NLRB: Hey, Let’s Rewrite the Way Franchises Work!

You would think that in a lousy economy, the National Labor Relations Board (NLRB) would refrain from doing something to upend franchising, which creates enormous wealth and employment opportunities. But you would be wrong.

A decision by the general counsel of the National Labor Relations Board (NRLB) has the potential to overturn the way franchises have always operated in the U.S..

Perhaps not so coincidentally, the NRLB decision will also to make it easier for activists groups on the left to go after large fast food corporations, which they don’t very much like in the first place.

The NRLB decision puts franchisors on the hook for employment policies of its franchisees. In a way, this goes against the whole point of a franchise: an autonomous operation under the umbrella of a larger organization that licenses the sale of certain products.   

Franchisees traditionally were responsible for their own hiring, firing, and workplace conditions. If somebody worked at a Wendy’s, she was an employee of that particular Wendy’s. That arrangement is in many ways a thing of the past under the NRLP decision, which radically alters the meaning of the franchisor-franchisee relationship.

I don’t ordinarily like to just quote statements by organizations, but since the National Restaurant Association’s assessment of the NRLB decision so clearly explains what is at stake, I am going to relent and do just that:

The ruling by the National Labor Relations Board’s (NLRB) Division of Advice asserting that McDonald’s Corporation is a “joint employer” of its franchisees’ employees overturns 30 years of established law regarding the franchise model in the United States, erodes the proven franchisor/franchisee relationship, and jeopardizes the success of ninety percent of America’s restaurants who are independent operators or franchisees.

 The long-established joint-employer standard has helped create millions of restaurant jobs through the franchisor/franchisee model. NLRB’s attempts to overhaul the law will have dire consequences to franchisees, franchise employees, and the economy as a whole.

 By making franchisors liable for their franchisees’ employment practices and redefining individually owned franchises as ‘big business,’ NLRB would disrupt the franchisor/franchisee relationship and impede entrepreneurship and restaurants’ ability to continue to create jobs, particularly in an increasingly challenging economic environment.  The net effect is counterproductive and will indeed create ‘big business.’

 The NLRB’s change to the joint-employer standard is the latest example of a federal agenda aligned against small businesses.   From the recent recess appointments of officials to the NLRB who do not respect the contributions of small business to the economy – struck down by the Supreme Court – to proposing a rule allowing for “ambush” elections, reducing the time to organize a union, the NLRB’s actions are overreaching.

 As the nation’s second largest private sector employer, the restaurant industry relies on the vision, innovation, and risk-taking of our startups and franchisees.   This decision to change the joint-employer standard will only place undue burden on franchisees which are the backbone of the small business community and a key economic engine of this country.

MSNBC rightly hails the NLRB decision as “a major blow to fast food corporations.”

The decision will be appealed but MSNBC explains what happens until then:

In the meantime, the general counsel has directed NLRB regional offices to regard McDonald’s Corporation as one of the employers for workers at its franchised locations. That means that if a regional office finds merit in an Unfair Labor Practice (ULP) charge against one of the franchisees, the corporate headquarters itself will also be on the hook. Barker said that roughly 70 ongoing ULP cases against McDonald’s locations could be affected. Attorney Micah Wissinger, who represents McDonald’s workers in some of the cases against the company, put the number closer to over 100.

“McDonald’s can no longer get away with reaping all the profits and the benefits while saddling their franchises with all the risks and the blame for low wages,” he said.

By putting greater legal pressure on McDonald’s, the general counsel’s decision adds some juice to the fast food workers’ organizing campaign. Kendall Fells, organizing director for the campaign group Fast Food Forward, said the company would no longer be able to “hide behind franchisees for its illegal treatment of workers.”

“At some point, McDonald’s and the industry as a whole will decide that it makes sense to sit down at the table with these workers, because the workers will have changed the power dynamic,” he said.

Of course, that is really the point. Dealing with scattered, independent franchisees was inconvenient for lefty actvists so the NLRB counsel obligingly made it easier to stick it to McDonald’s headquarters.

Never mind that this destroys the meaning of the franchise relationship and may make it more difficult—if not impossible in some cases—for franchises to operate.