I attended the International Franchise Association’s Franchise Action Network (“FAN”) Annual Meeting last week in Washington D. C. Basically, this is an educational event culminating in the participants being sent out to the “Hill” to lobby their senators and representatives on issues effecting small businesses – and especially franchised businesses. Speakers from the Hill, this year including Donna Brazile, Michael Steele and Senator Rand Paul, spoke to the delegations about the state of politics and the issues we were presenting to our representatives. I was part of the Pennsylvania delegation and most of the attendees in my district were franchisees.
The issues we discussed with our representatives focused in the joint employer issue and tax reform. Though some headway has been made regarding the joint employer issue, there is still work to be done for those wishing to reverse the standard set forth in 2015 by the National Labor Relations Board (NLRB) in the Browning-Ferris Industries decision, which replaced the “direct and immediate control” standard with a test based on “indirect” and “potential” control. Many feel this shift will cause franchisors to be “joint employers” with their franchisees which could invalidate the franchise model’s goal of providing opportunities for small business owners to run their own independent business.
Recent headway on the joint employer issue has been the passage in 2017 by the US House of Representatives of the Save Local Business Act (HR 3441) to simplify the joint employer standard for franchised businesses. However, that legislation has stalled in the Senate. In addition, the NLRB has announced plans for rulemaking relating to the joint employer standards.
Our first task on the Hill was to ask our congress to sign onto letters written by their fellow congressmen and senators to ask Labor Secretary Alexander Acosta to begin rulemaking on the joint employer issue under the Fair Labor Standards Act, under which franchises have seen many joint employer lawsuits as it allows individuals to file private actions. The hope is that this would help standardize the varied rulings that are coming out of the different federal circuit courts on the issue.
The second issue on our list to discuss with our congressional representatives was also related to the joint employer issue. The Trademark Licensing Protection Act was recently introduced into the House of Representatives by Rep. Steve Chabot (R-OH) and Rep. Henry Cuellar (D-TX) to help resolve the conflict between federal trademark law and the rationale supporting claims of joint employment. Federal trademark law requires the owners of trademarks, in this case the franchisor, to maintain control over its trademark and to monitor its use. Franchisors do this by controlling the use of the mark, which could be wearing standard uniforms, use in advertisement or otherwise, and the quality of the products supported by the mark, as well as other controls. However, this control supports the claim that a franchisor is a joint employer of the franchisee, thus catching the franchisor in the middle of these two laws. The Trademark Licensing Protection Act is being proposed to clarify that franchisors who control the actions of franchised businesses to maintain their brand will not be considered “joint employers” as a result under federal law.
The last issue for discussion was tax reform, particularly focused on aspects impacting pass-through entities, like limited liability companies which is the dominant form of company franchisees employ. First, we asked to make the individual tax cuts permanent as they effect owners of pass-through entities. Second was to clarify the exemption relating to professional service entities from those tax cuts. Certain professions, such as attorneys, are exempt from the tax cuts, but due to the vagueness of the wording, other unintended businesses may be covered by the exemption such as home health services. The IFA has requested that the Department of the Treasury fix this so this may go forward without the need for congressional action. Finally, because of a purported error in the tax bill, the ability to depreciate certain property and capital expenses at an accelerated rate has been eliminated so that these assets depreciate over an extremely long period of time. This causes a great disincentive for businesses to renovate and buy new equipment. The final ask was to fix that error and allow bonus depreciation.
I have gone to the Hill to lobby for similar issues before. I enjoy the meetings with the Representatives because the groups are smaller and the Representatives and their staff seem to be more responsive. I have always met with staff members for the Senators, but it is important to communicate with the staff as they are the ears of the Senators. Of course, for issues that are not bipartisan, if the congressman or senator is of the other party, they are less likely to act. But this is an important part of our democracy and I encourage all to go to the Hill or your state capital to meet with your representatives on issues important to you.
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