Franchising Under Attack Part 3

According to the International Franchise Association (IFA) nearly 4 percent of all small businesses in the U.S. are franchises; Government might not understand the true impact

It is estimated that there are more than 900,000 franchise businesses across 300 business categories in the U.S. which provide nearly 18 million jobs and generate more than $2.1 trillion to the economy. Franchising is a huge industry, yet, quite often, policymakers don’t understand the fundamentals of franchising enough to be mindful of its impact and the impact of their ideas.

1851 interviewed its 2017 Franchise Legal Players, those charged with protecting the industry from a legal standpoint, about why they believe franchising is under attack:

Carl Zwisler, Gray Plant Mooty: Although some may think that franchising is under attack, having been in the trenches of legislative and regulatory battles since the 1970s, that is definitely not the case. Most of the regulatory challenges franchising confronts are from people who willingly participate in franchising and want to make it better. The arguments have ranged from whether more or different disclosure is a good thing to whether additional laws are needed to protect franchisees from unscrupulous franchisors. Even the misguided SEIU doesn’t hate franchising; it just wants employees of franchising organizations to make more money and to have better working conditions. In the limited space and time that franchising advocates have to deliver their message, they often describe the dire consequences for franchising of various regulatory proposals. However, if the advocates of new regulation could achieve their objectives without having any adverse effect on franchising, I think that they would always try to achieve their objectives in that way.

Tom Spadea, Spadea Lignana: The future is very bright for franchising. There is a new generation of entrepreneurs that appreciate independence, business ownership and exponential growth. The days of spending 40 years at one company career are over. Franchising can help fill that void.

The regulatory environment in franchising is not overly onerous, compared to other industries. It is just a cost of doing business and if companies do the right thing and have the right culture they will always be able to figure out a way to progress forward.

Charles Internicola, Internicola Law* Firm: Sure, franchising has come under attack, but no more so than the daily attacks that business owners and entrepreneurs face on a daily basis. Success attracts criticism and the productive class is always criticized by the non-productive (i.e. the politicians). Of course the franchise industry will proceed forward with even greater things ahead.

Cheryl Mullin, Mullin Law: I think that the franchise mystique has begun to fade, and people are looking more critically at the underlying business structure. I also think that the scrutiny is justified if we are to find a way forward. The United States built its social welfare structure on an employment-based business model, meaning that we have historically relied on Corporate America to provide health and retirement benefits. As businesses scale back on providing benefits and choose to grow through franchising, new solutions need to be found.

David Koch, Plave Koch: It has been under attack to some extent, but it is not the first time. We have seen previous threats come and go, and I expect the cycle will continue.

Rupert Barkoff, Kilpatrick Townsend: I think all small business operations are under attack at the moment but it is more the case for franchise systems. Take a look at the San Francisco minimum wage laws, which are applicable to only some franchisees, but generally inapplicable to other forms of small businesses. And as Aziz Hashim, the past Chair of the International Franchise Association, has suggested, small business, and particularly franchisors and franchisees, have a clearly successful business model. Even though the franchise model has resulted in the creation of hundreds of thousands of new jobs, the government keeps trying to make this model less attractive to prospective business persons. Admittedly, there have been failures and frauds within the franchise community, but overall franchising has been a lynchpin to economic growth both domestically and internationally.