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statehouses like California have created uncertainty, which business executives are trying to unravel as they consider amending or rewording future policies.
Franchisors speaking to 1851 Magazine agreed that a new “joint-employer” standard that could result if an initial NLRB rule were upheld would be disastrous to franchising, as would stricter regulations regarding the termination or transfer of franchise agreements that could be mandated in California if Gov. Jerry Brown signs into law S.B. 610, which the state’s legislature passed last month. Gov. Brown has until Tuesday, Sept. 30 to either sign the bill into law or veto it; if the governor does not sign the bill, it becomes law without his signature.
But there is less consensus as to how aggressively they should rewrite their franchise disclosure documents and other official policies or how soon they should change them — if at all.
Rich Greenstein, partner with
DLA Piper and leader of the firm’s franchise practice group, said the language of some agreements, manuals and franchise disclosures might be “tweaked” to more firmly spell out that franchisees are responsible for the hiring of employees and following local employment law. Those changes would result from the NLRB’s consideration of franchisees and franchisors as joint employers, he said.
Other notions covered in “franchise fairness” legislation like S.B. 610 in California likely would not have as big an effect on official documents with franchisors, Greenstein speculated. “The whole NLRB issue is very different from S.B. 610,” he said. “California’s bill talks about terminations and transfers, which probably won’t have as much an effect on drafting of agreements. You’re more likely to just have more discussion internally by the franchisor when they look at requests to transfer a franchise.”
Perhaps there might be a chilling effect where franchisors put less in writing to expose themselves to less risk of a judge or regulator saying they exert more control over franchisees’ decisions than they do, he added.
“There would probably be less written about these things than more written, but I’m not a big proponent of putting everything in writing anyway, because the world changes so quickly,” Greenstein said.
He stressed that final decisions on everything from the NLRB’s joint-employer concept to “franchise fairness” legislation like California’s or new mandates to the minimum wage would likely take years to develop. But some operators already have begun thinking about contingencies.
“It should make a difference right now,” said Gail Johnson, founder and chief executive of
Rainbow Station. “Right now we are reviewing all of our operating policies with the filter that they are treated as brand standards instead of operating policies.”
The language in Rainbow Station’s corporate documents likely will reflect brand integrity rather than step-by-step instructions for running a business, Johnson said.
“[Documents] would clearly differentiate that we won’t run [the franchisee’s] business,” she said. “It’s a slight differentiation, but it’s important. We’re not saying, ‘You must do this because the brand says so.’ Rather, we’re saying, ‘You must uphold the integrity of the brand, and this is how you do it.’”
Todd Leff, president and chief executive of
Hand & Stone Franchise Corp. and a member of the International Franchise Association’s Research Committee, speculated that payroll policies might change if the NLRB affirms new joint-employer language proposed by its general counsel and wins any subsequent appeals.
“If we’re jointly responsible for terms of employment, we might require franchisees to use a certain payroll service that we can monitor centrally,” Leff said. “Or with regard to documents used at the franchisee level for employment or handbooks, we might have to dictate that the franchisees use only corporate documents. It would add a lot of expense to franchisors and take away a level of control from the franchisee that I couldn’t let them hold anymore.”
Greenstein of DLA Piper reiterated that the franchise industry likely has a long time before any concern from the public-policy arena is decided for good. Franchise brands would be prudent to look at their official documents closely, he said, but he is not advising a page-one rewrite for any company.
“We don’t think the courts or legislators would typically agree with NLRB’s general counsel, but we’re in the early innings,” Greenstein said. “We’ve notified clients of the ruling and offered some advice, but we’re not revamping anything at all at this point. I tell potential franchisors that the landscape is different, but I wouldn’t avoid franchising because of it. If you still like the transaction, what’s occurring in the public-policy arena shouldn’t change the decision.”
Thus far, he added, no client has walked away from a franchise deal initiated months ago before this summer’s events began ramping up.
