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The Daily Signal
How This New
Government Ruling Destroys the Franchise Business Model
James Sherk
August 28, 2015
The National Labor Relations Board (NLRB) just issued a ruling likely
to destroy the franchise business model.
To understand how far-reaching this could be, it should be noted that
almost 9 million Americans work at over 780,000 franchised businesses.
From Jiffy Lube to Terminex to Wendy’s, franchises enable many
Americans to run their own small businesses without having to design
and market everything from scratch. Franchising is a particularly
important opportunity for minority entrepreneurs.
Franchises are almost 50 percent more likely to be minority-owned than
non-franchised businesses. If this ruling stands, minority Americans
won’t get that chance.
The recent ruling will probably force local franchises to give up total
control of day-to-day business decisions to their corporate sponsors,
turning thousands of investor entrepreneurs who currently own and
manage a local business into middle managers in a giant corporate
entity.
Until now, the NLRB has always defined an employer as the firm that
hires, fires, pays wages, disciplines, promotes, and makes work
assignments. That’s just common sense and comports with most Americans’
understanding of whom they work for.
The NRLB is now saying that companies that contract with others firms
for services or set quality standards in exchange for brand licensing
implicitly influence the other firms’ employees and should be required
to bargain collectively with them.
If allowed to stand, this new interpretation will effectively destroy
the franchise model of business.
How Franchises Work
Franchised businesses typically work like this. Corporate brands
develop and market products, like Taco Bell’s Fiery Doritos Locos
Tacos. The corporation licenses the right to sell those products to
franchisees. In fact, 85 percent of Taco Bells are locally owned small
businesses, not corporate-run stores.
In exchange for the benefit from the brand’s marketing and product
development efforts, the franchise agrees to meet price, quality, and
service standards. Anyone going to a Taco Bell franchise across the
country knows what the food will taste like and about how much it
costs. But the local businesses decide how to meet these standards.
They decide whom to hire, what those employees will do, and how much to
pay them.
The corporate brand doesn’t employ the workers or control the job.
Yesterday, the NLRB decided it actually does both.
Overturning decades of precedent, the Board held that anyone who
exercises direct or indirect control over employment conditions, or has
the potential to exercise such control, jointly employs workers along
with his main employer. Because the corporate brand sets price and
quality standards it potentially “indirectly” controls working
conditions. Hence, the corporate brand will, in the future, be required
to bargain with a union representing the franchise’s employees.
The Goal Is to Unionize Franchise Employees
The slim NLRB majority that imposed this decision in a party-line vote
appears to hope that it will aid union organizing efforts.
Unions have largely failed to organize franchise employees. They have
not persuaded the workers that the benefits of union representation
outweigh the cost of union dues. Now they hope to be able to organize
from the top down, pressuring large corporate management through public
relations campaigns to accept unionization without having to go to the
trouble of actually convincing workers that it will be to their benefit.
In fact, such “corporate campaigns” have become a major unionizing
tactic. As United Food and Commercial Workers Secretary/Treasurer Joe
Crump explained:
Who do we really need to convince of the advantages
of being union? Employees or employers? … Organizing without the NLRB
[secret ballot elections] means putting enough pressure on employers,
costing them enough time, energy and money to either eliminate them or
get them to surrender to the union.
Unions have waged a public relations campaign against McDonald’s.
Organizers of the “Fight for $15” have confessed to reporters that the
main goal is to unionize the company.
However, getting a corporate brand “to surrender to the union” is not
enough. Until now, the brand had no role in unionizing elections.
Moreover, franchise contracts typically run for decades. The corporate
brand cannot just insert new requirements. It can at most suggest to
its franchises that they disavow a secret ballot election—a suggestion
they would likely reject.
The Board’s ruling making corporate brands co-employers changes that.
The corporate brand can recognize the union without a secret ballot
election, even if the franchisee does not. The ruling will make
anti-corporate campaigns a lot easier in franchised businesses.
The ruling comes at the cost of blowing up the franchise business
model. If the NLRB holds corporate brands legally responsible for their
franchisees’ employment decisions, they need to control those actions.
They cannot leave themselves liable for unfair labor practice
violations someone else committed. The most likely result is that
corporate brands will simply stop franchising and run all stores
directly themselves.
That would facilitate union organizing, but it would also shut off
access to the American dream.
Read this and other articles at The Daily Signal
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