Client Bulletin #603

Andrew Puzder, President Trump’s nominee for Secretary of Labor, is now a household name. You probably know that he is the Chief Executive Officer of CKE Restaurants, Inc., the corporate franchisor of the Hardee’s and Carl’s Jr. franchise brands. In the franchise world, Hardee’s and Carl’s are categorized as “quick service restaurants.” (In layperson’s terms, “fast food.”) When the average American thinks of franchising as a method of business operation, fast food restaurants make for an easy association. Even if we don’t have a Hardee’s or a Carl’s Jr. nearby, we undoubtedly have other fast food establishments that give us insight into the workings of what it means to be part of a national franchise brand.

We have written about how franchise brands and employers in general are under attack as joint employers with their franchisees. Mr. Puzder has been a vocal opponent of the developing standards at the National Labor Relations Board about the joint employment inquiry. The Board under President Obama moved from a “direct control” standard to an “indirect control” or even “potential control” standard, making it that much more likely that a franchisor would be considered a joint employer with a franchisee.

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Further, for the last few years, there has been substantial discussion in the news about raising the minimum wage. In some places, there has been talk about imposing a higher minimum wage for franchisees and a lower one for non-franchise businesses. The logic in that line of thinking is that franchisees are part of a larger, sometimes multi-national, corporate enterprise (a “joint employment enterprise”), and therefore can afford to pay higher wages.

Fight for $15 is a labor advocacy group recognized as part of the initiative seeking a wage of at least $15 an hour for employees of McDonalds’ franchisees. The NLRB’s joint employer analysis under General Counsel Richard Griffin is front-and-center in the positioning of those arguments.

Enter Mr. Puzder, who – if confirmed – may now change everything, and in doing so, roll back the claimed progress that the NLRB, Fight for $15, and other labor advocacy groups could recently claim. He is an opponent of minimum wage increases – or, better said, an opponent of significant minimum wage increases that may not be “rational.” He has also said that increased automation, such as robotic servers in fast food restaurants, may be a welcome development, meaning that workers in franchise-owned restaurants may be on the road to outplacement, although he has made other public comments suggesting he recognizes the importance of human interface.

Perhaps not so coincidentally, as reported in Law360 (paid subscription required to access) and elsewhere, in the past couple of weeks Mr. Puzder’s franchisees have been sued in multiple jurisdictions for alleged labor violations, wage-hour violations, and sexual harassment. If confirmed, Mr. Puzder will have oversight of some of the agencies that handle such claims – the Wage and Hour Division and the Office of Federal Contract Compliance Programs, both of which are part of the U.S. Department of Labor – and he will presumably have close cooperative relationships with the relevant independent agencies, such as the Equal Employment Opportunity Commission and the National Labor Relations Board.

These recently filed charges and lawsuits may or may not have merit; we have no basis to judge that at this time. The only thing that is clear is that their timing is highly suspect, and perhaps borne from the obvious frustration that President Trump’s appointee is an outspoken opponent of key issues of importance to labor advocacy groups. If the intent of these actions is to create a conflict of interest for Mr. Puzder, that message is loud and clear.

Mr. Puzder’s confirmation hearing has been postponed several times. According to Politico’s “Morning Shift” and the Associated Press, the postponement is necessary while Mr. Puzder divests certain holdings in CKE that might create a conflict of interest. Despite the delays, Mr. Puzder says that he looks forward to his hearing, and we look forward to hearing his side of the story.

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