don't even generate positive cash flow for the owner. That doesn't give them many options.

"McDonald's franchisees are pretty compliant," Adams says. "They don't really organize, they don't really protest. And if you do, they tell you you're not a good member of the McFamily. I don't want to make this seem too Orwellian, but the average franchisee has about six restaurants, and the franchise agreement is for 20 years. You're probably going to have a renewal coming up. If you're not a compliant member of the team, you're probably not going to get that renewal."

It's not just fast food, though: The Browning-Ferris decision could impact janitors, nurses, assembly-line techs, clerical workers, you name it. But what does having a joint employer look like in practice? How do you bargain with two bosses at once?

For the closest example of how this might work, look to show business, says Catherine Fisk, a law professor at the University of California at Irvine.

The big movie studios, after all, haven't directly employed the people they depend on -- like writers, set designers and lighting techs -- since the 1940s. But they all know they have to deal with the unions that represent them, which set standard rates for their services. "You get access to all that labor, but you're going to pay minimum terms," says Fisk. "People who work in Hollywood recognize that if they all start working for half as much, writers won't be able to pay their mortgages."

Things could work similarly in other types of service industries, if it were clear that a large employer couldn't just pick the contractor that agreed to provide labor for cheap.

"The contract that the union negotiates with the temp agency, and the entity that consumes the services, would say that everybody in this job category is paid $15 an hour," Fisk explains. "If the hospital itself is a party to the collective bargaining agreement that says everybody in this job category will get paid $15 an hour, then it wouldn't matter if you unionize."

Would that drive the little guys out of business? Some costs could be passed on to consumers, in the form of higher rents or pricier cars or more expensive Big Macs. But that's certainly less likely to hurt any one business if they all have to abide by a minimum standard, meaning nobody's at a disadvantage, and workers get a little hand up.

              

DePillis is a reporter focusing on business policy, including lobbying, government contracting, and international trade, with a bit of urban affairs and infrastructure on the side.

 

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