Franchisees push back against expansion of joint-employer definition

CHICAGO — Every time the Veldman brothers attempted to grow their franchise, Ron Veldman said, a fight with corporate ensued. The franchiser said “no” to expanding the business into cleaning and repairing homes damaged by fire or flood. It said “no” to packing and storing customers’ clothes and furniture. And it said “no” to owning a dry cleaning store.

“Our corporation fought us every step of the way,” said Veldman, a partner with his brother and others in a franchise based in a Chicago suburb that has grown to about $58 million in annual sales.

The fights went on for most of the 1980s, with ServiceMaster Global arguing that the expansion ideas were not in line with the company’s core business of cleaning carpets and upholstery, Veldman said. But Veldman and his brother successfully convinced ServiceMaster that the new businesses made sense. Sometimes, Veldman said, all it took was showing ServiceMaster its cut of the new businesses, which at the time was 10 percent of sales.

“They never sued us because we paid fees,” said Veldman, whose ServiceMaster DSI franchise now has offices in four states and employs about 360 people.

Franchisees like Veldman have been dragged into the Fight for $15 battle, portrayed as little more than corporate puppets in how they operate and pay their employees. But increasingly some franchisees are railing against that perception, saying they are independent business owners who make their own decisions on hiring and firing and how much they pay employees. During the early years of the franchise, Veldman said, he handpicked employees. Today, he said, he relies on managers to find new talent.

“I don’t need the corporation to have more control,” said Veldman, who in May participated in a roundtable discussion with U.S. Rep. Robin Kelly, D-Ill. The session, one of a half-dozen slated with lawmakers around the country, was aimed at trying to halt an expansion of the standard used by the National Labor Relations Board to determine when a corporation shares responsibility for workers employed by a third party, such as a franchisee.

Unions — including the Service Employees International Union, which is funding the Fight for $15 campaign — are the main force behind the push to broaden the joint-employer standard at the NLRB and other federal agencies. They’ve also filed lawsuits related to the issue in federal courts and have won some battles along the way. Two years ago, for example, a California federal judge found Wal-Mart shared responsibility for warehouse workers employed by a staffing agency hired by a Wal-Mart subcontractor. The ruling allowed the warehouse workers to name Wal-Mart as a defendant in a lawsuit.

The joint-employer issue gained momentum last year when the NLRB’s general counsel issued complaints against McDonald’s and its franchisees as joint employers without explicitly defining his reasons for that decision. Details are expected to emerge in hearings to be held around the country later this year.

In a separate case, the five-member NLRB also is considering an argument from its general counsel to broaden the joint-employer standard from having direct control over working conditions to exercising indirect and potential control over working conditions.

Franchisees worry the board will ultimately endorse the expanded standard and are studying memorandums from the general counsel’s office that might provide clarity over what constitutes a joint employer. One released earlier this month outlines why Freshii, a more than 100-store restaurant chain, is not considered a joint employer with its franchisees.

NLRB Associate General Counsel Barry Kearney wrote in the memo that Freshii doesn’t require its franchisees to follow its guidance on how to calculate labor costs or how to hire and schedule employees. And although people can apply for jobs through Freshii’s website, individual franchisees are exclusively responsible for hiring their staff, Kearney wrote.

Kearney also noted that a Freshii’s franchisee testified he typically hired employees through word of mouth or through Craigslist ads. The same franchisee increased and decreased wages without seeking approval from Freshii, Kearney added.

Freshii provides franchisees with an employee handbook, but not all franchisees use it. And even though franchisees must use hardware and software approved by Freshii, not all of them use the same technology.

Kearney concluded that Freshii does not “significantly influence the working conditions” of its franchisees’ employees and the company is therefore not a joint employer under the current standard or the one proposed by the general counsel.

Freshii founder and CEO Matthew Corrin wrote in an email that his company recognizes the distinction between a franchise brand and ownership of a particular location. “The role of Freshii HQ — the franchiser — is to be brand innovators, brand marketers, brand advisers and business consultants,” Corrin said.

It’s not clear how McDonald’s relationship with its franchisees differs from that of Freshii or other franchisers in the eyes of the NLRB’s general counsel, but he has said McDonald’s coordinated response to the Fight for $15 campaign indicates the company shares responsibility for its franchisees’ employees.

McDonald’s has said it had the right to engage in coordinated actions to protect the integrity of its brand, but it maintains that 90 percent of its stores are independent franchisee owner-operators who set their own policies and wages while adhering to corporate standards on food preparation and restaurant design.

Attorneys representing the workers say McDonald’s monitors and decides the minute-to-minute working conditions of employees at all stores, thus making it a joint employer. Further proof, they say, is that McDonald’s response to workers’ calls for $15 an hour wages resulted in threats, intimidation, cutbacks and firings.

As the various cases make their way through the NLRB process, some franchisees are telling their own stories of being independent to distinguish themselves from being labeled joint employers.

Veldman said he, like many franchise owners, started as a front-line worker. He said he cleaned carpets and upholstery with his brother, who bought the franchise in 1978. About a year later, Veldman said he borrowed $30,000 from his grandmother and bought a dry cleaning store to augment his brother’s dry cleaning services. They merged the businesses a few years later.

To illustrate the independence of his business, Veldman tells of how, during Hurricane Katrina in August 2005, he rushed to Mississippi to help keep open a hospital with about 120 patients. He trucked in water, ice, other supplies and generators.

After the hurricane hit, the crew, mostly subcontractors, fixed windows and walls and dried flooded areas. At nights, they emptied toilets. The workers slept on bunks set up in a parking lot, where Veldman also stationed washers and dryers to keep uniforms clean.

Had he listened to the corporation when they told him to quit expanding his business, Veldman said, he would have been limited to cleaning carpets instead of helping keep open a hospital in the aftermath of a hurricane. His story, he said, shows he’s an entrepreneur, an independent business owner who happens to own a franchise.

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