Legislative Issues Franchising will face in 2015

With a Republican majority in Congress, franchise brands are hoping changes in legislation supporting franchising will take shape. 1851 checked in with longtime franchise lawyer and consultant, Charles Internicola, who is CEO of ECOMAIDS, to learn what legislative issues and concerns will affect franchising's bottom line, and his take on what law Congress should enact to help franchisees and franchisors.

With all the recent legislation passed in states regarding a rise in the minimum wage, how will franchisees in those states deal with the increase?

This is an interesting question, and one that I believe politicians fail to understand. Minimum wages relate mostly to less experienced employees. Over time, those dedicated employees, who work hard and build their skills, become more productive and command a higher wage. So, considering that minimum wage laws apply to entry level employees, legislation increasing minimum wages will increase franchisees operating expenses without a corresponding increase in production.

The only natural response that a franchisee can have to an increase in minimum wages is to increase price charges to customers, avoid entry level workers and offer jobs to only those with more experience, or accept less in the franchisee’s net income and the profits taken home to their family.

Most likely, the response by a typical franchisee will be a combination of all three.

What will be the impact of the NLRB ruling on franchising? What are the short and long-term ramifications?

The National Labor Review Board (NLRB) ruling creating "joint employer liability," where both a franchisor and franchisee are liable for a franchisee’s labor violations will impact the franchise industry on many levels. In the short term, there is tremendous uncertainty within the franchise community as to how far the NLRB's McDonalds decision and position will extend.

If the NLRB decision remains intact, the long-term implications for the franchising industry will be groundbreaking in a negative way. The decision will undermine existing franchise agreements and relationships as we know it. It will increase costs among franchisors and franchisees, and in the long term, franchisee owners will lose control to franchisors and be faced with increased labor costs and regulations. Local mom and pop franchisees will be placed at a competitive disadvantage relative to their local non-franchised independent competitors.

The decision itself creates tremendous uncertainty and creates jeopardy for those franchisee owners and franchisors who work hard every day in building their businesses, servicing customers and creating jobs. It is unfortunate.

What legislation does the new Congress need to pass to help the franchise industry?

This is an interesting question. My initial reaction is that less is more and that more faith should be placed in our fellow citizen entrepreneurs, who wake up every day, devote everything they have in their businesses and do the right thing for their customers, their families and their employees.

I trust my fellow citizens much more than I trust politicians, who more often than not, have never started a business or made payroll. But, if I must choose some legislation, it would be to protect the independence of the franchisor and franchisee relationship, whereby: (a) congress passes legislation undoing the NLRB joint employer decision, and b) prohibits states from introducing minimum wage laws and taxes discriminatory toward independent franchisees, i.e., a city or state cannot pass minimum wage laws that apply to a local franchisee, but not a local independent business.