Business Monday

NLRB wields a sledge hammer against franchising

The National Labor Relations Board is wielding a sledge hammer against franchising in its attempt to designate McDonald’s as a joint employer of its franchisees’ employees. The NLRB’s actions threaten to upend the traditional franchise business model that small business owners in America have counted on for 150 years.

Unions charge that McDonald’s franchisees retaliated against their employees who spoke out about working conditions and took part in demonstrations calling for higher wages. The NLRB’s General Counsel is contending that McDonald’s is a joint employer and therefore responsible for the alleged unfair trade practices of its franchisees. The NLRB’s first round of hearings began earlier this month in New York.

The NLRB’s position strikes at the heart of franchising and significantly diminishes its value as a means of delivering goods and services. The franchise model is fashioned upon a system of independently owned businesses whose local owners make all decisions relating to hiring, firing and wages, while utilizing a proven business format provided by the franchisor.

The franchise model is a means of entrée to individuals looking to start their own businesses and is a powerful economic engine nationally and locally. It has become popular as America’s aging workers look for business opportunities in the start of a second career. The International Franchise Association estimates that nearly 18 million Americans work in the franchise industry, which results in $2.1 trillion of economic output. In Florida, franchising is an important element of the state’s tourist and service-centered economy with every hotel, restaurant and service-based system represented. Some of the nation’s leading franchise concepts are headquartered in Florida, including the Burger King brand based in Miami, and Orlando-based Darden, which owns Olive Garden, Longhorn Steakhouse, The Capital Grille, among others.

The model’s success is in the balance of controls apportioned between franchisor and franchisee. The franchisor necessarily requires adherence to a system of standards and procedures relating to marketing, production and operations as a means of protecting its trademarked brand. The goal for the system is a uniform delivery of goods and services that meets its quality standards.

The level of control, however, stops short of the business’ day to day operations. In particular, employment decisions are left to the franchisee.

The industry has become a target for worker efforts to increase wages. The NLRB’s goal — as well as the unions who support it — is to improve worker benefits by holding the nationally based franchisor responsible as a joint employer, which would make the franchisor accountable for working conditions at individual stores and easier unionization of the work force.

If successful, these efforts will necessarily result in more controls by the franchisor, who will seek to prevent the newly inherited — and unanticipated — risks to employee-related claims. New controls will diminish franchisee independence, and will make franchising less attractive to independent-minded business entrepreneurs hoping to succeed in a business of their own.

Michael Joblove is a founding shareholder of Miami-based Genovese Joblove & Battista, and chairs its franchise and litigation practices. He has served on the Board of the International Franchise Association and the American Bar Association’s Forum on Franchising. He can be contacted at 305-349-2300 or MJoblove@gjb-law.com.

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