Congress Passes PRO Act, Which Could ‘Eradicate the Franchise Business Model’

Advocates across the franchising industry are warning that the Protecting the Right to Organize Act of 2021 could destroy the franchising industry by enshrining the 2015 National Labor Relations Board’s joint employer decision into law. 

The PRO Act passed through the House on Tuesday with a 225-206 vote that saw five Republicans cross party lines to vote in favor of the bill. Among other things, the bill would allow unions to override right-to-work laws and collect dues from workers who opt out of unions and, importantly for the franchise industry, allow employees of franchised businesses to sue the franchisor. 

President Joe Biden heartily endorsed the bill, saying in a statement that the U.S. should encourage unions. Richard Trumka, the president of the AFL-CIO, told NPR that the bill would “protect and empower workers to exercise our freedom to organize a bargain."

Some franchise-industry professionals, however, are warning that the “far-reaching legislation would eradicate the franchise business model, which comprises over 760,000 establishments that employ over 8 million individuals and contribute $780 billion of output to the U.S. economy.” 

From the International Franchise Association: 

[T]he bill would enshrine in federal law the Obama administration’s ‘joint employer’ standard. The National Labor Relations Board ruled in 2015 that franchisors — the national firms — can be held responsible for actions taken by the small businesses that use their brands. This puts franchisors at risk of being sued for things they never did and had no power to stop.

 

Faced with the PRO Act’s new liability regime, franchise companies are much less likely to partner with local entrepreneurs, which means small business ownership opportunities will dry up on Main Street. 

In 2015, following the NLRB decision, joint employer lawsuits increased 93% and cost individual franchise businesses an average of $42,000, according to the International Franchise Association. The National Retail Federation calls the PRO Act the “worst bill in Congress.” 

The bill faces an uphill battle in the Senate, where Democrats hold a one-seat majority and Republicans have signaled an unwillingness to pass the legislation.