servers . “ I ’ m a big fan of raising the minimum wage — if we avoid tipping ,” he says .
Will NLRB be trumped ? One of last year ’ s hottest topics in franchising was the possible fallout from the NLRB ’ s August 2015 Browning-Ferris decision , which adopted a new — and unsettling — standard for determining whether or not a company is a joint employer , and by extension whether a franchisor can be held liable for the actions of its franchisees . Flying in the face of nearly four decades of practice , the decision generated fear and uncertainty with its potentially devastating effect on the franchise business model , which had been settled since the adoption of the FTC Franchise Rule in 1979 .
While franchisors were concerned they might be sued for a single franchisee ’ s bad behavior , a concern for franchisees was that their franchisor would pull back on the of support it been providing for fear of joint liability lawsuits .
“ We have not yet seen any significant change in our franchisor ’ s behavior . They have not backed off on their training and level of support ,” says Supercuts ’ Robins . However , he adds , “ They have in fact changed the franchise agreement to protect themselves , but I ’ m fine with that . The have not pulled their head into their shell . In fact , they have stepped up to work through these joint employment issues .”
Robins , an active CFA member through the Supercuts Franchisee Association , is among many who agree that franchise agreements have become overbalanced toward franchisors and that it ’ s time for the pendulum to swing back .
“ We ’ ve now added an indemnity clause to our franchise agreement ,” says Metz , wearing his franchisor ’ s hat .“ This means our franchisees indemnify me if I have a loss on account of their practices . We had a blanket indemnity before , just like Denny ’ s does . We made it clearer in the new franchise agreement .”
In fact , some franchisors have been bad actors , exerting too much control over their franchisees , opening all of franchising to increased scrutiny by regulators and elected officials .
“ Industries get defined not by their best operators , but by their worst ,” says
Michael Lotito
Regulatory Unburdening ?
Lotito , who keeps an eagle eye on this issue as it wends it way through the appeals process . He says to watch for how quickly the composition of the NLRB changes under the Trump administration . If the nomination process goes smoothly and nominees are approved in a timely manner , a newly constituted board will issue decisions relatively quickly to walk back the joint employment decision .
“ On the other hand , if the nomination process bogs down , it will let the current board engage in a great deal of mischief ,” he adds , perhaps until spring or summer when a legal decision is expected to come down .
In his view , it ’ s likely that franchising will not have to deal with indirect control issues . If that happens , he says , “ That would be considered a huge victory for franchising .” Until then , it ’ s wise to seek expert counsel on all compliance issues , in-house or from a third party .
If you ’ re considering a third-party PEO to hire that expertise , he adds , be sure to perform deep due diligence on them : who is their counsel , the HR personnel in the field , how many they are responsible for , how responsive they are , their turnover rate , and be sure to speak with those already in the PEO network .
So what ’ s next ? Sixteen months after Browning- Ferris , much of the hysteria seems to have been overblown . While calmer observers suggest it was a one-off decision and that future rulings will be decided on a case-by-case basis , many in the franchising community continue to be concerned and are following the issue intently as it evolves .
Says Metz , “ I think it was a really lousy ruling , but it looks like it will stand , unless someone in the Trump administration wants to strike it down .”
Under the new administration , says the CFA ’ s Miller , “ It ’ s likely that joint employer will go away .”
Stay tuned .
Gary Robins
State and local laws The biggest compliance hurdle for multistate and national franchisees — or even
those with statewide operations — may simply be keeping abreast of changes in the law . Even cities , from Seattle to New York , are writing their own rules .
“ Be very mindful of what ’ s happening not only in your states , but also in your cities ,” cautions Lotito . “ They are going to engage in additional legislative activity that will continue to make compliance more difficult .” This is critical not only in terms of compliance , but also when considering growing your franchise organization .
“ Opening a new location , expansion , or growth is always a measured risk ,” says Robins . “ What ’ s affected our growth expansion strategy is the environment . Where we open is now a factor . Five years ago it wasn ’ t . Is the opportunity here , in this area , worth the headache ? We ’ re bringing in those factors into measuring the risk .” For example , he ’ s become more cautious about expanding in Philadelphia , citing factors such as increased expense , rules , predictive scheduling , and paid time off .
Predictive scheduling
Predictive scheduling is picking up steam nationwide , says Robins . “ What one city does affects others .” Referring to Seattle , San Francisco , and other cities where the type of business or number of employees determines the applicability of a law , he ’ s calling these “ 50 / 500 ” rules ; that is , localities where the law is applied unevenly based on the total number of employees a company has .
“ I don ’ t like when the rules are applied unequally ,” he says . Just ask any franchisee in Seattle , where the City Council has repeatedly burdened franchisees with requirements that don ’ t apply to nonfranchised businesses .
“ I ’ m subject to rules my competitors are not , that the guy across the street I ’ m competing with is not subject to ,” he says . For example , with minimum wage , he says , “ If it goes up for everyone I ’ m good with that .”
“ We ’ re under assault by the government — federal , state , and local ,” says Tankel , noting that the restaurant industry just came off its worst year since the Great Recession . In New York , he says , among half a dozen bills being introduced in the City Council , one would
56 MULTI-UNIT FRANCHISEE ISSUE I , 2017