Multi-Unit Franchisee Magazine Issue II, 2015

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- 84 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 muf2_nlrb(84,86).indd 84 3/16/15 1:06 PM

Multi-Unit Franchisee Magazine Issue II, 2015 | Page 86