As NLRB Ruling Changes Loom, The Franchise Industry Calls on Nation’s Leaders to Fight Back

Twenty-fifteen was an important year for franchising.

Franchise employment rose by more than three percent, encompassing more than nine million total jobs in the United States. The number of operating franchises is up, too, by nearly two percent. And the industry’s economic output is now a staggering $944 billion annually, up nearly six percent. That represents a full three percent of the United States gross domestic product—a figure also up by nearly six percent from the year before.

And yet, despite these impressive gains, there’s a storm brewing in the franchising industry. In 2015, a new federal ruling enacted by the National Labor Relations Board rewrote joint employment law—a move that could ultimately overturn the traditional way local franchisees independently hire, set wages, manage staff and run day-to-day operations. Under the ruling, a franchisor and franchisee can be deemed to share the ability to govern the workers’ terms and conditions of employment—tasks that have traditionally been left to the discretion of franchisees.

Many unions considered this ruling a victory because it enables them to hold large corporate companies liable for labor practices at individual locations. But the same can’t be said for the franchise industry. Which is why, many franchise chains across the country are waging a war against the NLRB to preserve the decades-old franchising model that fast-food companies—and all other corporate franchisors—have adopted. Traditionally, large franchisors weren’t responsible for the workforce of independent franchise owners who are typically small businesses operating under a corporate brand umbrella. But now, brands will suddenly be on the hook for liabilities and costs associated with being an employer.

The International Franchise Association (IFA) has publicly aired their grievances about this ruling. Because entrepreneurs are drawn to the industry so they can operate independently, this new decision makes that future unclear—possibly damaging overall investment into the sector. And in order to continue the industry’s impressive growth seen during 2015, Robert Cresanti, the president and CEO of the International Franchise Association, believes franchising must present a strong and unified front.

“The very branding of franchising is being challenged through the new Joint Employer standard. We are prepared to fight back in Congress to uphold the successful business model we’ve built,” Cresanti said. “We must continue educating both franchisors and franchisees about how it will affect them. Challenges remain, but opportunities exist.”

For the past year, Cresanti’s top priority has been to present a legislative solution to return to a “rational definition” of what a joint employer actually is. Bills aiming to do that have been filed in both the House of Representatives and the Senate. Working through its Franchise Action Network, or FAN, and the Coalition to Protect Local Businesses, the IFA has helped garner 108 co-sponsors in the House and 48 in Senate, helping to keep the bills alive. Cresanti remains hopeful that these measures will at least receive debate on the floor. To date, these bills are almost entirely supported by Republicans. Meanwhile most Democrats are still not on board, and the White House has not been largely supportive. For that reason, it’s believed that a Republican-led board might be inclined to overturn the decision (although Hillary Clinton and Donald Trump have not officially taken a stance on the issue).

“We continue to repeat the narrative there that if this does not change, this industry is in danger,” Cresanti added.

The IFA has already been successful in fighting back at the state level in several areas, helping to pass laws that protect franchise employment standards and legislation that codifies the traditional definition of joint employer in Michigan, Tennessee, Louisiana, Georgia and Texas. Potentially discriminatory wage laws have also been shut down thanks in part to the IFA’s lobbying efforts in cities like Chicago, Kansas City, St. Louis, Los Angeles and Portland, Maine, and the IFA has helped hold back attempts to pass new, restrictive laws targeting franchising in other cities and states.

Jania Bailey, the CEO of FranNet, agrees that the NLRB will be one of the most important issues for the next president to focus on for the franchise industry. She believes that no matter the outcome of the election, the NLRB needs to be reined in.

“Being aware of who the job creators are is going to be important in the year ahead. And the hope is that someone gets a clue about how our model really works. The difference between franchisor and franchisee is important, and our next president needs to take an in-depth look,” Bailey said. “Our model is one that unless you’ve been in the industry, it’s difficult to understand. The normal person just thinks of McDonald’s. They don’t realize that there are individual franchisees out there who have risked their life savings. The NLRB needs to take their blinders off and truly understand our model.”