5-Member Board Set to Change Fundamental Franchise Law

NLRB McDonalds rulingBecause Congress and the President have had a legislative death grip on one another for as long as most people are able to remember, one might think that little is being done in Washington D.C.

One would be wrong.

Even though the passage of significant legislation seems like a pipe dream to folks on both sides of the aisle, that doesn’t stop regulators and others from enacting rules and making decisions that can impose sweeping changes on the way we do business.

Regulation of the Internet is on deck, but currently at bat is a proposed reinterpreting of the relationship between a franchisor and franchisee.

No happy meal at the NLRB

The general counsel to the five-member National Labor Relations Board (NLRB) has issued an opinion that employees in McDonald’s restaurants across the land are not solely employees of the individual franchise operators, but that the McDonald’s corporation itself is a joint employer. If this opinion is allowed to stand, it would make McDonald’s and other large corporations responsible for labor violations committed by individual franchise holders. The NLRB is a quasi-judicial body that decides cases involving labor law.

This, as many observers have put it, upends decades of legal precedent and has the potential to set off a tidal wave of changes in franchise industry that could lead to a retrenchment within the industry, if not the wholesale closing of some franchise locations across the country.

“I operate as an independent stand-alone business. I have the autonomy to run my business as I see fit, but if the Labor Board radically changes the joint employer standard, I fear that my days as a business owner will be numbered,” says John Sims, owner and operator of Rainbow Station at the Boulders in Richmond, Virginia.

Sims and his wife have 40 employees and were considering opening another location. But with this and other regulatory changes in the offing, they have decided to put their expansion plans on hold for the time being. With all the uncertainty in the air, it’s likely that this picture is being repeated in virtually every state.

The goose that laid the golden egg

This is tragic because the franchise sector has been leading our economy out of its doldrums. A study recently released by IHS Economics predicted that franchise businesses would add 247,000 new jobs in 2015, coming off the heels of 235,000 new jobs in 2014. This 2.9 percent growth rate would mark the fifth consecutive year that job growth in the franchise sector outpaced non-franchise workforce job creation.

However, at this point, the NLRB opinion is not settled law. In fact, a recent decision in federal court seems to up hold the traditional view that individual franchisee owners are the employers of local workers.

According to the International Franchise Association, in a case involving a massage therapist who alleged violations of minimum wage laws, Judge Roger T. Benitez of the U.S. District Court for the Southern District of California ruled on January 6 that Massage Envy, a corporate franchisor, was not the employer of therapists in its franchisees’ California stores.

Further, the Republican-controlled Congress is stirring on the issue. A hearing was held in the Senate and legislation may be introduced to head off the NLRB at the pass. Even if you aren’t a franchisee yourself, the health of your small business community could be adversely affected if this change is allowed.

Let your representatives in Washington, D.C. know how you stand on the issue.

UPDATE: A new coalition has emerged that is lobbying Congress to rein in the NLRB.

Sponsored by AT&T

For an excellent explanation of the NLRB opinion and the case that prompted it, read this article by Cliff Ennico.

Image: Composite from McDonalds, © 2009 juanstermonster, used under a Creative Commons Attribution-ShareAlike license.