Multi-Unit Franchisee Magazine Issue II, 2015 | Page 86
BY KERRY PIPES AND EDDY GOLDBERG
NLRB Overreaches and
Franchising Fights Back
JOINT EMPLOYER SHIFT THREATENS THE FRANCHISE MODEL
A
t the IFA Convention in February,
one of the biggest buzzes was generated by the National Labor Relations Board’s (NLRB) efforts to expand
the definition of “joint employer.” There’s
good reason for concern in the franchise
community: if adopted, the change would
significantly affect franchisees, their employees, and how they operate and sustain
their businesses—for the worse. In the
worst-case scenario, it could put franchisees out of business.
For decades, franchisees and franchisors have been considered separate entities.
Under the NLRB’s proposed expansion
of their definition of joint employer, franchisees would, in essence, cease to exist.
The franchisor and its franchisees would
effectively become one, with franchisees
basically becoming employees. The ramifications are extraordinary.
So far there have been hearings on
Capitol Hill, op-ed pieces in numerous
publications, and a number of groups rallying around the country to create awareness and to combat the proposed change
to the definition of joint employer.
“I operate as an independent standalone business,” John Sims testified before
the Senate Health, Education, Labor, and
Pensions committee in February. “I have
the autonomy to run my business as I see
fit,” said Sims, owner/operator of Rainbow
Station at The Boulders, an early education center in Richmond, Va.
“However, if the Labor Board radically
changes the joint employer standard, I fear
that my days as an autonomous business
owner will be numbered,” the franchisee
told the committee. “The success or failure
of my business is, essentially, all on me—
and that is what I love about it. It would
be a real shame to take these types of opportunities away from people like me.”
Sims employs 40 at his Rainbow Sta-
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tion location. He and his wife were considering opening another location, but
ongoing regulatory uncertainty has put
their plans on hold.
Similarly, Gerald Moore, owner and
operator of five The Little Gym franchises, is also putting his expansion plans
on ice as he awaits the NLRB’s decision.
Moore, an Army veteran, was drawn to
franchising because it gave him the skills
and tools necessary to build a business he
could operate with his family and eventually pass on to his children and grandchildren. But now he wonders if that will
even be possible.
If the NLRB expands its existing joint
employer definition, “Our family business
would no longer be ours,” Moore told the
committee. “Simply put, small-business
owners will be less attractive business
partners for franchisors, and there can be
no doubt that this will drastically reduce
the opportunities for business ownership
all across the country.”
The battle is joined
Franchisees and franchisors alike are
getting organized and speaking out. And
they’re not fighting the battle alone. Allied
organizations have begun to emerge, representing franchise interests and fending
off the NLRB’s broad redefinition of joint
employer. The Coalition to Save Local
Businesses is intent on educating public
officials (especially members of Congress
and the Obama administration) about the
importance of permanently codifying the
decades-old, common-law definition of
joint employer.
There’s also the Job Creators Network
(JCN), part of a coalition of organizations
and associations standing against the
NLRB’s position on joint employer and
educating the business community, legislators, and the media on the issue. The
JCN outlines three significant effects of the
broader interpretation of joint employer:
• Existing franchisees who own their
businesses will lose a great deal of autonomy when it comes to how they hire,
compensate, and deal with employees.
• Franchisors, facing greater liability,
would likely raise franchise licensing costs,
and reduce franchising opportunities for
new or inexperienced entrepreneurs.
• Current franchisees with contracts that
include indemnification clauses may be on
the hook for their franchisor’s legal fees if
both are named in a joint employer case.
The IFA is continuing to do its part
to get the message out. The organization
recently released a survey of its members
that illustrates the broad concern franchisees are experiencing: 97 percent of
respondents said that an expanded joint
employer standard would have a negative
impact on their business; 82 percent said
the impact would be “significant.”
Clearly, the NLRB could wreak havoc
on franchising—and severely diminish the
economic benefit franchising brings to
communities and the national economy.
A study released earlier this year by IHS
Economics and the IFA predicted that in
2015 the number of franchised businesses
will grow to 781,794 (up 1.6 percent over
2014); directly employ 8.8 million (an
increase of 247,000 jobs, up 2.9 percent
from 2014’s total); and account for $889
billion in economic output (up 5.4 percent
from 2014). If this forecast pans out, it will
mark the fifth consecutive year that jobs
and economic growth in the franchise sector outpace the growth of non-franchised
businesses.
“Year after year, franchising makes
significant contributions to local communi ties and provides opportunities for
individuals seeking a path toward business
ownership,” said IFA CEO Steve Caldeira.
MULTI-UNIT FRANCHISEE IS S UE II, 2015
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